Cattles to close Welcome Car Finance

TROUBLED lender Cattles has made the decision to close its direct distribution car retailer, Welcome Car Finance, in an attempt to save cash and increase liquidity in the business.

Leeds-based Cattles, which requested to have its shares temporarily suspended from the stock market last week, said consultation had begun with employees to shed around 130 jobs across the group.

Cattles said Welcome Car Finance had traded successfully since the start of this year selling its stocks of cars without buying any new vehicles.

“However, without additional funds to acquire new stock, the business model will become unviable and it is likely that Welcome Car Finance will start to absorb cash,” the sub-prime lender said.

The cost of closure is estimated to be £5m.

Welcome Car Finance, based in Birstall, provides finance for people who have previously been refused car credit to purchase a vehicle.

Cattles said discussions were ongoing with its banks and the holders of its outstanding Eurobonds and US Private Placement Notes, following previous revelations that its board believes the company has been in breach of covenants under its borrowing arrangements. 

The firm added: “Management is working closely with its debt providers to sustain their support for the group’s programme of action to stabilise its financial position.

“The closure of Welcome Car Finance is another step aimed at reducing costs, preserving liquidity and reshaping the group.”

Earlier this month Cattles said it would have to declare a further £700m in impairment provisions.

The sum will be additional to £400m already identified and confirms the Leeds firm’s earlier fears of a “significant” pre-tax profit loss for the year ended December 31.

It has previously said an investigation by  law firm Freshfields Bruckhaus Deringer  and business advisers Deloitte had confirmed “there has been a breakdown of internal controls which has resulted in the group’s impairment policies being applied incorrectly”.

As a consequence, not only will last year’s accounts need to be restated, but Cattles has warned that previous year’s financial statements may also need to be adjusted as a result.

Cattles asked for its shares to be suspended because of fears it would not be in a position to publish its annual figures for the year ended December 31, 2008 by April 30, as the talks to refinance its debt continue.