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Wednesday, December 16, 2009

EMAP Going Concern Concern

Both The Times and PG have reported on the Emap debt mountain focussing on their posted accounts which question its future as a going concern. Message to all at Emap. Don't panic. Well not yet anyway. Auditors are required to ask the question about whether a business is a going concern and to identify the risks.

It is a statement of the obvious that if Emap breaks its bank covenants then technically the debt is either repayable or must be re agreed on new terms. As Emap cannot pay down its debt without injection of further equity funds it is bust if it breaks the covenants and if no new arrangement can be agreed. That's a lot of ifs. First, Emaps trading may stay within the limits set by the covenants in which case there is no problem. If the is a breach, and it isn't a meltdown, the banks are highly likely to offer new terms with an increased interest rate. This may be combined with an injection of new equity or even a debt for equity swap (as happened with Incisive which shared APAX as a shareholder and RBS as a lender). The banks wants its money back and Emap going bust won't get them that result.

If you have a mortgage and negative equity then you too are not a going concern unless you have other assets to bridge the gap.

My guess is that at some point in the next few months there will be a material covenant breach and new terms will be agreed. Although EMAP staffers need not fear the collapse of their company, the pressure on costs will be relentless.

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