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Tuesday, 21 September 2010

Administration close for Cattles

Cattles, the subprime lender, is in talks with its lenders to try and avoid insolvency. We understand from the Sunday Times and other sources that a administrators from, Zolfo Cooper, have been lined up if the talks fail. The firm lent money through a variety of brands like Welcome Finance to people with a poor credit history during the credit boom and at one point was valued at £1bn. Its divisions Cattles Invoice Finance was sold off some time ago and is now owned by Aldermore.

Now that the company is fighting to survive, some of the bondholders, mostly hedge funds and investment banks, could call in their debt and force the company into insolvency. These bond holders have walked away from negotiations saying they do not get enough out of the planned restructure. The exit of the bondholders comes after the Court of Appeal in May upheld a decision by the High Court to give RBS precedence over bondholders in the ranking of creditors.

Under the plan, major creditors such as the Royal Bank of Scotland would be paid with funds from Cattles' Welcome Finance subsidiary, leaving little for bondholders, whose debt is tied to the parent company. The proposed deal aims to take the company private after paying 1p per share.

We would expect that this could result in serious impairment charges for the banks and a serious headache for the bond holders. With a total outstanding loan book some £200m less than senior debt and bonds, there is surely a major deficiency ahead.

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