LONDON (Reuters) - The threat of big losses for Royal Bank of Scotland (RBS.L) and other banks may help subprime lender Cattles CTT.L steer clear of administration as restructuring talks drag on, people close to the discussions said.
Restructuring negotiations at the Hull-based firm, crippled by bad loans and accountancy problems, were derailed last week when a group of bondholders walked away, raising doubts over the chances of reaching a deal on its 2.7 billion pound debt pile.
A bitter creditor dispute between bank lenders and bond investors would likely escalate in an insolvency, endangering banks’ chances of recovering as much of their investment in Cattles as possible, the sources said.
“The banks are in the driving seat, even though bondholders are trying to pile on the pressure,” said one source familiar with the situation. “You could put a company like this into administration without damaging the value of the assets you are trying to recover, but it would be hugely complex to sort out.”
Unlike with Connaught CNT.L, a property maintenance firm that collapsed two weeks ago after lenders refused a fresh loan, banks may decide it is better to keep Cattles afloat.
Its ability to collect debts from clients, and thus repay more to creditors, could be damaged by insolvency, as it could make borrowers less inclined to pay back their loans, the first source said.
The firm, whose shares were frozen in April 2009 after an 850 million pound black hole was uncovered in its accounts, is focussing on running off its loan book, including for its Welcome Finance division.
An administration would put just under 3,000 jobs at risk, after 2,000 redundancies since the start of 2009.
It could potentially benefit bondholders, however, who are owed about 1 billion pounds and have the least to lose after their claims were deemed to be subordinate to banks’ loans.
Although an insolvency could damage bondholders’ debt claims even further, they could be given a chance to argue their case in front of an administrator, a second source said.
“That administrator could view the bondholders’ claims slightly more favourably, which is clearly not something the banks would want,” the source said.
Any restructuring plan would need approval from 75 percent of creditors to go ahead, while an administration would need 75 percent approval from shareholders.
Zolfo Cooper, a restructuring specialist, was lined up to prepare the way for an administration, The Sunday Times said. A source said no appointment was imminent, however.
Cattles and Zolfo Cooper declined to comment.
(Editing by Michael Shields)