Summary
Nikkei reports that Aiful expects to receive approval to enter Alternative Dispute Resolution talks with bank creditors to win support for a privately orchestrated rehabilitation plan that includes slashing 1,000 jobs and closing an additional 70 staffed and 200 automated branches. There is no indication that the company intends to seek government support under the Special Law for Industrial Revitalization.
Analysis
With the high price of credit default swaps on its existing long-term debt and little appetite for asset backed securities in the current market, Aiful and Takefuji face an uphill struggle to retire debt and procure working capital. For the fiscal year ended March 31, 2009, Aiful posted cash flow from operations of 234 billion yen versus short-term debt service obligations of 437 billion yen, including 102 billion yen in short-term debts, 95 billion yen in current portion of bonds, 230 billion yen in current portion of long-term debts and 10 billion yen in commercial paper. Since firing all of its employees would save Aiful only 30 billion yen in operating expenses annually, little can be done to reduce the current imbalance in cash flow for financing activities. Because the company currently relies on financial markets for 52% of working capital, there does not appear to be any way for the company to remain solvent without procuring additional funds from current lenders or a "white knight" investor, prospects that seem unlikely given industry challenges and the company's competitive position.
Don't expect to see this ticker symbol listed much longer...
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
