Troubled subprime lender £2.8bn in debt prepares restructuring deal

29 October 2010

In an Interim Management Statement released on Friday, the troubled subprime lender Cattles announced that it is getting ready to cut its losses in relation to its Welcome Financial Services division.

As part of a restructuring deal, Cattles has confirmed that it would compromise its subordinated inter company claims against Welcome Financial Services Limited, and other subsidiaries in the Group, for no less than £39 million in the event of a sale to a new company.

Cattles has said it would use the £39 million payment to meet its own costs and to compromise amounts it owes to its creditors - which is expected to be around £2.8 billion, according to the last audited balance sheet date of 31 December 2008.

However, the troubled lender admitted that a number of commercial, legal and regulatory issues still need to be resolved before any restructuring can be finalised.     

The group warned shareholders that it would be reporting a ‘significant loss' for the year ended 31 December 2009, and a negative value for shareholders' funds.

The statement said: "Cattles continues to believe that its financial creditors are likely to suffer an aggregate loss of around £1 billion. Consequently, as previously stated on a number of occasions, Cattles continues to believe that the shares have little or no value."

Last year, shares in the lender were suspended after an accounting error revealed an £850 million black hole in the company's finances.

When the accounting error came to light, seven former executives were dismissed, whilst nearly 600 members of staff have been made redundant.

Cattles has stopped any further lending by Welcome Finance, and is using The Lewis Group to collect out the loan book, which is predicted to take at least two or three years. So far, in the first nine months of 2010, £396.6 million has been collected.