Ferretti in financial difficulty

Just got this, doesn't look good!

Ferretti defaults on debt

By IBI Magazine

Italian motor yacht builder the Ferretti group has defaulted on its debt repayment, increasing pressure on UK private equity owner Candover to inject more money, according to a story in today's Financial Times.

Earlier this month Ferretti called in investment bank Rothschild to help restructure its €1bn of debt. A drop in new orders, an increase in cancellations and a slowdown in payments on yachts under construction combined with seasonality are reported to be the cause of Ferretti's cash flow problems.

Ferretti defaulted on an interest repayment on Friday, the FT reports.

The group has also halted activity at for its brand Pershing, according to local news sources. All 270 workers have been sent home for 15 days from the production site in Fano.

The planned flotation of Ferretti on the stock market has been shelved due to current market conditions.

Private equity house Candover acquired Ferretti in 2006 for €1.7bn. Ferretti SpA's nine yacht brands include Ferretti Yachts, Pershing, Riva and CRN. The group was founded in 1968 by Ferretti group chairman and CEO Norberto Ferretti.
(27 January 2009)

Unfortunately many Italian shipyards are in the same situation.
I know many Owners who have paid huge amounts but the shipyards fail to issue bank guarantee

Braving the Storm

It’s no surprise and nothing new that the yacht industry is highly volatile and is greatly influenced by the state of the economy, just like every other producer of luxury goods. It’s also no surprise that this recession has been brewing and developing for many months now, even possibly a few years. I began seeing the tell tale signs over eighteen months ago, and I’m certainly no economist.

Certainly we haven’t already forgotten the past recessions and their effects on shipyards worldwide. I’ve never been in the boatbuilding business, but unlike being a school teacher (which I'm not), boat building has always been extremely vulnerable to economic shifts.

It’s unfortunate that so many ship yards are being torn apart in this current financial storm and are now facing financial ruin. It’s particularly unfortunate that the deep cut backs and layoffs will affect so many good hard working people that have spent a life time mastering their skills only to lose their careers with a company that didn’t prepare to face the brewing storm.

I’m not saying this to be critical of the management of the shipyards that are finding themselves financially strapped or of those that invested heavily in expansion only to find the market contracting. But any good CEO will know perfectly well how their company responds to economic storms and will be prepared; just like any good captain will keep a vigilant watch out for foul weather and will batten the hatches and prepare for the storm well before it strikes.

Sadly, as every captain is keenly aware, no amount of forewarning, preparation, knowledge and skill will bring every ship back to safety in every storm, but it certainly helps the odds.

Any idea how this will affect Bertram?

If bertram has indeed taken care of the owner then thats fantastic. (See the Bertram thread.) What isn't so fantastic is the article regarding Ferretti group in the Wall Street journal on January 28th.

God help the recreational marine industry.

I think we will be seeing more then a few boat building companies dissappear in these times unfortunately. I think it's going to be at least a year before people start buying yachts in quantity again. The strong will stay and the weak will go.

The highly leveraged (who isn't) are just about gone, those who saw this coming a few years ago and acted accordingly will hopefully be fine. I was just told today of a multi generation family owned large boat builder (that I thought was very well capitalized) had their lines cut off and their new requests for loans/lines denied. Should be interesting to see how this company that was barely treading water last year with around 200 orders will fare this year (I understand their dealers have only ordered about 30 boats for 2009).

If the WSJ article is accurate, then Ferretti may very well cease to exist. The finance markets are really unforgiving right now.

Just when some of the product lines seem to be getting their pace. On the otherhand, some of the product lines were going in the wrong direction!

Rumours aside. Bain Capital has enough trouble refinancing Their Bavaria yachts investment.

In retrospect; Candover purchased their part of the Ferretti group in mid 2007. At that time the signs for a financial crisis were evident. Wise or not? The risks must have been clear at that time.
Banks currently struggle to secure their own future. Investments in durable projects are on the increase, so there is a chance that the luxury industry will be last in line for relief.
Although not all luxury brands experience the same level of decreasing demand, it is a fact that they will all lose customers on a short term. The situation at Aston Martin is a good example.

The problem with Ferretti group may be caused by the high sales costs. (besides the drop in demand) Another issue is that yacht owners often fail to pay their installments on time which has an effect on the company's cash flow. This also causes delayed payments to the suppliers. A large amount of suppliers struggles to get the shipyards payments on time which causes them to take measures like temporary lay-offs or stop the supply to the shipyards. This makes it impossible for shipyards to deliver on time and receive the final payment of the yachtowners. I see a circle here.

I personally don't think that Ferretti will go bust due to the crisis.
I think that they will split up the group and sell certian brands or operating companies as a sort of damage control. Selling parts of the company will of course not result in big sales profits on the brands but it may keep the company afloat.

Centralising administrative and opperational departments like marketing and sales may also result in cost reduction.

But than again...we'll never know the details.

Well if anyone hears any news, please update.

Regarding the comment of selling off portions of Ferretti... not sure there are any buyers out there. It would either have to be another builder (I would be surprised if there was one who had enough cash to do such a transaction) or a private investor (lots of cash and lots of passion required!).

Since each of the brands was the result of an acquisition Ferretti's manufacturing facilities are spread over several yards on both coasts of Italy. If they survive they will indeed need to consolidate a lot of their operations.

Consolidation would result in adjusting their delivery targets by -30% which will of course result in loss of jobs. Maybe they will have to take a closer look at their portfolio. They plan to launch an additional 14 models this year which can cause more overlap between brands. You could produce several different types, but than I guess you would have to consider a platform strategy like the automotive sector has. The current state of Ferretti does not have a good effect on the industry, but the demise of Ferretti would make it even worse.

