DTZ almost ran out of cash

A new report on DTZ has laid bare the state of the company in the months leading up to its pre-agreed sale in administration to UGL in December.   The report, prepared by administrators at Ernst & Young and filed at Companies House, shows that the termination of takeover talks with majority shareholder SGP, backed by BNP Paribas co-incided with a liquidity crisis in October.   This meant DTZ had to obtain emergency funding after SGP refused to let the agent draw down funds under an existing mezzanine lending facility.   The emergency funding was secured through a £10m super senior facility funded equally by SGP and the firm’s major lender, Royal Bank of Scotland which in total had lent the company £109m.   The report says: “Without the emergency financing the company would not have been able to meet its liabilities as and when they fell due” and show that even with it the company would have “run out of cash in January 2012”.   Looming half-year results due on 14 December which could not have been prepared on a going-concern basis added to the pressure, and DTZ’s directors and RBS “decided it was necessary to run an accelerated sales process”.   The process generated interest from 37 parties of which 13 signed non-disclosure agreements and were granted access to DTZ’s data room.   Two non-binding bids were received by 4 November both of which indicated a value for the company significantly below that of its debt, stripping shareholders of their investment and leading to DTZ’s public announcement to this effect on 7 November.   Alongside UGL’s offer, another bid proposed a £30m cash injection in return for subordinate loan notes with a face value of £26m, and a 70% equity holding in the company.   The mezzanine lender would be required to convert its loan into equity and the senior lender to write down its debt by £23m.   On 2 December, two days before the prepack sale, a further non-binding and unfunded offer was received from a confidential bidder. This proposed a £48.8m equity injection to the company in exchange for a 50.1% shareholding and a subsequent refinancing of the existing debt.   The report said these two alternative proposals were not fully funded when they were made, and not supported by RBS.   A pre-agreed sale of the business in administration to UGL was agreed with the final offer representing a combined enterprise value for DTZ’s subsidiary companies of £77.5m, plus £19m for the cash holding of the company.   Read the full report here.   bridget.oconnell@estatesgazette.com