Shoreham Closed

[Jetscream 32]

DP - Shoreham was barely on the radar screen of debt compared with the rest of the eranicous portfolio which is not aviation related and certainly not enough to call in the administrators - but it was the one with no value but immediate ongoing costs....

[Justiciar]

No.

Fuji: Yes

I can assure you that such arrangements are not uncommon when say subsidiaries raise finance and the bank insist on guarantees from both parent and subsidiary as well as charges or debentures on all assets. Whether such arrangements bring down a whole group will depend on a number of factors, such as liquidity of the parent.

I hasten to add that I don't know what the particular circumstances are at Shoreham - my comments are general ones to show how a loss making subsidiary could bring down the whole.

[dublinpilot]

DP - Shoreham was barely on the radar screen of debt compared with the rest of the eranicous portfolio which is not aviation related and certainly not enough to call in the administrators - but it was the one with no value but immediate ongoing costs....

JS,

That makes more sense, and would be as I expected. But obviously that other debt didn't come from profitable subsidaries (You originally said that Shoreham was the only loss making asset.)

Justiciar,

This ignores the fact that in many groups there will be inter-company guarantees and composit guarantees and debentures in favour of banks and other lenders, so if there is external borrowing every company in a group will be a guarantor of the borrowing of every other company. This will result in a holding company being hit by, say, an insolvency of one of the subsidiaries and triggering the Holding Company's need to appoint an Administrator.

It does not ignore that fact at all. While such guarantees are not uncommon, they are rarely accepted when there isn't enough assets to back up the guarantee.

If all the subsidaries bar Shoreham were profitable, then it would be nothing short of gross incompetence to allow Shoreham to generate enough losses in such a short period of time to bring the whole group down. The other subsidaries must have been loss making too, and to a much bigger extent than Shoreham. JS says that the rest of the group had massive debt apart from Shoreham. Where did the debt come from if those other elements of the group were profitable?

It simply can't happen in such a way.

The statement

but the only asset eracinous had that was loss making was Shoreham

simply does not stand up.

dp

[JW411]

By all accounts Erinaceous went to the wall with debts of £250 million. Are any of you out there seriously suggesting that Shoreham airport was a major cause of this huge outstanding sum?

I could believe that the airport might have run up debts of £2 million or so but nothing like the above.

[mark147]

You originally said that Shoreham was the only loss making asset.

I think he was writing in the context of having asked about their aviation assets. Presumably there are lots of loss making non-aviation assets in which js32 had little interest.

[dublinpilot]

Mark,

If that's what he meant then that would make much more sense

It's not what he said though, and he's had plenty of opportunity to correct what he's said. What he said was

but the only asset eracinous had that was loss making was Shoreham

Perhaps JS can clarify what he meant? If he did indeed mean that "the only aviation asset that eracinous had that was loss making was Shoreham" that could indeed be true.

dp

[Fuji Abound]

I can assure you that such arrangements are not uncommon when say subsidiaries raise finance and the bank insist on guarantees from both parent and subsidiary as well as charges or debentures on all assets. Whether such arrangements bring down a whole group will depend on a number of factors, such as liquidity of the parent.

I never said they were not (uncommon).

In fact the liquidity of the parent is unlikely to have very much to do with it. The parent company is often little more than a shell, with the real wealth of the Group dispersed around its subsidiaries. For an entire group to fail the failure will turn on position of the group consolidated accounts. For one small company (such as Shoreham) to bring down an entire group, whatever guarantees may or may not be in place, would occur only if there were far more serious problems through out the whole group.

I am lead to believe that at least some of the people involved with Abermarle are also involved with the Erinaceous Group. Albermarle would seem not to be a member of the Erinaceous Group but it might be interesting to know what related party transactions have taken place between the two (if any) and what plans Albermarle now have for the airport.

[cmacltd]

Fairoaks

I think that observation is spot on. Fairoaks developed as 'exclusive residential development' would accord with the wishes of the local community. Just a matter of time