Reaching a consensus to restructure Desmet Ballestra's debt
Kartesia led the debt restructuring process for Desmet Ballestra, a leader in plant engineering and supply.
Desmet Ballestra, a world leader in plant engineering and supply
Desmet Ballestra ranks among the world’s leaders in plant engineering and supply for the food, chemical and energy industries. The group operates in five business segments – oils & fats, biodiesel, oleochemicals, detergents-surfactants and chemicals – and boasts clients on every continent. To serve these clients worldwide, Desmet Ballestra has implemented integrated business units in the USA, Mexico, Argentina, Brazil, Colombia, China, Singapore, Malaysia, Belgium, Turkey, Russia and Spain, and set up a tight-knit network of local agents and commercial partners.
Acquired by Barclays PE through a 2007 LBO, Desmet Ballestra suffered when the biodiesel bubble burst a few years later. Its debt underwent initial restructuring in 2012, when new money was injected by the sponsor and several lenders. Desmet Ballestra’s business relies on massive client investment programmes to build additional capacity. The reluctance of clients to engage in new projects until they had identified underserved demand, coupled with challenges in securing bank financing for meaningful investments, made for a volatile end-market. After record order intake in 2011, a downward cycle driven by political and economic instability in key regions put Desmet Ballestra’s ability to achieve its business plan and meet covenants at risk. The subsequent breach of financial covenants and a tired historical lender base pushed the company into a distressed sale, at which point new lenders with a fresh outlook were ideally positioned to take over.
Kartesia and Bayside became the main lenders to the group and therefore led the restructuring negotiations. “Desmet Ballestra’s activity is cyclical by nature, but it operates in an ever-growing market, insomuch as demand follows population growth and protein consumption per capita”, Kartesia Investment Manager Tomas Neuhaus explains, adding that Desmet Ballestra’s current management is implementing a number of actions to minimise profitability swings. “2015 was the low point of the cycle, and while key regions for the group such as Ukraine, Russia and Argentina have not recovered their pre-crisis volumes, Africa and Middle-East have expanded significantly, taking the lead in new capacity”, says Tomas.
Reaching a consensus with 15 parties
As the group’s biggest lender, Kartesia had a key role in the successful restructuring of Desmet Ballestra’s balance sheet. “The original lender pool was extensive, with some lenders exiting the deal in the secondary market, so there was a lingering misalignment of interest, original equity and mezzanine contributors were out of the money, and last but not least, management was not incentivised”, Tomas recalls. “Something had to be done.” Kartesia and co-lender Bayside reduced the number of parties around the table from twenty-five to ten through the discount-acquisition of debt. “After a comprehensive due diligence process, we proposed to the rest of the lenders a complex reorganisation of debt tranches to realign the interests of senior lenders, bonding line lenders, new money providers, equity holders and management.” The negotiation also included a substantial reduction of non-elevated senior debt, an overall covenant-light structure and an acquisition line for future growth.
From the start, Kartesia wanted to reach an agreement. Tomas describes Kartesia’s approach during the negotiation as “supremely consensual”, adding: “We structured the deal in such a way that each of the stakeholders got part of the upside”. It proved successful: 100% of the lenders and management backed Kartesia’s proposal.
Kartesia angle’s: dedication, dedication, dedication
To decide whether to support Desmet Ballestra, Kartesia conducted a comprehensive assessment of the group. “It was an extensive job”, Tomas comments. “We interviewed teams in Milan and Brussels, and met with all the regional managers; we wanted to know more about the business, about how it creates value.” This thorough due diligence enabled Kartesia to properly understand Desmet Ballestra’s strengths but also challenges. “We were in continuous contact with top management, who made themselves very available and showed great transparency and a total commitment”, Tomas mentions. Kartesia’s dedication to get to know Desmet Ballestra inside-out paid off, making a big contribution to the positive outcome of the debt restructuring.
Desmet Ballestra’s new horizons
Backed by Kartesia & Bayside, Desmet Ballestra intends to keep consolidating its industry. Speaking about the new shareholders, Philippe Bayet, Group CEO, said: “Their decision to invest in our company is a vivid testimony to our successful transformation”.
Desmet Ballestra is reinforcing its positions worldwide through its service reputation, know-how and marketing, as evidenced by the number of large contracts gained since the beginning of the year. At the same time, Desmet Ballestra is working on improving its operational performance, with the deployment of a new information management system to align its day-to-day processes (project management, resources management, product data management, timesheets, reporting) and thus increase its efficiency in the long run.
These are some of the many reasons to believe that Desmet Ballestra is, as Philippe Bayet says, “now, more than ever, ready to grow its technological and market leadership”.