C &W in bank talks after credit blow

Cable & Wireless is in talks with banks over a £1.5bn (€2.34bn) loan guarantee, after suffering a credit ratings blow.

It was announced late on Friday that the group's debts had been downgraded by credit rating agency Moody's to junk status.

The downgrade triggered a clause in a complex agreement dating back three years, when the group sold its 50% stake in One2One to Deutsche Telekom for £3.45bn (€5.4bn).

Under the deal C&W agreed with the German group that, should its credit rating fall below investment grade, it would set aside £1.5bn (€2.34bn) to cover potential tax liabilities arising in future years.

C&W now has to either procure a bank guarantee for the amount or place the sum into escrow - meaning it would lodge the sum in cash in a special bank account.

A report in The Sunday Telegraph said the group was locked in talks with bankers this weekend over the guarantee.

A spokesman for C&W says the group had been in talks with banks before releasing the statement on Friday but says there is "no update" today.

He added: "If we can obtain a guarantee without putting out 100% cash collateral it may be more beneficial than going by the escrow route."

The £1.5bn (€2.34bn) amounts to a large chunk of the group's £2.2bn (€3.4bn) cash holdings, left over from a string of sales between 1999 and 2000.

C&W however stressed that it had "sufficient financial flexibility" to restructure its Global international telecoms arm and meet its debt obligations.