Welcome to The Brink. I'm Libby Cherry, reporting from Frankfurt, where I looked into the woes of an insolvent tech firm relied on by millions of music enthusiasts. We also have news on Barclays, Braskem and Dolce & Gabbana.
When Native Instruments filed for insolvency earlier this year, the reaction on Reddit was one of distraught and disbelief.
"Musical nuclear bomb. This is gonna cause havoc," one user said. It's a "behemoth," another declared. "I can't see it disappearing."
The company's portfolio of tools -- such as Traktor, Kontakt, Maschine and Ozone -- have long been a staple for music producers and DJs since its founding in Berlin in the 1990s. But now, its 25 million users are waiting to see who might buy it out of insolvency proceedings and what form the company would take afterward.
It could have gone another way. Direct lenders in Europe have become increasingly accustomed to quietly collecting the keys from their borrowers, betting that they can turn a business around themselves after shedding its debt load. However, talks for Native Instruments' private credit lenders Bain Capital Credit and Bridgepoint to buy the company fell through. Potential owners have now been selected and are doing their homework on the company.
Businesses like Native Instruments require large amounts of investment and a careful awareness of musicians' needs to remain on the cutting edge in a highly competitive market. Growth rates were juicy in 2021 when US private equity firm Francisco Partners snapped up the company, as hobbyists and professionals alike splashed out on new equipment while confined to their homes.
However, as many pandemic-era bets show -- take BlackRock and Apollo Global Management's bet on so-called Amazon aggregators or KKR's acquisition of bikemaker Accell -- such heady growth was difficult to sustain once lockdowns lifted.
Francisco Partners' strategy seemed like a classic private equity play: buy up companies in a broad sector, merge them and boost profits by cutting costs as you combine business functions. Soon after buying Native Instruments, the PE firm merged it with iZotope and, later that year, Plugin Alliance, which produce tools to smooth, tweak and clean up audio tracks.
But the integration didn't go as planned. Leverage piled up, as did strategic blunders. A decision in 2022 to bring all the brands under one umbrella called Soundwide was reversed just a year later. Eventually, managers just decided to call the overall group Native Instruments.
The future of the company -- and how much creditors will ultimately recoup of the approximate €250 million in debt -- is still in the balance. Selected bidders come both from the financial sector and those in the music industry, according to the insolvency administrator. CEO Nick Williams pointed to "strong interest from multiple parties with deep roots in audio and technology."
For the Redditors, one thing is clear: "Private equity killed the radio star."
High Alert
- Distressed developer China Vanke has begun reaching out to bondholders about delaying payment on a note due next month, while telling them that it is also weighing a broader restructuring.
- A defaulted bond issued by an old Venezuelan power company and long regarded as a lost-cause by investors has almost doubled in value this year as investors look for ways to profit from Venezuela's new-found rapport with the US.
- Jefferies posted results that missed Wall Street estimates, dragged down by losses on wayward credit bets. It notched a $17 million loss related to the bank's involvement with two recent credit blowups: Market Financial Solutions and First Brands Group.
- A federal judge said he would let label-maker Multi-Color draw the rest of its $250 million Chapter 11 loan, but stopped short of approving a contested feature of the financing that would push some existing debt to the top of the repayment line.
Notes From The Brink
Barclays is scaling back its asset-based lending to smaller borrowers after the collapses of Market Financial Solutions and Tricolor Holdings left the firm facing losses, William Shaw, Laura Noonan and Abhinav Ramnarayan report.
The British bank is shifting its focus to loans and securitizations for larger corporates, according to people with knowledge of the matter who asked not to be identified discussing private information. The bank has already pulled back from a number of deals and increased pricing to reflect higher perceived risks, one of the people said.
The downfall of UK property lender MFS and US subprime auto company Tricolor have put a spotlight on lending to non-bank entities that fall outside of regulatory purview. Much of this lending is private, without input from ratings firms, and can be backed by various income-generating assets, such as credit cards, auto loans or mortgages.
Banks often provide credit lines known as warehouse facilities to these nonbanks to fund their lending products, which are then packaged into asset-backed securities and sold to bond investors.
Emerging Troubles
Braskem reported another lackluster quarter and warned it faces "material uncertainty" if its shareholders don't complete a planned debt transaction, Mariana Durao reports.
Recent events "indicate the existence of a material uncertainty that may cast significant doubt on the company's ability to continue as a going concern," for Brazil's leading petrochemicals company and its Mexican unit, Braskem Idesa, the company said Friday after the release of its fourth-quarter results.
Quarterly losses almost doubled from a year ago to 10.3 billion reais ($2 billion), primarily due to a tax writedown, Braskem said in its earnings statement. Its EBITDA also fell short of analysts' expectations due to weaker international spreads and sales.
The petrochemical producer has endured several challenging years, marked by repeated failed attempts by its controlling shareholder Novonor to divest following its involvement in Brazil's Carwash corruption scandal about a decade ago.
The Latest on... Dolce & Gabbana
Dolce & Gabbana is embarking on fresh talks with lenders after weak global demand for luxury goods put pressure on earnings and the terms governing its debt, Antonio Vanuzzo and Giulia Morpurgo report.
The Italian fashion house is working with Rothschild & Co. as a financial adviser, according to people familiar with the matter.
The company, known for its Mediterranean-inspired designs, has been squeezed by an ongoing slowdown in the luxury goods sector, compounded recently by uncertainties from the war in Iran.
D&G has about €450 million of bank debt, after a refinancing last year that included new borrowing of €150 million to help fund an expansion plan aimed at keeping it independent. At the time, the company obtained a waiver on debt requirements, according to its latest available annual report.
Lenders have started assessing options to give the company some breathing room on its debt covenants, the people said.