Original URL: http://www.theregister.co.uk/2013/01/09/2e2_concerns/
Integrator-reseller 2e2 'broke banking covenant', hits credit buffers
Crushing debt repayments drive firm to its knees
The future of integrator-cum-reseller 2e2 is unclear amid claims from sources close to the firm that it broke a banking covenant in December and is running up to its credit limits in distribution.
The Berkshire-based business has been a cause for concern among many wholesalers and vendors due to its massive debt and has reported significant losses in the last couple of years.
Its liquidity issues came to prominence in 2012 when two County Court Judgments were issued to 2e2 over late payments of debts: one for £14,000 in September and one for nearly £40,000 in June.
According to channel operators, 2e2 remains a late settler of debts and is also struggling to satisfy interest payments. Sources familiar with the matter have also told The Channel that the firm breached its banking covenant last month.
The integrator has asked for a higher lines of credit in distribution, but several contacts told The Channel they are running at tens of millions already and have been put on stop.
Sources said that as a result 2e2 has approached numerous resellers to secure supplies by offering to split some of the margin on deals. There are also claims from some in the channel that 2e2 approached customers last month offering 10 per cent cash back on any orders in December.
2e2 Holdings, the parent firm of 2e2 Group Ltd and 2e2 Investment, is where the debt lies. In the year to December 2011 it paid out £23m in net interest.
The group, which has been highly acquisitive over the years buying NetStore and most recently Morse, has racked up long-term debts of £270m that include £153m in bank loans, £94.2m in interest loan notes, and £21.8m on interest accrued on loan notes and preferential shares.
Sources claim a likely outcome is that a banking syndicate including Barclays, HSBC and HIG Group - owners of the senior debt - and equity houses Duke Street and Hutton Collins, which have a mezzanine debt, will look to swap out the management board.
"They [the investors] can't walk away from that level of debt but they can't trust the [senior] management in place to turn around the business. It will be broken up and sold," claimed one channel source.
Hutton Collins and 2e2 refused to comment when contacted by The Channel today. Duke Street was unavailable to comment at the time of writing. ®