Cordiant in crisis talks with bankers over £275m overdraft

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The Independent Online

The advertising group Cordiant Communications has been forced to renegotiate its banking covenants after suffering a collapse in earnings, it emerged this weekend.

The company is also having to consider a sizeable write-down in the value of its £370m purchase of Lighthouse Communications in 2000. The subject of persistent takeover rumours, Cordiant has recently put out three profits warnings and made 1,100 employees redundant. Negative news on financing and acquisitions is likely to reinforce perceptions that the company is vulnerable to a bid.

The downturn in advertising spending, said to the severest in living memory, has seen a raft of media companies breach, or come close to breaching, the terms of overdraft facilities. Conditions of financing usually focus on maintaining a minimum ratio of earnings to cover interest payments. Companies tend not to own up to covenant difficulties and quietly strike a deal with their banks. Cordiant, which banks with Coutts, HSBC, Chase Manhattan and Citibank, yesterday admitted it has fallen foul of the terms of its $400m (£275m) overdraft facilities. A spokesman said: "The market is aware that we are renegotiating banking covenants. But the level of facilities is sufficient. We have no need for any new cash."

The company has been speaking to its banks since a September profits warning and maintained there is no time pressure on striking a new arrangement. At the time of its last earnings alert, in December, analysts cut full-year profit forecasts from £9m to a loss of £9m.

Separately, Cordiant has had to reconsider the worth of the Lighthouse deal, which was announced at a time when valuations and the economic environment were on a high. Lighthouse includes Financial Dynamics, one of the City's largest PR firms.

One industry observer said: "Almost any deal done in this sector 12 months ago would be worth less today."

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