Private equity firm Apax is preparing a possible sale of its troubled British medical courier Marken as talks with lenders over a fix of a loan covenant breach stall, banking sources said on Wednesday.

Apax, which bought the business only two and a half years ago, started discussions with Marken's lenders in January as the company breached its December loan covenants due to a deterioration in performance.

Lenders, which include Lloyds Banking Group, were willing to reset the covenants in exchange for around 100 million pounds ($157.16 million) of new equity from Apax. However, Apax - which is currently raising a new private equity fund - is only willing to put around 50 million pounds on the table.

No agreement has been reached yet on the equity injection and hence Apax is exploring alternative options for the business, including a potential sale.

Apax is unlikely to recoup all of its roughly 600 million pound equity investment in Marken if it sells the business, banking sources said. Marken is performing to plan, one of the sources emphasised, but its value has dropped since Apax bought it for 975 million pounds in December 2009, others said.

Marken and Apax declined to comment.

HEDGE FUNDS

Lloyds underwrote 365 million pounds of debt in January 2010 to back Apax's buyout of Marken and the loans were syndicated to institutional loan investors.

A number of lenders have sold their position in Marken debt at a discount to hedge funds specialising in distressed debt situations, although only a small percentage of the overall debt has traded, the sources said.

Bids in Marken loans have dropped to 65.8 percent of face value this week in secondary market trading from 85 percent in January, according to Thomson Reuters LPC data.

Marken's creditors are being advised by restructuring specialist Rothschild, while Houlihan Lokey is advising Apax.

The buyout of Marken reopened the LBO market in December 2009 after deal-making collapsed following the bankruptcy of Lehman Brothers in 2008. Apax is viewed as having overpaid for the business after trumping a bid by rival buyouts firm Hellman & Friedman, banking sources said.

Marken ships vaccines and blood for clinical trials around the world. Since its buyout, it has seen its performance deteriorate due to competition from other logistics groups and lower levels of research and development from large pharma groups.

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