Carillion’s carcass

17 November 2017 By Neil Unmack Follow @unmack1

Creditors of the UK construction group face losses in a looming restructuring. The company expanded too fast and took on risky contracts. Meanwhile, BBB-rated Veolia is borrowing at sub-zero yields. Investors should remember that even central banks can’t make default impossible.

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UK construction firm Carillion’s shares fell over 30 percent on Nov. 17 after the group issued its third profit warning of the year and said it may need to restructure its debt.

Carillion said profit for the year would be “materially lower” than current market expectation after delays in selling assets and in starting some contracts, as well as smaller-than-expected costs savings. The group said it had the “support” of principal lenders to delay testing its debt covenant in December until a recapitalisation plan can be implemented next year. That could involve a restructuring, the company said.

Carillion will have net debt between 875 million pounds and 925 million pounds at the end of the year, it said. Analysts expect it to generate EBITDA next year of 209 million pounds, according to Eikon. Its debt covenant limits financial borrowing to 3.5 times EBITDA.

Separately, French water and wastewater group Veolia said on Nov. 16 it had issued a 500 million euro three-year bond with a yield of minus 0.026 percent, which it said was a first for a BBB-rated issuer.

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Carillion’s carcass

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