EET Euro Equity

    RNS Number : 0956K
  European Equity Tranche Income Ltd.
  12 December 2008
   



    European Equity Tranche Income Limited ("EETI" or the "Company")

    Proposed capital restructuring

    Introduction

    Following the Company's announcement on 12 November 2008 confirming that it remained in discussions with a number of potential investors
with a view to reducing its level of debt, the Board of EETI announces that the Company has today entered into agreements in relation to a
proposed capital restructuring intended to reduce substantially its level of debt whilst retaining potential value for existing shareholders
of the Company. The capital restructuring includes:

    *     the purchase by Scribona Nordic AB ("Scribona") from Citibank of all outstanding commitments, rights and obligations in relation
to the Eur 30 million of debt owed by the Company to Citibank under its existing facility agreement (the "Facility Agreement");
    *     the conversion by Scribona of Eur 5.6 million of debt to equity at Eur 0.0111 per share;
    *     a non pre-emptive placing of new ordinary shares ("Shares") with certain existing shareholders at a price of Eur 0.0111 per Share
to raise up to Eur 4.4 million, underwritten by Scribona, where the relevant subscription monies will be applied by the Company in
prepayment of debt owed to Scribona; and
    *     the release by Scribona of the Company from its obligations under the Facility Agreement to repay approximately Eur 14.3 million
of debt.

    It will be necessary to obtain a number of shareholder approvals to implement the proposed capital restructuring including:
    *     to approve the issue of Shares at a discount to the prevailing net asset value per share;
    *     to de-list from the Channel Islands Stock Exchange ("CISX") to save the costs and expenses in relation to such a listing; and
    *     to approve a waiver of Rule 9 of The City Code on Takeovers and Mergers ("City Code") (in order to avoid Scribona and any parties
deemed by the Takeover Panel to be acting in concert with Scribona being obliged to make a mandatory offer for all of the Company's Shares,
which they would otherwise be obliged to do as Scribona will acquire over 30 per cent. of the voting rights of the Company by way of the
implementation of the proposed capital restructuring). 
    While the purchase of the Citibank debt by Scribona described above has already become effective, the other elements of the proposals
are conditional, inter alia, upon the passing of all relevant shareholder resolutions.
    As part of the arrangements, the Company will also seek approval for a consolidation of Shares to enable the Company's Shares to trade
at a price which the Directors believe is more likely to lead to a reduction in the bid offer spread and an improvement in liquidity.
    Background

    During the course of 2008 there has been a general deterioration in market conditions affecting the Company's investments. As a result,
EETI has felt it necessary to record significant downward fair value adjustments against certain of the assets within its portfolio such as
Sestante loans and Ludgate residual note. As a result of these fair value adjustments, the Company's net asset value has reduced
significantly during 2008 and amounted to Eur 30.4 million as at 30 June 2008. 
    In relation to the Company's debt financing, the Company has referred on a number of occasions to its objective of securing stable, long
term financing to replace its Eur 70 million facility taken out with Citibank in 2006, of which approximately Eur 30 million is currently
drawn, and which was due for repayment at the end of 2008 with a "term out option" to extend until December 2009. However, this has not
proved possible in light of the conditions in the debt markets. Furthermore, as market conditions deteriorated in 2008, the Company actively
explored options with potential investors regarding a reduction in the Company's level of debt in order to create a more appropriate capital
structure. 
    Importance of the proposed capital restructuring

    The Company announced on 12 November 2008 that if it could not develop firm debt reduction proposals within the following weeks it was
unlikely to be able to continue as a going concern.  In particular, the Company was unable to satisfy the conditions necessary to enable it
to make use of the term out option under the Facility Agreement. This resulted in the debt becoming repayable on 15 December 2008 and the
Board did not see any prospect of being able to refinance this debt by this date. The only firm proposals that the Company received were
those from Scribona described in this announcement and these were acceptable to Citibank.  
    As a result, the Board's view was that if it did not enter into the agreements with Scribona described in this announcement the Company
would be unable to meet its debts as they fall due, leading to the likelihood of immediate and enforced realisation of assets at a heavily
discounted price by the secured lender and/or the Company entering into a formal insolvency process. Furthermore, if shareholders do not
vote in favour of the resolutions to approve the proposed capital restructuring, the proposed release of debt, conversion of debt to equity
and issue of Shares will not take place and the Company will continue to owe approximately Eur 30 million under the new facility entered
into with Scribona. Accordingly, the Company will be unable to meet its obligations as they fall due, again leading to a likely immediate
secured lender enforcement and/or insolvency proceedings. In such event, shareholders would be unlikely to receive any return of capital
they have previously invested.
    Information on Scribona
    Scribona AB, the parent company of Scribona, was formed in 1992 and is based in Solna, Sweden. Prior to the recent sale of all of its
operating activities to Tech Data in May of this year, Scribona AB was the leading distributor of IT products in the Nordic region.
    As at 30 September 2008, Scribona AB had net financial assets amounting to SEK 555 million and cash equivalents of SEK 548 million.
Scribona AB is currently listed on the Swedish OMX market. 

