Doncasters, the aerospace-to-petrochemicals engineering firm, has asked its banks to relax the terms of its £700m-plus debt pile, in another blow to its parent, Dubai International Capital (DIC).
The investment arm of Dubai's sovereign wealth fund has already faced troubles at Travelodge, which two New York-based hedge funds saved last month with a £60m loan facility. The debt-for-equity swap is thought to have cleaned out most of the DIC's equity in the British budget hotel chain, for which it paid £675m in 2006.
Doncasters, a 234-year-old business founded in Sheffield which was bought by DIC for £700m in 2005, is not in such financial trouble and brings in sufficient cash to cover interest repayments. But one of its three quarterly loan covenant tests is to show that, although debt is decreasing, it stands at north of £700m. DIC put £53m into the business in 2009 to prevent a covenant breach then, and this changed some of the structuring of its debt burden.
Oriel Securities, which declined to comment, has been asked by Doncasters management to increase the amount of debt it can have on its books for the next two years. The request was put to the banks, led by Royal Bank of Scotland, last week, and they must approve the agreement soon or Doncasters risks breaching the covenant when it comes up for testing at the end of this month.
"The company has asked for the leverage test to be reset," said a source. "Doncasters is not in any form of financial distress, but debt is not being paid down as fast as was thought when terms were agreed in 2009."
Doncasters has a number of big-name clients, including Siemens, Boeing, Volkswagen and Rolls-Royce. Its name derives not from the town but its founder, Daniel Doncaster.
DIC has suffered in the financial crisis, and had to renegotiate the terms of its own $2.4bn debt last year.