Friday, October 17, 2008

expect some layoffs

Premier Foods shares dive on jitters over loans

Shares in Britain's biggest food manufacturer Premier Foods Plc (PFD.L: Quote, Profile, Research) fell over 50 percent on Friday as traders cited market speculation that the company had, or was about to, breach banking covenants.

Posted by mark @ 12:25 PM (889 views)
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10 thoughts on “expect some layoffs

  • mountain goat says:

    The era of easy credit has weakened the whole economic system. Business’ thought “If I don’t borrow, my competitor (who is borrowing), will beat me, so I better borrow to the max”.

    Now it is credit crunch time and even sound business’ will fall because they got sucked into this mentality, not just slimy banks.

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  • last_days_of_disco says:

    What is happening is these bogus monstrosities created using leveraged debt are now breaking apart. The consequences of cheap credit have a profound impact on the way business is done enabling poor business to crush excellent competitors. Now that era is ending it gives the hard working efficient people a chance to rebuild sensible businesses.

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  • hey LDOD just bought the nicest sausage roll ever from a local shop they make them… no it was not greggs…lol

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  • mark wadsworth says:

    If the underlying business, before interest costs, is profitable, then this is nothing that a debt-for-equity swap wouldn’t fix.

    Further, getting rid of Employer’s National Insurance would be good, as it reduces labour costs by 11.3% at a stroke without a corresponding cut in wages.

    And if it still ain’t profitable, the business is obviously not worth saving.

    Here endeth.

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  • That’s a great summary, LDOD and applicable on a individual level as well – the environment we have suffered for the last few decades has rewarded risk and not creation/innovation/invention, reward being entirely detached from the work involved.

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  • mountain goat says:

    Mark Wadsworth – “nothing that a debt-for-equity swap wouldn’t fix.”

    Debt-for-equity swap in this market!

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  • Mark Wadsworth – and why would the banks want to be equity holders?

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  • mark wadsworth says:

    @ Mountain Goat. If an otherwise viable business owes you, as financier, a shed load of money, what would you rather do, take it over or force it into liquidation? In any event, the lower the share price, the more equity you get for the money!

    It’s analogous to somebody in sever mortgage arrears. Yes, the bank might repossess the house, but do they demolish it?

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  • Err, no it’s not analogous Mark, houses don’t generate money.

    If I’m a lender to a business that has proved itself, by breaching its covenants to be not as viable as I thought, I want to protect my capital first. That’s my duty to my shareholders, depositors and investors.

    If a lender thinks its best shot at getting its capital back quickly is taking the assets and selling them off, that is what they should do. Taking a stake in the business and attempting to get capital back through dividends is very much a ‘sub-optimal’ outcome for the lender, and something you’d only do if the business’ assets were worth less than the loan and still generating cash.

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  • planning4acrash says:

    Why does easy credit weaken business models? It gives off false signals to the market. During high liquidity booms, entrepreneurs start more things than can be completed, so, when the money finally dries up, they start failing, because there simply isn’t enough demand to service the capital.

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