Lifeline for Dyson after debt deal with banks

The Sheffield high-tech materials company came close to administration after entering the recession with a heavy debt burden and significant exposure to the slumping automotive industry.

But after almost two years of restructuring and negotiations, the company said complex debt-for-equity proposals offer it a vital lifeline.

"I'm told it is one of the most complex restructuring that's ever been done in Yorkshire," said chairman Christopher Honeyborne. "Most people would have thought that the obvious thing to do would have been to go for an administration route.

"But on examination, the best solution for all the stakeholders is what we've achieved. It's a good feeling for everybody involved.

"We've ended up with an operation which employs about 400 people and now have businesses which are soundly structured and should go on fairly successfully and viably."

Dyson, which started life in 1810 with a ceramics factory, has been trying to refinance with its banks Lloyds TSB and Svenska Handelsbanken since early 2009, when slumping profitability meant it could not fund its pension scheme or meet covenants.

That led to the suspension of shares, the closure and sale of some businesses, redundancies and short-time working. By September 2009, the group's pension schemes' deficits were about 54m.

"Administration would have destroyed a lot of jobs," said Dr Honeyborne, who, along with non-executive director John Lomas, will stand down on completion. "It would have destroyed opportunities and we took the view, as did the banks, that it was better to go for a solvent solution."

After winning support from shareholders to de-list from the stock exchange earlier this year, Dyson again needs their backing for the restructuring, or faces administration.

Shareholders will be left with 12 per cent of the company's equity, with its banks taking a 51 per cent stake by converting 12.8m of their debt into equity and receiving 5m of preferred shares.

The banks will refinance another 35m of their debt in return for security over the group's assets, and will lend Dyson another 4.5m of working capital.

The company's main pension fund will receive 33 per cent of Dyson's equity in non-voting shares, 2.5m of preferred ordinary shares, plus a 6m loan note. An employee benefit trust will receive the remaining four per cent of equity.

Dr Honeyborne said shareholders could even recoup some of their investment if the company eventually re-lists or is sold on.

Dyson will then focus mainly on its Saffil fibre operation, which has benefited from a recovery in automotive markets in recent months, delivering "significant improvements" in profitability and cash generation.

Dr Honeyborne said this business has a bright future thanks to the recovery from car manufacturers and the need to reduce emissions.

Other ongoing businesses include The Builders Centre, an electrode division, a nozzle business and a portfolio of properties.

Turnover from ongoing businesses in the nine months to June 30 increased 35 per cent to 31.3m. The group returned to a "positive profit" during that period, compared with a 3.4m loss in the preceding six months.

DLA Piper, Deloitte and KBC Peel Hunt advised Dyson on the

restructuring.

"It's very much a Leeds story," said Dr Honeyborne. "So many of the professionals in Leeds have been involved in this."

Shareholders meet on September 28 to vote on it.

A rich heritage

Dyson Group has its roots in Sheffield's industrial heritage.

Its origins date back to the early 19th Century, when a ceramics factory opened in Sheffield in 1810.

It became a leading producer of refractories and related ceramics products. It floated on the London Stock Exchange in 1958.

After predominantly supplying the steel industry, the group diversified in the 1970s into the general ceramics industry. In 1999 it bought Saffil, a pioneer in heat-resistant fibres.

It continued with acquisitions over the next decade, including an ill-fated expansion into Carolite, a product intended to improve the speed of hard drives.

When the recession hit it was forced to sell its headquarters in December 2008 for working capital. Its shares were suspended last July and it de-listed in April.

Legacy kiln and ceramics businesses were sold to management, leaving the group mainly focused on its Saffil fibres business.