Administration threat as Invensys is hit for £700m
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Your support makes all the difference.Invensys is set to reveal a pension shortfall of more than £700m next month as sources close to the group warn that it could be forced into a financial restructuring or even administration.
Rick Haythornthwaite, the chief executive, last week put two thirds of the engineer's businesses up for sale in an attempt to save the company.
A well-placed source told The Independent on Sunday that the fear among those close to the company is that the disposals, allied to pension fund problems, could be the trigger for Invensys' banks to act. This would lead either to a restructuring or administration.
Invensys' disposals so far have brought its debts down to £1.6bn. Most of this is on fixed interest rates with an average cost of more than 5 per cent, adding up to an annual interest bill of £85m.
Its banking covenants require earnings before interest, tax and depreciation (ebitda) to be 3.5 times this, or £300m. Last week Invensys said its operating profits would be £250m for the year that ended last month, implying an ebitda of about £350m.
"There is very little headroom in the banking arrangements," said the source.
Two immediate problems could force the banks to act.
The group started revaluing its £4.6bn pension fund three weeks ago. The results, to be revealed next month, are expected to show a £700m def- icit, more than Invensys' cur- rent market value. Analysts at HSBC recently estimated the deficit could be as high as £1bn, but actuarial experts doubt if Invensys will use the same conservative assumptions.
The other problem is the disposal programme, which is likely to involve staggered payments to Invensys and warranties about future earnings for the businesses sold off. "Timing is essential," said the source. "If Rick sells too much earnings for too little money early on, that might force the banks' hand."
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