S&P Downgrades Cammell Laird

Friday, March 16, 2001
Standard & Poor's downgraded British shipbuilder and repairer Cammell Laird, stoking fears it will miss the first coupon payment next month on a 125 million euro high-yield bond. S&P cut the company's long-term credit rating to CC from CCC and its senior unsecured debt to "C" from CCC-minus. It said in a statement that the company's ratings would stay on review for a further downgrade. Cammell Laird hit stormy waters in January when Italian customer Costa Crociere cancelled a 51 million pound contract to refit a liner. Explaining the ratings cut, S&P also cited Cammell Laird's failure to secure aid from the UK government to clinch a $500 million contract with U.S. start-up cruise liner company Luxus.

The first coupon on Cammell Laird's high-yield bond, which matures in October 2010, is due to be paid on April 15. But dealers said concerns were growing the company would be unable to meet its obligations. Cammell Laird officials were not available for comment. The bond was quoted at around 10 percent of face value on Friday, although dealers said no trading was taking place.

"I think we've hit close to rock bottom here, unless you realize you're just going to get nothing in return for the paper," said a high-yield trader at a U.S. bank in London. Cammell Laird has been seeking an improved offer from the government to secure the Luxus contract, but the UK Department of Trade and Industry (DTI) said it had not revised the size or terms of its aid package. S&P said large contracts such as Costa and Luxus were extremely important in terms of the company's income and ongoing viability. It said the continued financial health of the business was a major concern unless income can be found to replace the Costa contract. Dealers said Cammell Laird's bond was being sold on a "flat" rather than "accrued" basis, which suggested investors were skeptical of the company's ability to service its debt.

Bonds traded flat are sold without any of the interest accrued on the bond through to the trade date, which implies anticipation of default. The buyer does not expect the coupon to be paid, so will not pay the seller this additional sum. Bankers said they were concerned Cammell Laird's banks would not allow it to make the first coupon payment on its bond, preferring to preserve funds to service senior loan facilities rather than decreasing the pool of capital available in the event the firm goes bankrupt. - (Reuters)

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