Glimmer of hope for Cattles as talks continue

Restructuring negotiations at the Birstall-based firm, crippled by bad loans and accountancy problems, were derailed last week when a group of bondholders walked away, raising doubts over the chances of reaching a deal on its 2.7bn debt pile.

A bitter creditor dispute has erupted between the bank lenders on one side and bond investors on the other, after the courts ruled that the banks should get preferential treatment.

One source said that the banks are in the driving seat although

bondholders are trying to pile on the pressure.

"You could put a company like this into administration without damaging the value of the assets you are trying to recover, but it would be hugely complex to sort out," he said.

Unlike the collapse of property maintenance firm Connaught, the banks may decide it is better to keep Cattles afloat.

Its ability to collect debts from clients, and thereby repay more to creditors, could be damaged by insolvency, as it could make borrowers less inclined to pay back their loans.

The firm, whose shares were frozen in April 2009 after an 850m black hole was uncovered in its accounts, is focusing on running off its loan book, including for its Welcome Finance division.

An administration would put just under 3,000 jobs at risk, after 2,000 redundancies since the start of 2009.

Bondholders are owed about 1bn and have the least to lose after their claims were deemed to be subordinate to banks' loans.

Although an insolvency could damage bondholders' debt claims even further, they could be given a chance to argue their case in front of an administrator.

"That administrator could view the bondholders' claims slightly more favourably, which is clearly not something the banks would want," said one source.

Any restructuring plan would need approval from 75 per cent of

creditors to go ahead.

Zolfo Cooper, a restructuring specialist, has been lined up to prepare the way for an administration but no appointment is imminent.

Cattles and Zolfo Cooper declined to comment.