I wish them a lot of wisdom...

Latest News on Ferretti as Feb 26

RLPC-UPDATE 1

Ferretti management in debt restructuring bid

Thu Feb 26, 2009 7:27pm GMT
* Ferretti management offer new restructuring proposals

* Candover and Permira write off equity stakes

* Proposals require lender agreement (Adds Candover's statement, background, proposal details)

By Tom Freke and Tessa Walsh

LONDON, Feb 26 (Reuters) - Senior management of Italian luxury yacht maker Ferretti have offered to inject equity into the troubled company in a new debt restructuring proposal, the Ferretti said in a statement.

If accepted, the management proposals would see existing private equity owners Candover CDI.L and Permira [PERM.UL] cut out of the new shareholding structure.

The private equity firms failed to reach an agreement with lenders and will not participate in the debt restructuring on the terms proposed, according to Ferretti.

Candover bought a majority stake in Ferretti from Permira for 1.7 billion euros in 2007, backed by a 1.215 billion euro loan from Mediobanca and Royal Bank of Scotland.

Candover appointed Rothschild in January to advise on a debt restructuring after the company breached its banking agreements.

EQUITY STAKE WRITEOFF

In walking away from the discussions, the two private equity firms are writing off their equity stakes in the company, which suffered a dramatic fourth-quarter slump in sales.

Candover's 50.2 percent stake in Ferretti was valued at 48.6 million pounds in June 2008 and represented 12.1 percent of the firm's asset base along with 5.5 million pounds of accrued note interest.

"On the terms proposed, Candover has decided not to participate in the restructuring of Ferretti and believes its existing stake in the business now has no value," Candover said in a statement.

The new proposals would see management -- led by the company's founder, Chairman and Chief Executive Norberto Ferretti -- put new equity into Ferretti along with a new primary financial investor, the company said.

Ferretti described the negotiations as advanced. Norberto Ferretti and key managers expressed their satisfaction with the talks to date and confirmed their commitment to finalising the proposals, which will be submitted to lenders shortly.

Ferretti's first lien leveraged loan credit default swaps (LCDS) were auctioned on Thursday and settled at 10.875 percent of face value, giving an insight into low possible recovery rates on the restructuring.

The auction price leaves sellers of protection on Ferretti's first lien loans facing losses of 89.125 percent on the protection they sold. (Reporting by Tom Freke and Tessa Walsh; editing by John Wallace)

Norberto Ferretti and senior managers negotiate to buy back company

By IBI Magazine

Norberto Ferretti and senior management within Ferretti Spa have offered to inject equity into the beleaguered company as part of a new debt restructuring proposal that would give them ownership. If lenders accept the proposal, according to a statement from Ferretti, existing private equity owners Candover and Permira would not be part of the new shareholding structure.

According to Reuters, Candover bought a majority stake in Ferretti from Permira for €1.7bn in 2007, backed by a €1.215bn loan from Mediobanca and Royal Bank of Scotland. Candover appointed Rothschild in January to advise on a debt restructuring after the company breached its banking agreements. But the private equity firm failed to reach an agreement with its lenders.

Royal Bank of Scotland reported yesterday that its loss for 2008 amounted to €26.9bn (£24.1bn) — the largest annual loss in UK corporate history mainly due to its massive exposure to toxic loans and its disastrous acquisition of the Dutch Bank ABN Amro.

Candover's 50.2 per cent stake in Ferretti was valued at £48.6m in June 2008 and represented 12.1 per cent of the firm's asset base along with £5.5m of accrued note interest.

"On the terms proposed, Candover has decided not to participate in the restructuring of Ferretti and believes its existing stake in the business now has no value," Candover said in a statement.

Ferretti said that negotiations were now in "advanced" stages. Besides Ferretti management, the deal would include an unnamed "primary" investor. "Norberto Ferretti and the key managers expressed their full satisfaction with the negotiations to date and confirmed their commitment to work towards finalising the proposal and then its successful and prompt implementation," read the Ferretti statement.

Under the proposal, Ferretti's level of debt would be reduced and credit lines reinstated.

(27 February 2009)

Hi,

The "Investment" Guys can probably afford to walk away as they seemed to get their finance from RBS which has lost a rather large sum of money recently. Most of it seems to be commercial loans and their ex Chief Executive gets his Pension of nearly £700,000 a year for life when hundreds of others lose their houses and jobs.

Hi,

The text below was extracted from a news article at Stuff.co.nz It had a serious local flavour so it would probably bore most people.

I just wanted to show what sort of numbers this bank via it's directors shocking greed managed to chew through, Ironically part of it's difficulty came from a number of failed acquisitions at an inflated price, some of the funds that form a good part of the above mentioned written off debt came from this bank well exposed for such careless lending and risk taking and have simply been discarded as a toxic asset something that the Tax Payer will have to bailout.

Royal Bank of Scotland's disastrous UKP 24 billion (USD 34.4b) loss holds a windfall for New Zealand broking house ABN Amro Craigs, but at a cost of up to 40 jobs.

Situation at Ferretti?

Hey guys,

Does anybody on here have any new information regarding Ferretti's financials woes. I do know, as was mentioned in the news, that the Candover Group, Ferretti's owners, had defaulted on a $1 billion loan and were seeking to refinance.

The reason I'm asking is I'm still debating whether to go ahead with a new Ferretti purchase or not. The dealer says Norberto Ferretti has bought out Candover "almost entirely" and has paid off most of the $1 billion due to banks. That just doesn't sound very true now does it.

Hope you guys can help, as I really do not want to buy a brand new yacht today only to have the manufacturer go out of business next month.