Last train to Waterloo

The late Geordie comedian Bobby Thompson had a wonderful gift for story-telling. One of his funniest routines involved the story of his trip to London and hailing a black cab.

“I got in and said: “Take me to Waterloo.”

“The station sir?”

“Well I think I’m a bit late for the battle” replied Thompson.

I bring this up because the Board of bus and train operator National Express must be hoping that the train has not left the station for its own preferred option of a rights issue, which must be completed by December 31st to avoid a breach of its own banking covenants on £1.3 billion of debt. Having declined Stagecoach’s offer for the company last week, the timescales are perilously tight.

I was talking with a friend and former colleague a few weeks ago and he brought me up to speed with current conditions for fundraising in the City. He has just completed a rights issue for a former client of mine which had got caught in the ‘perfect storm’ of the credit meltdown. The company’s business plan involved relatively high gearing (debt) levels to finance working capital which is then hired out on a three-year replacement cycle.

Prior to the credit crunch the company was a FTSE 250 with a stable and well-respected management team. However, trading conditions and bank aversion to debt brought it within an ace of a breach of its own covenants and only a cash call to institutional investors, in the form of rights issue, could save it. In an unconscious echo of the Duke of Wellington’s description of his greatest battle, my friend described the eleventh hour success of the fundraising as a “damn close-run thing.”

Now contrast this with National Express. The company is going to attempt to raise funds from current investors without a CEO (Richard Bowker’s departure for a lucrative new job in the Middle East in June looks increasingly like a case of “every man for himself”), with the Government threatening to confiscate two of its rail franchises for poor performance and its biggest shareholder (Spain’s Cosmen family) accusing it of a “lack of strategy”.

This is high risk indeed and one must hope that National Express is not about to meet its own Waterloo. And I don’t mean the station.