IMPORTANT NEWS: National Electric Vehicle Sweden has agreed to buy the assets of Saab Automobile and the sale is expected to be finalized during the summer.

Friday, August 26, 2011

Another reconstruction?

Update: Mats Fägerhag , Vice President Vehicle Product Development at Saab, denies the reports that Saab is preparing to file for a reconstruction.

"We have not taken any decision to apply for a reconstruction," Mats Fägerhag told TT. When asked if this is an option Saab is considering, Fägerhag said: "We're not working on that option now. I can not say that the option will not be considered later. Nothing can be ruled out, but we are not working on a application for a reconstruction now."

Update II: Saab's parent company, Swedish Automobile, has now issued a press release that neither denies nor confirms that Saab is planning for a reconstruction. It says that all available options will be evaluated.

To Bloomberg Eric Geers, Executive Director of Communication at Saab said: "We're still focusing on securing financing, but in order to ensure the continued security of Saab, we remain open to all available options." 

Earlier today Swedish radio claimed that the management of Saab is, as one option, preparing to apply for a reconstruction of the company. That means that the company will go to the court and ask to be allowed to start a process where the organization of the company and the debt of the company may be restructured. For the court to allow for this to take place, there must be a viable future for the company.

A reconstruction would mean that Saab would be allowed to reorganize and/or reduce the workforce and most importantly, ask for debt settlement proceedings and thus write down of debt. But for this to happen, a mayority of the creditors must approve the write down of debt.

The debt is most likely much less now than it was back in 2009 when Saab went through its first reconstruction. Estimates earlier this summer said that the debt to suppliers could be SEK 1 billion. When Saab went through a reconstruction in 2009, the debt was around SEK 11 billion. Most of the debt, around SEK 8 billion was to GM, and the rest which would be around SEK 3 billion was to other and smaller suppliers. Of the SEK 11 billion, 75 per cent or SEK 8.3 billion was written down.

This time around much less debt would need to be written down, maybe less than SEK 1 billion. But much of this would still need to be done on the expense of smaller suppliers which also saw their money claims being written down just two years ago. These small suppliers may still depend on Saab and would maybe once again accept a write down. But what about the bigger foreign suppliers, suppliers which do not depend on Saab, will they once again be willing to help Saab? Will GM, which probably still is Saab's biggest supplier, be willing to help Saab once more?

And how does the European Investment Bank (EIB) fit in? Will the EUR 217 million loan given by the EIB to Saab be part of the proceedings? And why on earth would they accept a write down when they have fullproof securities in the guarantees from the Swedish Government?

Under the current circumstances I am a bit doubtful that a reconstruction will be allowed by the court and if it is, I am also doubtful if the creditors will accept a write down of debt. The last time Saab went through a reconstruction, both the court and most suppliers believed in a future for the company. Now, after low sales and huge losses, the confidence in a future for Saab may have been lost. And especially among the foreign suppliers and the EIB.

In other words, I don't really consider a reconstruction as a possible option. I still believe in Saab and a future for Saab, but that future needs to the funded by investors and not suppliers.

If the reports that the management is preparing to file for reconstruction are factual, then I assume we will get more information in the hours and days to come.