FRANKFURT Private equity group KKR (KKR.N) is in talks with credit investment firm Centerbridge to restructure car repair chain Auto-Teile Unger (ATU) ATUHDN.UL, a household name in Germany, two people familiar with the deliberations said.
Centerbridge, which has bought a substantial portion of ATU's bonds, and ATU-owner KKR are trying to agree a plan that is likely to include swapping part of the company's debt of around 600 million euros ($799 million) for equity, the people, who spoke on condition of anonymity, said on Wednesday.
"After all that has happened, KKR just wants to get rid of the topic ATU," one of the people said.
He added that to avoid having to inject high amounts of cash KKR is willing to surrender a large part of the equity - but not a majority stake - to creditors.
ATU is suffering from weak customer demand as European car markets are hitting 20-year lows. Separately, online shops for car parts - like Delticom (DEXGn.DE) - are eating into its business.
KKR bought ATU from private equity peer Doughty Hanson for 1.45 billion euros in 2004. It injected roughly 140 million euros of equity into it in 2008 to save its investment.
A large part of the purchase price was financed through debt, which was loaded onto ATU's books. In 2010, 450 million euros in senior debt were refinanced with secured notes maturing next year. Separately, mezzanine and second lien loans were refinanced with 143 million in floating rate notes (FRN).
Rating agency Moody's in March 2013 downgraded ATU to Caa2 from Caa1 citing an increased refinancing risk for the outstanding bonds, which are due between May and October 2014.
ATU's sales and earnings have dropped over recent quarters and results for the full fiscal year ending in June - due on Thursday - are likely to show that no turnaround has been achieved, a person familiar with the company said.
According to a person familiar with the debt restructuring talks, KKR and Centerbridge may opt for a plan which would see all of the FRN and some of the secured notes swapped for equity.
Separately, the issue of a high-yield bond is seen as an option to repay some of the remaining debt as well as provide liquidity for needed investments.
KKR has is working with restructuring experts from Houlihan Lokey and Goldman Sachs (GS.N), while retaining JP Morgan to look for a possible buyer.
The creditors are being advised by Moelis.
"Restructuring talks are ongoing, we are considering all our options," said a spokesman for ATU, which employs about 12,000 people.
KKR and the advisors declined to comment, while Centerbridge was not available for comment.
($1 = 0.7513 euros)
(Reporting by Arno Schuetze and Alexander Hübner; Editing by David Cowell)