First to raise money through rights issue??

[whole diary]

[grahame]

http://uk.news.yahoo.com/firstgroup-plots-route-500m-rights-issue-203138369.html#9JqF2zU

The company behind Greyhound buses and the First Capital Connect rail franchise is poised to tap shareholders for ^500m in new funds months after it lost out in the fiasco over the West Coast mainline.

I have learnt that FirstGroup is poised to announce as early as next week that it is planning to raise fresh capital through a rights issue to cut its roughly ^2bn of debts. ...

[ChrisB]

Big pension pot problem too.....

[Chris from Nailsea]

Further details on this story -

From The Telegraph:

FirstGroup chairman Martin Gilbert set to resign amid ^600m rights issue

The long-serving chairman of the FirstGroup transport business, Martin Gilbert, is set to resign next week and the company launch a ^600m rights issue.

FirstGroup, which operates the First Great Western rail franchise, will raise the money to pay down its ^2bn debt pile, mainly incurred when it bought the US school bus operator Laidlaw.

FirstGroup^s revenues have also been affected by the Government^s decision to abandon the rail franchising process following the West Coast rail bidding fiasco.

FirstGroup is also expected to slash its dividend in half at its results next week to ease concerns over its balance sheet.

Mr Gilbert will step down from his post, which he has held since 1995. He is also a director of BSkyB and chief executive of Aberdeen Asset Management.

Analysts have long questioned whether FirstGroup would need a rights issue amid fears of a cut in its credit rating by Standard & Poor^s.

Concerns have been growing over the business since the autumn, when it was denied a major new source of income after the Government scrapped a lucrative 13-year contract to run West Coast rail services from December.

The company also issued a profit warning last year amid problems at its UK^▸ (United Kingdom) bus operations, which have been affected by a cut in Government subsidies and were heavily reliant on areas in the north of England and Scotland, which were hit harder by the recession.

FirstGroup^s chief executive, Tim O^Toole, and new group finance director, Chris Surch, have been forced to reassure the City that the company is not about to breach its banking covenants.

Analysts at Liberum Capital are forecasting a 50pc cut in the final dividend.

At the company^s pre-close trading update last month, Mr Surch sought to alleviate fears, telling analysts that the company had more than ^1bn of liquidity and ^plenty of headroom on our covenants^.

However, the company, which held its interim dividend in the wake of the West Coast rail debacle, fuelled speculation that it would take an axe to the full-year pay-out by stating that it would ^consider the full-year dividend^ this month.

The company has raised ^100m through the disposal of bus assets - including almost all of its operations in London - but analysts warn it will be hit in its next year financial year by the adoption of the latest IAS 19 accounting standard, which will force it provide detailed guidance on employee benefits such as pensions.

From The Scotsman:

Gilbert to step down at FirstGroup

Martin Gilbert is expected to announce his retirement as chairman of transport operator FirstGroup this week when the company might also unveil plans to raise up to ^600 million and a sharp cut in its dividend.

John Lawson, an analyst at Investec Securities, said: ^This could be quite a crucial day for shareholders.^

Goldman Sachs and JP Morgan are believed to be working on a big fund raising to help pay down a ^2 billion debt pile.

The company held its interim dividend and there is talk of the final payout being similarly held or even halved.

Lawson added that the bus and train company was a ^difficult stock to call at present^.

FirstGroup is Britain^s biggest bus operator with around 8,000 vehicles in 40 locations across the UK, carrying 2.5 million passengers a day.

The economic downturn has weighed heavily on its fortunes, particularly in the north of England and Scotland, while higher fuel costs and lower UK government subsidies have had an impact.

The company also operates around a quarter of Britain^s rail lines through franchises such as First Great Western and First ScotRail, while it operates 70,000 school and transit buses in North America.

Its rail future was plunged into uncertainty after its appointment to take over the west coast franchise was cancelled due to a flawed bidding process.

