Now raising intellectual capital

If you need to Yell, get on with it


It’s hard enough to persuade your bank manager to agree new terms for your overdraft, but when there are 300 lenders who are owed nearly 4 billion pounds between them, it’s perhaps no wonder that Yell’s refinancing seems to be taking forever. 

In June the Yellow Pages publisher signalled that the process was underway. On Wednesday it revealed agreement with its lead banks and a headline figure of 500 million pounds for its rights issue, roughly its market capitalisation after the recent run-up in the shares. The issue itself is unlikely before November, as Yell still needs time to corral its myriad lenders to agree to restructure its debt.

Now it has struck a deal with 40 per cent of the lenders, Yell can at least confirm the size of the bill for shareholders, while also warning that they will need to find a further 300 million pounds if no alternative can be invented. At least, before the rights issue door finally slams shut, the company has got its foot in it.

There are no nasty surprises on trading for this year, but things remain grim and Citigroup and Cazenove were quick to cut their forecasts for next year.  The migration from yellow paper to the web is slow and uncertain, but a successful refinancing would prevent a fire sale of the Spanish and US businesses, keep the well-regarded John Condron in charge and prevent the banks from grabbing the company.

RBS issue must be on commercial terms


Britain’s state-controlled banks appear to be playing a game of tit-for-tat. Lloyds Banking Group last week admitted it was looking for ways to reduce its exposure to the government’s insurance scheme for toxic assets. Now it turns out that Royal Bank of Scotland is also sounding out investors about tweaking its own involvement in the scheme.

That is where the similarities end, however. RBS is being much less ambitious than Lloyds. It still wants the government to insure all of the assets it agreed to put into the scheme in the winter. It just wants to pay some of the premium in cash rather than its own equity. This may look a superficially attractive way to de-risk the tax-payer’s huge exposure to bank equity, but the government should think hard before accepting.

Now’s the moment to Yell for a rights issue


Bob Scott was the senior independent director at the Royal Bank of Scotland when the board approved the 700,000 pound pension for disgraced former chief executive Fred Goodwin. As the storm broke, it quickly became clear that his position as chairman of Yell, the heavily-indebted Yellow Pages group, was untenable.

Into the breach stepped Bob Wigley, former hotshot dealmaker at Merrill Lynch, demonstrating that it’s an ill wind that blows nobody any good. For Yell appeared to be teetering on the edge of the financial precipice. The shares had collapsed to penny-stock levels. At the end of June the market value of 150 million pounds was supporting 3.8 billion pounds of debt.

The rights escape for Lloyds


Margaret DoylePeter Thal LarsenTalk about hitting the ground running. Even though he doesn’t formally take charge until next month Win Bischoff, chairman-designate of Lloyds, is reported to be pressing for the bank to raise up to 15 billion pounds through a rights issue and to scale back its participation in the government’s Asset Protection Scheme (APS).

His intentions are to be applauded. But regaining some independence will not come cheap for Lloyds shareholders, and substantial government support will still be needed.

Debt leaves Reed a lot of digging to do


CHINA-COAL/    Crispin Davis wanted to bolster Reed Elsevier’s risk management business when as chief executive he spent $4.1 billion on ChoicePoint.
    Last year’s acquisition was not a bad one — it’s a ray of light in Thursday’s otherwise largely depressing results for his successor Ian Smith — but the debt taken on to fund the deal is looming over him after the failure to sell the RBI magazines business.
    Instead, he has been forced to raise around $1.65 billion in a large, unpopular share placing to keep on top of the $8.4 billion debt pile. A failure of risk management, then. It suddenly seems a long time since Reed handed some $4 billion from the sale of its education business back to shareholders at the beginning of 2008.
    Reed is not alone in having to take such drastic action — drinks can maker Rexam needed a rights issue to keep the credit markets onside — but the 15 percent fall in Reed’s shares reflects the nasty surprise.
    Reed and its advisers can expect some flak from the Association of British Insurers (ABI) which hates these big share placings because they threaten the first-refusal rights of existing shareholders.
    Reed has stretched the 10 percent new share concession to the limit, adding 9.9 percent to its existing issued capital.
    It protests that debt repayments are comfortably far into the future, but the move still smacks of “needs must” and Reed admits that its credit metrics are “too stretched” given the economy and its business cycle.
    Add that to a retreat from its profit guidance for the year, and it’s no wonder shareholders are spooked.

OI! Rexam’s balance sheet is wrecked


Like the contents of a supermarket bargain bin, the dent in the world’s biggest can-maker Rexam is much deeper than it looked at first sight. What had seemed like a clever way to avoid losing investment-grade status for its debt has turned into something much worse, and Wednesday’s rights issue is only a step away from a rescue by shareholders.

The  4-for-11 at 150p is miles from last week’s price of 321p, a shocking fall for a business which was supposed to be recession-resistant, at least. In hindsight, it’s odd that we ever thought it was, since cans of Red Bull and Pepsi are hardly essentials to consumers in a squeeze.

from Neil Collins:

Giles Thorley’s sucker Punch

Here is Giles Thorley's record of maximising long-term value for his shareholders, the aspiration when he floated Punch Taverns in 2002. As you can see, it hasn't quite worked out, and in order to have any long term at all, the shareholders are being asked to put up roughly last Friday's entire market capitalisation in new capital.

 Punch is in a hole of its own making, with 4.2 billion pounds of notes secured on 7,900 pubs, and another 275 million of convertible bonds not secured on anything. When these bonds were issued, the expectation was that the soaraway Punch price, then 8.60 pounds, would rise enough to make it worth converting at 11.72 pounds a share.

from Neil Collins:

Rio: We rejoice at a sinner that repenteth

(Refiles on October 19, 2010 to add disclaimer for author's personal investment. Neil Collins is a Rio Tinto shareholder.)

“The directors of Rio Tinto believe that attracting, developing and retaining a skilled and engaged workforce is critical to business performance”. Thus Jan du Plessis in his long, rambling chairman’s statement to Rio shareholders today asking them for a spare $15 billion to dig them out of the hole their directors have dug for them.