The next few weeks will determine whether USIT, the 44-year-old student travel company, can be saved. USIT World, the parent company, and its various subsidiaries will now be protected from their creditors while Mr David Hughes of Ernst & Young tries to put together a rescue package.
Any solution will involve pain on all sides. The major creditors, which appear to be the airlines and other travel companies, will be asked to write off some of their debt, while the new owner - STA Travel - will have to stump up fresh equity. An initial figure of €600,000 (£472,440) has been mentioned in court but the final figure could be much higher. It will reflect the real cost to STA of acquiring control of its largest rival which it bought for a nominal €1 on January 23rd.
The sale to STA - which is owned by Swiss-based Diethelm Keller Holdings - was forced on USIT's owners by a combination of circumstances. The company had been turning over almost €700 million before the crisis and had expanded rapidly, taking stakes in similar student travel companies around the world.
The decision to take full control of Counsel Travel, its US associate, in September coincided with the meltdown in the travel business that followed the terrorist attacks on Washington and New York. The complex financing of the deal quickly unravelled and the drain on the group's cash reserves became unsustainable.
The problem first came to light in early January when one of the group's banks, National Irish Bank, became concerned at the size of the overdraft that was building up at USIT Ltd, the group treasury company. It was particularly concerned that some of the company's officers were continuing to write cheques on the USIT Ltd account when they knew there were no funds to meet them. The Office of the Director of Corporate enforcement is understood to be examining this allegation to see if any breaches of company law occurred.
By the time NIB moved to protect its position by the appointment of a liquidator to USIT Ltd on January 30th, the group had already been sold to STA which was attempting to effect a restructuring. At one stage, the cost of saving the group was put at €80 million, but the exact position was complicated by huge inter-company debts within the group which topped €120 million. It has clearly proved impossible for STA to reorganise the group without seeking temporary protection from its creditors. Mr Hughes, who was appointed examiner on February 5th, was confirmed yesterday.
The decision of the main known creditors to support, or at least not oppose, the examinerhsip is an encouraging sign. The creditors are no doubt taking cognisance of two facts, the first being that a travel business such as USIT has relatively few assets and a winding-up would produce little.
Their best chance of getting paid is if the company can trade out of its difficulties. The creditors will also take comfort from STA's offer to support the company and inject fresh cash.
