Packaging products group Rexam PLC (LSE: REX) confirmed that it is considering a number of options enabling it to continue paying down debt, and options considered include an equity raising.
The group said it made the statement in response to press coverage regarding a possible issue of new equity by Rexam.
With the board now seeing no upturn in current trading conditions through 2009, management has launched a number of significant cost saving initiatives and is considering others which, with those already announced, will have a material benefit on Rexam's performance in 2010. However the absence of upturn will reduce Rexam's ability to generate significant free cash flows to pay down debt in 2010.
The board has consequently concluded that the risk of a downgrade to sub investment grade has significantly increased and has now become unacceptably high. The loss of investment grade credit rating would be detrimental to the group, both in terms of the cost and the availability of future credit. Rexam is thus considering a number of options, it said, adding: “No final decision on any course of action has been taken and the company will update the market as appropriate.”
It also said that although trading conditions in recent months have shown no upturn from the first quarter, half-year results to be announced will at least meet market expectations. Covenant headroom remains comfortable, with net debt to EBITDA of 2.6 times at the half year and well below the principal debt covenant of 3.5 times, Rexam added.
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