    Proposed debt facility

    The Company has today entered into a debt purchase agreement with Scribona and Citibank, pursuant to which Scribona has agreed to
acquire the outstanding commitments, rights and obligations in relation to the debt owed by the Company to Citibank under the existing
Facility Agreement.

    As a condition to the transfer of the existing debt from Citibank to Scribona, Scribona has today agreed to the repayment date under the
Facility Agreement being 15 December 2009. The interest payable under the terms of the Facility Agreement is EURIBOR + 5% per annum.

    As part of the placing and subscription arrangements described below, Scribona has agreed to waive such amount of the facility provided
under the Facility Agreement as has the result that, as at completion of the proposed capital restructuring, the sum outstanding under the
Facility Agreement will amount to approximately Eur 5.7 million.

    Furthermore, until such waiver of debt and subscription for Shares by Scribona and other shareholders, Scribona has agreed that the
financial covenants in the Facility Agreement will be calculated as if such waiver and subscription of Shares had occurred.

    Proposed issue of Shares

    The Company has also today entered into a placing and subscription agreement (the "Placing and Subscription Agreement") with Scribona
and Arbuthnot Securities Limited ("Arbuthnot") pursuant to which:

(i)                  Scribona and other investors may subscribe for Shares as follows:
 
(a)    Scribona has agreed to subscribe for 500 million Shares at a price of Eur 0.0111 per Share with Scribona*s obligation to subscribe
for such Shares being satisfied by the Company setting off the subscription price against Eur 5.6 million of debt owed by the Company to
Scribona; and
 
(b)   Arbuthnot has agreed, as agent for the Company, to use its reasonable endeavours to procure certain existing shareholders in the
Company to subscribe on a non pre-emptive basis for 400 million Shares at a price of Eur 0.0111 per Share, the placing proceeds to be used
to pay off debt owed by the Company to Scribona. Such placing has been underwritten by Scribona. To the extent that Scribona is required to
subscribe as principal for these Shares, its obligation will be satisfied by the Company setting off the subscription price against the
equivalent amount of debt owed by the Company to Scribona.
 
(ii)                Scribona has agreed to write off so much of the remainder of its debt as will leave the sum outstanding under the
Facility Agreement at approximately Eur 5.7 million; and
 
    (iii)               Scribona will be paid a commission of Eur 299,700 in relation to its underwriting, to be satisfied by the issue to
it of 27 million Shares at Eur 0.0111 each.


    Following the proposed capital restructuring, EETI will have 1,025 million Shares in issue. Scribona will be interested in (i) 527
million Shares (representing 51.4 per cent. of the enlarged issued share capital) in the event that it is not required to subscribe for any
of the Shares made available under the non pre-emptive placing; or (ii) 927 million Shares (representing 90.4 per cent. of the enlarged
issued share capital) in the event that it is required to subscribe as principal in full for all of the Shares made available under the non
pre-emptive placing. 

    Each of Scribona's and Arbuthnot's obligations under the Placing and Subscription Agreement are conditional on, inter alia:

    *     formal approval of the Takeover Panel of a circular to be dispatched to shareholders setting out details of the proposed capital
restructuring;
    *     passing of all relevant shareholder resolutions; 
    *     the Placing and Subscription Agreement not having been terminated; 
    *     admission of the Shares occurring by 16 February 2009; and
    *     delisting of the Company's Shares from the CISX.

    Scribona will be entitled to terminate the Placing and Subscription Agreement if there is a material breach by the Company of that
agreement and/or of any of the warranties given by the Company in that agreement.

    All the figures set out in this announcement relating to the number of Shares which may be subscribed for or issued by the Company will
be adjusted to such lower number as results from the implementation of the proposed share capital consolidation.


    Extraordinary general meeting
    The Company intends to convene an extraordinary general meeting ("EGM") as soon as practicable (which is expected to be in January 2009)
to propose all relevant resolutions.  A circular setting out the full details of the proposed capital restructuring together with a notice
of EGM will be sent to shareholders in due course.

    Enquiries:

    European Equity Tranche Income Limited
    Robin Monro Davies                                         020 7907 2973

    Arbuthnot Securities Limited
    Alastair Moreton                                               020 7012 2000

    Anson Fund Managers Limited
    Secretary                                                           01481 722260

    12 December 2008

    E&OE - in transmission

    END OF ANNOUNCEMENT


This information is provided by RNS
The company news service from the London Stock Exchange
 
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