Embattled social housing specialist Connaught received a stay of execution from its bankers last week, just days after revealing it had a funding crisis and was short of cash.
The Exeter-based group has been in turmoil since its warning last month that government spending cuts could blow a £200 million hole in its revenues over this year and next.
It said that a review by consultancy Deloitte had identified an “urgent requirement” for additional funds to meet current and ongoing business needs, in part due to pressure from suppliers and subcontractors.
The company was set to breach banking covenants after warning that net debt will be significantly in excess of the previously advised level of £120m by the end of August.
Its bankers have subsequently agreed an additional short-term overdraft facility of £15m, while also deferring interest and principal repayments on the company’s existing £200.6m overdraft facility until the end of August as negotiations continue.
It has since emerged that Barclays, one of Connaught’s bankers, has sold its £19m loan for just 37 pence in the pound to hedge funds specialising in taking on loans to distressed companies, according to the Financial Times.
While Barclays has sold its exposure to Connaught at a knock-down price, Allied Irish Bank, another member of the banking syndicate, is said to have sold its loans to another member of the group.
The bankers could be selling their exposure to avoid taking an equity stake, should the group need a refinancing of its debt, leading to a debt for equity swap.
There are a number of alternative routes the company could take to get itself back on an even keel, including asset sales, a rights issue or a debt for equity swap with its bankers.
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