Fears grow about corporate credit

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I think this is the day for us to take a good hard look at the corporate credit cycle. Our story this morning about Polestar’s troubles (investors and lenders have lost £700m) illustrates the strain in some quarters. We also had HSBC sounding bearish about corporate credit this week and Keith McGregor from Ernst & Young told a conference that “debt markets are definitely in a bubble”. Also, there seems to be a worrying amount of PIK notes being issued at the moment: Caffè Nero and Wind were just two yesterday.

On Polestar, we might also take a look at this morning’s Telegraph story. The paper says the printer has offloaded its £150m pension fund deficit. “The restructuring is understood to have involved the transfer of Polestar’s printing contracts to a new holding company. The pension liability – which was estimated to be £150m in September 2005 – has been left in the old company,” the Telegraph says. Investcorp has agreed to plough £45m over the next 12 years into the pension fund and the deal has been approved by the scheme’s trustees and the pension regulator. It feels uncomfortable, though. One for Norma Cohen, I think.

Berkeley Group, the housebuilder focused on London and the south-east, has announced a 5.2 per cent drop in first-half pre-tax profit to £81.5m, but said it would nevertheless return £242m to shareholders. The latest FT house price index, published today, shows London house prices are on track to end the year at their highest annual rate of growth since 2002, greatly outperforming other regions.

Huntleigh Technology, the UK medical equipment manufacturer, has agreed to be bought for £409m by the British subsidiary of Getinge of Sweden, a spin out from Electrolux. The offer is worth 480p a share, a 28 per cent premium to last night’s closing price of 375p. Getinge has irrevocable acceptances from Huntleigh’s directors and the Schild family trusts associated with Huntleigh’s late founder for just over 42 per cent of the British group’s share capital.

Go-Ahead, the UK bus and rail group, made an upbeat forecast about first-half earnings after it said the early costs for its new rail franchise in Kent had been less than expected.

Another drug company trying to buy a pipeline: GlaxoSmithKline is buying a privately-owned biotech company called Domantis for £230m. Having seen how much more drug companies will pay for such businesses than stock market investors, it is hardly surprising Domantis decided to sell, not float. Its backers include 3i.

Great stuff in The Guardian today on BP. “The director responsible for running BP’s Texas City oil refinery when it exploded last year killing 15 people has admitted that the site was held together by little more than ‘Band Aid’ and ‘superglue’ in the years running up to the disaster,” the paper said. It went on: “The year before the explosion, a worker was boiled alive at the refinery in the 23rd fatal accident in 30 years. That prompted the refinery’s director, Don Parus, to call in external consultants. As part of the independent investigation, Mr Parus agreed to be interviewed [...] He observed that ‘killing somebody every 18 months seems to be acceptable at this site’ and questioned why his staff turned up for work: ‘Why would people take the risk, based on the risk of not going home?’ “

We need to look again at Woolworths. The stock, which had done nothing all day, spiked up 15 per cent in heavy volume in the final minutes of yesterday’s trading. Speculation obviously focused on Baugur, but we’re not so sure. Today, the shares have given back half their gains.

Rumour of the Day: Barclays shares are up again today in heavy volume on renewed takeover rumours. Bank of America said to want to buy Barclays. I remember, from when I was banking editor a few years ago, how much BoA would like to buy Barclays, and how seriously Barclays considered selling. It seems mostly to be question about price and whether there is anything more pressing to do first. “We believe Bank of America is very interested in acquiring Barclays,” Merrill Lynch says in a research note. “Bank of America has previously indicated that the next stage of its expansion is to become a leading global commercial and investment bank,” it adds, saying buying Barclays would help it achieve that goal.

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