Baxi, the boiler manufacturers owned by a private equity fund has come under severe pressure recently as the credit crunch started to impact highly leveraged buy out investments. BC Partners, the owners of Baxi, has seen first quarter profits plunge, while debts pile up.
Rating agency Standard & Poor’s has downgraded the company’s credit rating based on the latest financial results that showed the extent of the problem. The credit rating for Baxi was downgraded from B to B-. The rating agency cites “weak credit protection measures and further weakening business conditions”. The B- rating means that Baxi is now six notches below investment grade and well into junk bonds territory.
Baxi, based in Derby and known for its Potterton, Valor and Homeflame brands, employs 5,400 staff around Europe and more that 2,000 staff in the UK. In 2007, BC Partners had to inject £40 million into the company to avoid breaching banking covenants on its debt of Â£587 million.
The downgrade to Baxi’s credit rating is a blow to BC Partners, as they evaluate their acquisition of Baxi in 2004 for Â£662.5 million.
Most recent financial accounts for Baxi show that the company has plunged to an operating loss of Â£8.3 million for the first quarter this year and a total loss of £27.5 million. This is compared to an operating profit of £19 million for 2007, which in itself dropped from an operating profit of £59 million in 2006.
The boiler manufacturer has explained that the reason for this financial situation is due to an increase in rolled-up interest and higher costs associated with loans denominated in Euros, which increased as the pound sterling weakened in value against the Euro.