Cammell Laird $500M Contract In Jeopardy

Wednesday, February 07, 2001
Cammell Laird's $500 million contract with U.S. firm Luxus could fail unless loan guarantees are received from the British government by the end of February. "It's urgent. I'd like to think it (loan guarantee approval) was certainly this month," Juan Kelly said. "Otherwise we are going to run into trouble with the operating aid deadline."

Kelly said he had written to British Trade and Industry Secretary Stephen Byers to urge the speedy approval of loan guarantees for Luxus, which has ordered two luxury liners from Cammell Laird. Without the guarantees, Luxus, which is a start-up company, may not get bank loans to fund the orders, sources at Cammell Laird said recently. The guarantees could cover some 60 percent of the value of the contract.

"We've got to the point where we would have difficulty in doing the technical work and completing the ship inside the deadline for the operating aid, which is at the end of December 2003," said Kelly. "So I simply wrote to him (Byers) and urged him respectfully to an urgent and positive conclusion." The operating aid comprises a separate $46.7 million package received by Cammell Laird from the Department of Trade and Industry (DTI) in December from a government shipbuilding intervention fund. The DTI said when the aid package was granted in December a decision on the loan guarantees would be made later in the same week. The subsequent delay has made qualifying for the operating aid almost unachievable if the ships cannot be finished by December 2003, Kelly said. The DTI was unavailable for comment.

Kelly also denied reports in Lloyd's List on Wednesday that the company was proposing to close facilities on the Mersey, Weir and Tees at a board meeting on Friday, with the loss of 1,500 jobs, unless the Luxus deal was concluded. "We want to keep and have as many jobs as possible, but clearly it's a business where you can't afford to keep a surplus of people if you don't have the business," he said. The loss of the Luxus contract would be the second major blow in as many months for Cammell Laird, after Italian customer Costa Crociere cancelled a 51 million sterling contract to convert a cruise ship in January with the loss of 450 jobs. Cammell Laird is currenty working on five or six other ships, Kelly said. "I'm confident we will be viable even without Luxus," he said. "The repair and conversion work we do is a major part of our strategy."

Ratings agency Standard & Poor's cut Cammell Laird's credit ratings to triple-C from single-B plus on January 25, a day after it lost the Italian contract, and kept the company on CreditWatch with negative implications, citing the need to renegotiate bank facilities. The company is currently renegotiating bank covenants with Royal Bank of Scotland to avoid default on arrangements which specify the full income from the Costa Crociere contract should be received by April 30, 2001. "We do not think that RBS will pull the plug on Cammell Laird yet ... if the company wins the Luxus contract, great. If not the company risks getting the cash flow plug pulled by the banks," said Dresdner Kleinwort Wasserstein in a research note last Friday.

Cammell Laird posted a first-half pre-tax loss of $5.11 million on turnover of 52.7 million on January 29. It said it faced a difficult time because of the Costa Crociere contract loss and Chief Executive John Stafford resigned, to be replaced in the short-term by Finance Director Jon Schofield. The company's share price stood at 14p on Wednesday, having fallen from a year high of 147p since the Costa Classica dispute began in November. Cammell Laird's 125 million euro 12 percent bonds due October 2010 were bid at around 35 percent of face value, off lows of 15 percent after news of the Costa contract loss. - (Reuters)

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