Skimmed milk

15 July 2004

Banks owed money by some Parmalat operating companies will swap their loans for equity of the same value. That leaves less for bondholders. But there s little danger of the plan getting blocked. The voting procedure makes that difficult.

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Parmalat said that it would swap the loans of 16 of its companies into equity. The companies have E12bn of debt, and the equity will have a nominal value of E1.9bn. Lenders – mostly banks to some operating companies including Eurolat and Lactis, will convert 100% of the value of their credits into equity. Many of Parmalat's bondholders are entitled to 12% of the face value of their loans.

Creditors are also entitled to a free warrant for every share they get, up to a maximum of 500. This entitles them to buy a share at the nominal value from 2005 to 2015.

Parmalat currently has E14bn of net debt. After the debt to equity swap and some asset disposals, the company is expected to carry E1.2bn of net debt.

Previously, Parmalat said that in 2006 it expects to make E3.9bn of sales and E434m of ebitda. By 2007 it expects to make E4bn of sales and E490m of ebitda.

The dairy group may embark on legal action to try to claw back some money from institutions that it dealt with before it descended into bankruptcy.

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