WATERFORD WEDGWOOD faces mounting pressure to recruit new investors after the firm's lenders suspended until Friday a test of its banking covenants arising from its failure to make a €8.2 million debt payment while talks with potential investors continue.
Battling against the clock to secure more than €74 million from new investors and lender agreement on a financial restructuring, the firm cited "extraordinary market conditions" when warning yesterday that there was "no certainty" that agreement could be reached on either front.
Any deal with new investors - in talks which follow Waterford's failure to complete a €153.7 million fundraising process in train since August - is likely to result in a significant dilution of the controlling interest in the firm shared by Sir Anthony O'Reilly and his brother-in-law Peter Goulandris.
The company said it was still in discussions with "a number of interested institutional investments". However, Goodbody stockbrokers pointed out in a note that "it would appear increasingly difficult for Waterford Wedgwood to refinance its operations" in the current financial climate.
Although Waterford has a 30-day grace period to make its twice-yearly payment on the 9 7/8 per cent €166 million mezzanine notes which fell due yesterday, failure to make the payment triggered a "cross-default" under its borrowing agreements.
The firm's lenders agreed to exercise forbearance until Friday in respect of the cross-default. This arose from the firm's failure to complete the equity-raising process by the end of November and its failure to maintain €15 million of available but undrawn credit. "The majority" of such funding will be used to support company operations, it said.
"While this forbearance is for the period to December 5th, 2008, the company is continuing its discussions with its senior lenders in parallel with ongoing discussions with the interested institutional investors."
The developments led credit rating agency Moody's to downgrade the company's corporate family rating to Caa3 from Caa1, a ratings category in which debt obligations are judged to be of poor standing and subject to very high credit risk. Placing its ratings under review for further possible downgrade, Moody's said current market conditions might challenge the company to pay the coupon within the grace period.
"In addition, the rating reflects the fact that the company continues to need bank support for its day to day activity, although Moody's acknowledges that banks have remained supportive so far".
