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Silverjet loses 20 per cent investment

Written by Sam Fountain

Monday, 11 February 2008

Clear skies ahead for Silverjet? The world of all-business class travel has become more unstable this week following the announcement that UK property tycoons, the Reuben brothers will not be converting a £10m loan into a 20 per cent stake in Luton-based Silverjet. Silverjet, which has seen its shares drop by almost one half over the last week, said the Reubens' subsidiary TFB Mortgages would not be converting the £10m it loaned the airline last November into a stake in the company, previously agreed at 60p per share. TFB Mortgages said in a statement that it had decided not to exercise its right and convert the loan into equity because of "recent market conditions," but commentators have cited the sharp decline in the company's share value, which has dropped to 22p from the May 2006 float price of 112p, losing 20p in the last week alone. Concerns have also been raised about the all-business class long-haul model since Stansted-based pioneer, Maxjet Airways filed for chapter 11 last year. "Because of recent market conditions, we have decided not to exercise our right to convert our loan to Silverjet into equity." said TFB in a statement issued by Silverjet. "Instead we will continue to work with the company and monitor its performance going forward."   At Silverjet's current share price, the £10m investment would represent a 66 per cent interest in the firm's £14.95m market cap, if converted into shares. A previous statement, issued by the only British-owned business class carrier last week, outlined that it would continue to burn cash after filling 54 per cent of seats in January, sending its shares down by 23 per cent on the day. At the time, CEO Lawrence Hunt reiterated a promise made by the airline that March would see it become cash generative next month, achieving its first period of pretax profit. According to Silverjet's IPO document, it needs to fill about 64 per cent of its seats to break even. The year has not started well for the airline, which began with Silverjet defending its business model after a damning brokerage report deemed the carrier worthless. Then began speculation that the appointment of former easyJet board member and friend of the budget carrier's largest shareholder, Amir Eilon to the post of non-executive director signaled a takeover move from the low fares specialist. This was followed more recently by the drop in load factors for January precipitating a momentous share price fall, which in turn is thought to have prompted TFB to pull out. "We have a strong relationship with the Reuben brothers with whom we structured a loan of £10 million, at highly attractive rates which are highly beneficial to our business," said CEO, Hunt, "and we are also working together on a number of joint projects relating to the future development of Silverjet." "As ever, our primary focus is to continue driving passenger numbers and yields, thereby restoring shareholder value. Based on bookings made to date, we are highly confident that our February load factor will exceed 60% at an increased yield. Forward bookings beyond February continue to be strong." Silverjet will lose a further £1m which would have become due in August as the balance of the subscription price for the shares had the TFB loan been converted. Instead, the debt will be repayable by December 2009, and will pay interest at 200 points above Libor. Shares in Silverjet have fallen over four per cent, or 1p to 23p on the day. Set as favorite Bookmark Email This Hits: 540 Trackback(0) TrackBack URI for this entry Comments (0) Subscribe to this comment's feed Write comment This content has been locked. You can no longer post any comment.

 

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