Invensys pays high price for £1bn loan facility

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The Independent Online

Invensys, the engineering group, saw its shares tumble on concern it had secured new financing on punitive terms.

The company had hoped yesterday's announcement that it had signed a $1.4bn (£1bn) loan would be viewed positively. However, analysts said the news only highlighted how much debt Invensys had and the market panicked over a rumour that the terms of the loan were punishing.

One analyst said: "The rumour is that this was done at 175 points above Libor. That would be very worrying if that's true."

Invensys, which is headed by Rick Haythornthwaite, declined to give details of the rate of interest being charged for the one-year facility. The agreement was with six banks: HSBC, JP Morgan, Bank of America, Deutsche Bank, Morgan Stanley and Royal Bank of Scotland. Its shares closed down 4 per cent at 107p. Invensys has put out several profit warnings in the past past two-and-a-half years.

Analysts said the market was generally jittery about the sector Invensys operates in, with several of its rivals recently delivering downbeat news. Also, the market was thinking again about backing cyclical stocks such as Invensys, which have had a good run on the back of economic recovery hopes. The timing and strength of that economic rebound was still very uncertain, analysts said.

The loan aims to give Invensys breathing room while it negotiates the sale of eight businesses. A credit facility for $1.35bn expires in August.

At 175 basis points over the London Interbank Offered Rate (Libor), Invensys would be paying only 50 points less than loss-making telecoms equipment maker Marconi, a major casualty of the collapse in technology stocks last year.

"The purpose of this facility is to enable the company to carry out its planned programme of refinancing and disposals on an optimal timetable and meet the August 2002 maturity of some of its existing facilities," Invensys said.

Last month Invensys completed the sale of its energy storage business to US-based EnerSys Inc for $425m.