Inside the world of business
Some Superquinn suppliers still at risk
SUPERQUINN SUPPLIERS will be happy to hear credit insurer Atradius intends to pay out to clients who lost out when the banks placed the chain in receivership almost three weeks ago.
Not all of them have such insurance. It is mainly, but not exclusively, bigger operators, many of which were facing six-figure losses as a result of the receivership.
Atradius is not yet in a position to say how many suppliers will be paid, or what the final liability will be. It says it insures large companies but also provides cover for small and medium-sized businesses. Nevertheless, it is still likely a lot of smaller suppliers do not have cover. Some say they simply cannot afford it.
The flip side of that coin is that they cannot afford not to be paid by their customers either.
In the immediate aftermath of the banks moving in last month, there were rumours insurers would not pay out. Fortunately, it turned out to be just a rumour, sparked by the fact that credit cover only kicks in after a certain period of time has elapsed.
The total shortfall in the amount due to Superquinn suppliers is estimated at about €25 million. It is not known how much of this is insured, just that the figure is “several million”. Added to this is the €10 million compensation fund for suppliers that Superquinn’s intended suitor, Musgrave, says it will provide if the Competition Authority approves its purchase of the company.
We can’t say for sure, but it does not seem likely the compensation fund and insurance will cover all the losses.
The risk that a customer will go under, and take a series of unpaid debts with it, is something with which businesses have to live.
But in this case, it’s worth pointing out that the shortfall will really represent yet more valuable resources being soaked up by the seemingly infinite – and infinitely wasteful – sponge the Irish banks have become.
Eircom situation? It's complicated
EIRCOM HAS declined to comment on a report from financial wire service Capital Markets that it is considering an examinership.
The wire service reported that Eircom was assessing the pros and cons of an examinership in the event that a consensual deal could not be agreed with lenders.
Most in the market believe the highly complex nature of Eircom’s financial and debt structure means examinership is unlikely, even as a last resort.
And while examinership is an emotive term, any suggestion that Eircom might enter some sort of insolvency structure is likely to be off the mark. Despite its difficulties, ie its €3.7 billion debt burden, Eircom is still very much a trading company, as indicated by its €100 million-plus investment in a fibre-based network announced last week.
The company is undoubtedly experiencing trading difficulties – according to a business plan presented by management to lenders last week, its earnings could fall by up to 20 per cent over the next two years. However, it still had earnings before interest, taxes, depreciation and amortisation of €669 million in the year to the end of June 2010. This is expected to decline to about €640 million when 2011 results are released at the end of the month.
What is inevitable is that some sort of debt restructuring will take place as the talks between lenders and shareholders get under way. The next significant milestone is discussions on a waiver for the company as it approaches a possible breach of its covenant tests later this month.
Some kind of debt-for-equity swap could form part of the negotiations, but there are still many moving parts and a resolution is unlikely before the autumn.
Eircom’s precarious debt situation may mean that the resulting restructuring is likely to be something much more complex than what can be encapsulated in an established form such as examinership.
Bad news on bad loans for Lloyds and RBS
UK banks Royal Bank of Scotland and Lloyds must regard their Irish banking operations – Ulster Bank and the lender formerly known as Bank of Scotland (Ireland) respectively – with a degree of embarrassment.
Ireland plays a disproportionately and uncomfortably large role in the poor performance of their operations.
Take Ulster Bank. In the half-year results figures released by RBS yesterday, the UK banking group has total assets of almost £1.5 trillion (€1.7 trillion), including almost half a trillion in loans.
Ulster Bank accounts for just 10 per cent of customer loans at RBS, but bad loans at both parts of the Irish bank – the part RBS wants to keep and the part it wants to shed – amount to 62 per cent of the overall bad-loan charge at the UK group.
It was a similar story at Lloyds when it reported figures the previous day.
Bank of Scotland (Ireland) accounts for about 4 per cent of loans at Lloyds but a third of the bad-debt charge.
The figures show how two foreign-owned banks rushed to join the property party and pushed their Irish loan books to close to €100 billion, about half of which they are now trying to unwind. The big difference between the two is that RBS is staying while Lloyds is pulling out.
RBS gave further details on the make-up of the Ulster Bank book.
The bank has land and development loans of almost £10 billion, most of which are in the non-core division to be run down over time.
This puts the bank third behind Anglo and AIB in terms of the volume of lending to developers.
Ulster Bank and Lloyds, which are not in the National Asset Management Agency, are suffering from the stresses of the Irish property market.
More than half the £2.5 billion impairment charge at Ulster Bank related to property development. This reflected further falls in land values, RBS said, “particularly those projects which have very low expectation of being completed in the medium term”.
RBS, like others, seems to be haunted by Irish ghost estates.
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