Pre-tax profits at FirstGroup, which last year announced a ^160 million investment in buying buses, are expected to be well down on last year^s ^271.4m, with Investec forecasting ^170m, despite a predicted rise in revenues. Revenues on its buses rose by 2.4 per cent in its final quarter to 31 March, up from third quarter growth of 2.1 per cent.

It also revealed the sale of eight bus depots in London for ^80m, part of plans to offset tough conditions and build ^sustainable^ passenger and revenue growth. However, the company said fourth quarter UK rail revenues were up only 5.9 per cent, a slowdown on the 8.1 per cent underlying growth in its third quarter.

[JayMac]

No surprise then that we've had no announcement on the Greater Western management contract from October 2013.

First Group after as big a return as possible, and the DfT^» (Department for Transport - about) wondering whether First Group are solvent enough?

[John R]

Could explain why DaFT^» (Department for Transport - critical sounding abbreviation I discourage - about) are keen to put EC back in the private sector before the next election. Wouldn't do to have two of the biggest InterCity franchises in the public sector come the election now would it?

For a govt desperate to avoid any more cock-ups in the rail franchising arena, I would imagine they would be anxious to be certain about the financial stability of First Group before giving them the management contract. After all, the EC franchise problems started when GNER^▸ (Great North Eastern Railways)'s parent, Sea Containers found itself in a little financial difficulty. 

[TonyK]

Hmm. Market value quoted in the article is ^1 billion. They now want a rights issue to raise ^500 million (^600m accordng to the Telegraph), or half the current book value of the company, to help reduce debts of ^2 billion, or double the book value of the company. The UK^▸ (United Kingdom) bus profit margin has fallen to "only" 8%, a figure the big supermarket chains can only dream of. The Chairman is about to stand aside, as soon as a new figurehead can be appointed. Now, when it comes to commercial finance, I admit that I am no Robert Maxwell. But the picture painted is not a rosy one, and I shall not be dipping my hand to my pocket to invest just now. It will be interesting to see what the Sporting Pink has to say about all this come results day. It all sounds a bit like "Give me a tenner, and I'll pay you part of the fifty quid I owe you". The Telegraph reports that the rights issue comes amid fears of a cut in First's credit rating by Standard and Poor's, presumably to sub-standard and p*ss-Poor. If that isn't just a bit of journalistic speculation, it could have an effect on interest rates charged on that debt.

With all due respect to Martin Gilbert and Tim O'Toole, First doesn't have any one person with such a high profile as to be a household name on a par with Richard Branson, Stelios Haji-Ioanou, or the Suter-Gloag siblings. Whether that is a good thing or a bad thing, I don't know. First have suffered in the UK because of the WCML^▸ (West Coast Main Line) debacle, as well as the recession hitting their core bus areas, just as government subsidies have been cut. In their favour is that bus and rail routes cannot be provided by Amazon, but that shouldn't lead to complacency.

I'm beginning to think that we may just be all in this together. Us, the bankers, and the millionaires in the Cabinet.

[Super Guard]

Shares currently down 48.8p to 175.00p... ouch!

[John R]

Ended the day at 155p, a cool 30% down on the day, with no final dividend or interim dividend next year. That's certainly not a good place to be in. Will be interesting to see how the market responds to the rights issue. Throwing good money after bad is a phrase that comes to mind.

[Milky Bar Kid]

All areas of the business are profit making albeit small at the moment, anyone suggesting insolvency or dft waiting etc is nuts, the company can service its debt and intends to spend ^1.5 billion across all areas of the business over the next four years, i some how think the First group haters are hoping their demise is near but i think not.

[TonyK]

Ended the day at 155p, a cool 30% down on the day, with no final dividend or interim dividend next year. That's certainly not a good place to be in. Will be interesting to see how the market responds to the rights issue. Throwing good money after bad is a phrase that comes to mind.

If they drop much further, I may phone a stockbroker. Or Ladbrokes. Either way, it may be worth a punt.

