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This section by Paul Scott:

Victoria (LON:VCP)

  • Share price: 410p (-5%)
  • No. of shares: 125 million
  • Market cap: £514 million

Update on bond

We had an interesting debate here (Mon) and here (Weds) last week about Victoria (LON:VCP) - issuing a profit warning, and simultaneously announcing that it was seeking to issue a junk bond to repay all its bank borrowings. This spooked me, and after various accounting shenanigans lately (such as CAKE, and YU.), my approach is this - if in doubt, run for cover. We can always buy back later. When writing last week, neither Graham not myself held any position in VCP shares - so as always, we were just giving our honest opinions, based on the facts available.

Graham took a more relaxed view, and gave an interesting alternative assessment of the situation, thinking that a bond issue seemed a good idea, and giving his view that the BB credit rating was not a worry.

The latest announcement today, says that the bond issue is being abandoned, as indicative pricing was too high. That's not at all surprising to me. After all, VCP has a stretched balance sheet, with too much debt. Plus it's just issued a profit warning. So why would anyone want to lend it money cheaply?

Management today says;

It is very disappointing that despite the positive, stable credit ratings, the indicative pricing for the Bond moved unfavourably over the course of last week, particularly when there have been no fundamental changes to the Group or its business.

Possibly the pricing moved because the company issued a profit warning here? The wording of that statement seemed to try to gloss over the negatives, but it was clearly a profit warning, and the market was not fooled. The share price plunged 25%, closing at 455p on the day of the main announcements (29 Oct 2018).

NB. my negative commentary on the situation was not published until the evening of Monday 29 Oct, after the market had shut, by which time the main damage to…

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