Waterford €190m bond issue bid

WATERFORD Wedgwood chairman Tony O'Reilly is driving a re-capitalisation of the company similar to his successful re-capitalisation of IN&M.

However, the initial response of the market to plans to raise up to €190m in a bond issue was negative, with Waterford shares down by as much as 17% in early trade rising to a fall of 13.79% by 10.20pm in Dublin to 25 cent, but the shares rallied to close 10% down on the day.

The stock has slid 49% in 2003 after dropping 44% last year and 30% in 2001. Like IN&M, Waterford has built up a significant debt mountain €398.4m but the fall in the share price appears to be a reaction to the stricture put on the company that it cannot issue dividends without the consent of its bankers.

The company may be slow to issue dividends at a time when it is demanding a wage freeze from employees, despite the fact more that 60% of WW staff hold shares in the company.

The company is cutting jobs and closing plants to save money as demand ebbs for its china dinner services, glassware and crystal because consumers are spending less. Sales dropped 3% in June and July, the company has said, slowing from a decline of 10% in April and May. Fresh financial and other disclosures of WW's affairs emerged in a Form 20-F lodged with the Securities and Exchange Commission in the US.

NCB Stockbrokers analyst John Sheehan who examined the 190 page document made some observations. "Disclosures included the fact that the group's decision to cancel its currency cover during the year to March 31, 2003 added 10.4m to operating income. 67% of dollar/euro exposure is estimated to be covered."

Mr Sheehan said the filings included a waiver letter, dated September 30, 2003, to lenders under the company's revolving credit facility, indicating the company will pursue discussions in relation to a "proposed high yield bond issue and other capital market issues ... in respect of an aggregate amount currently expected to be ... not less than €190m."

Other conditions unearthed by Mr Sheehan included undertakings to implement a stock reduction programme and to defer capital expenditure, other than for maintenance purposes.

"The company must also provide monthly management accounts as well as fortnightly short-term cash flow forecasts to its lenders," he said.

It also emerged that the consent of the "majority banks" will also be required by WW to pay a dividend in respect of the year ended March 31, 2004.

"We believe that successful refinancing at Waterford Wedgwood is essential for the stock price to progress in the near term.

"On the trading front, the group reported improved sales in North America in July and is about to enter its key holiday season," added Mr Sheehan.