[John R]

Pre tax profit down by 87%. Debt increased to ^2Bn, which in the words of First Group themselves is at a level that puts their investment grade credit rating in jeopardy.  ^80m of bus disposals last month.  Profits of under ^40m, but intend to invest ^1.6Bn in the next five years, yet only raising ^600m which is to reduce their debt to more manageable levels. So where does the ^1.6Bn come from? I also wonder how much of their investment is actually replacement of assets (typically buses).

I'm not suggesting they are about to go bust, but I could understand if DaFT^» (Department for Transport - critical sounding abbreviation I discourage - about) would be just a little cautious at the moment. Though I'll probably be proved wrong any day now with the announcement of a management contract.

[JayMac]

All areas of the business are profit making albeit small at the moment, anyone suggesting insolvency or dft waiting etc is nuts, the company can service its debt and intends to spend ^1.5 billion across all areas of the business over the next four years, i some how think the First group haters are hoping their demise is near but i think not.

I don't think it's a case of 'First Group haters'. At least not in this thread. I was very careful to make the second part of my earlier post a question rather than a statement.

Just some serious questioning of the financial position the company finds themselves in. The award of the management contract for the Greater Western franchise would certainly go some way to steadying the ship.

[ChrisB]

I certainly think that DfT^» (Department for Transport - about) now holds the upper hand in negotiations - FirstGroup can't afford NOT to win both the management contract or the refranchise contract - so the DfT can ask for more....

If the market reacts like that to the rights issue, can you imagine the reaction to losing the refranchise?....

[TonyK]

I certainly think that DfT^» (Department for Transport - about) now holds the upper hand in negotiations - FirstGroup can't afford NOT to win both the management contract or the refranchise contract - so the DfT can ask for more....

If the market reacts like that to the rights issue, can you imagine the reaction to losing the refranchise?....

That last thought would send shivers down many spines, and not just in the boardroom at FGW^▸ (First Great Western). I'm not as sure about the first bit, though. Losing the Great Western franchise would be a huge blow to both finance and prestige. Not winning the WCML^▸ (West Coast Main Line) gig would probably not be disastrous, as the actual loss is "only" the cost of the franchise tender.

All is not well on another level. On a great many of the services to and from London, you would need a crowbar to get more passengers on. The railway has never been so busy, and fare levels are a constant source of disgruntlement amongst passengers. So if costs are fixed, and revenue is as high as it can be with the available kit, are we to believe that weather problems have taken such a huge toll on FGW? If so, all the other TOCs^▸ (Train Operating Company) will be in the same boat. I don't think they are, though.

[Super Guard]

I certainly think that DfT^» (Department for Transport - about) now holds the upper hand in negotiations - FirstGroup can't afford NOT to win both the management contract or the refranchise contract - so the DfT can ask for more....

If the market reacts like that to the rights issue, can you imagine the reaction to losing the refranchise?....

That last though would send shivers down many spines, and not just in the boardroom at FGW^▸ (First Great Western). I'm not as sure about the first bit, though. Losing the Great Western franchise would be a huge blow to both finance and prestige. Not winning the WCML^▸ (West Coast Main Line) gig would probably not be disastrous, as the actual loss is "only" the cost of the franchise tender.

All is not well on another level. On a great many of the services to and from London, you would need a crowbar to get more passengers on. The railway has never been so busy, and fare levels are a constant source of disgruntlement amongst passengers. So if costs are fixed, and revenue is as high as it can be with the available kit, are we to believe that weather problems have taken such a huge toll on FGW? If so, all the other TOCs^▸ (Train Operating Company) will be in the same boat. I don't think they are, though.

While the franchise uncertainty has not helped, the issue is not rail...

http://www.telegraph.co.uk/finance/newsbysector/transport/10069610/FirstGroup-has-been-haunted-by-a-deal-agreed-in-2007.html