Triton's Galapagos Creditors Are Said to Build Debt Adviser Team

(Bloomberg) -- Private-equity firm Triton Partners may be headed for a showdown with Galapagos Holding SA bondholders, who are appointing advisers in case the German industrial equipment maker breaches conditions on its debt.

A group of investors who own secured bonds issued in 2014 by Galapagos, has hired Moelis & Co. as a financial adviser, a possible first step ahead of negotiations to restructure debt, according to people familiar with the appointment. Law firm Akin Gump Strauss Hauer & Feld may also be picked as a legal adviser, said the people, who asked not to be identified because the information isn’t public.

Officials at Moelis, Triton and Galapagos declined to comment on the appointments. A representative for Akin Gump didn’t respond to requests for comment.

Galapagos, one of Triton’s biggest acquisitions, has seen flagging operating performance across its businesses.

The private equity owner is seeking to sell one unprofitable unit, which makes cooling equipment used in power plants and is feeling the impact of a global switch to renewables. Its largest division, which produces heat exchangers for a range of industries, including energy, has proved vulnerable to volatile oil prices, according to Arndt Muthreich, a managing director at Stifel Nicolaus.

The company’s headaches don’t stop there. An operational reorganization of the business, which was carved out of German conglomerate GEA Group AG in 2014, has also proved an expensive distraction for management, according to Felix Fischer, an analyst at Lucror Analytics.

"Galapagos’ junior bondholders are getting nervous as senior bondholders organized hiring Moelis,” said Menelaos Tzagkournis, an analyst at brokerage Imperial Capital International. “An asset sale is in the cards and depending on how that unfolds a full blown restructuring may become necessary."

Galapagos needs annual earnings before interest, tax, depreciation and amortization of at least 80 million euros ($91 million) to comply with conditions governing its loans. Extra cash provided by Triton has headed off any danger of a covenant breach throughout 2018. The investor injected 22 million euros in April in return for a waiver of covenants from lenders and swapped assets with another company in its portfolio to boost the firm’s balance sheet in August.

Whether that support will continue this year remains unclear and Galapagos bond prices suggest investors are worried.

Secured bonds are quoted at 69 cents on the euro, stable since the beginning of the year, according to data compiled by Bloomberg. Its 250 million euros of junior notes, which are first in line for losses if the company runs into trouble, are quoted at about 18 cents, down from about 23 cents on Jan. 1. Triton and Galapagos have held discussions with advisers but haven’t yet appointed anyone, according to the people.

January 23, 2019, 10:31:17.441 GMT

By Luca Casiraghi and Antonio Vanuzzo