Vivendi takes €14bn hit as junk bond rating fuels cash crisis

The urgency of the cash crisis at Vivendi Universal was revealed yesterday as the media giant announced massive €11bn (£7bn) write-downs in the value of its assets.

Even though they were braced for bad news, investors were shocked, and marked Vivendi's shares down 25 per cent to €11.89. Despite unveilinga €10bn disposal programme to reduce debt, industry watchers said the market was also troubled by a very unconvincing presentation of half-year results by the new management led by Jean-Rene Fourtou.

One source said: "Management did not seem to have a good grasp of the company. There were questions asked which they simply did not know the answer to. The impression was not favourable."

Investors were also spooked by Standard & Poor's decision yesterday to downgrade Vivendi debt to junk status. The credit rating agency said the interim results pointed to "significantly lower-than-expected cash flow" generation forecasts for the second half of the year.

"Such a cash flow shortfall could result in a much earlier financing gap than we initially anticipated," said Guy Deslondes at S&P. "It may also make it more difficult for VU rapidly to arrange a new, substantial credit line to fund its operations over the next few months."

Vivendi needs to refinance €5.6bn debt by the end of the year, but its current refinancing negotiations with banks would provide just €3bn of loans.

Mr Fourtou admitted: "In the short term, due to the structure of our debt, Vivendi Universal is facing a liquidity problem despite the value of our assets."

S&P warned Vivendi's disposal plans could add to the cash flow problems if its more cash-generative assets are sold off before the loss makers.

Mark Harrington, an analyst at JP Morgan said: "What investors are focusing right now is the company's liquidity position. The whole issue is financing and concerns over timing [for debt repayment]."

Vivendi announced a much bigger than expected goodwill impairment charge of €11bn. In addition, it made further financial charges of €3.4bn. The net loss for the six month to the end of June was €12.3bn. Of the write-downs, €3.8bn related to Canal Plus, its pay-TV business, €3.5bn came from the music business. The write-downs follow an even bigger impairment charge taken last year.

The company said it was committed to raising at least €10bn through asset sales over the next two years, €5bn of which within the next nine months. Houghton Mifflin, the US textbook publisher bought just last year for $2.2bn, was immediately put up for sale. Possible buyersinclude Pearson and Reed Elsevier. Vodafone will be looking to pick up Vivendi's controlling interest in SFR, the French mobile operation.

Vivendi put its total debt at €35bn, made up of €19bn at its core media business and €16bn for its 41 per cent owned water business. Analysts said that all the negative news provided by the company yesterday masked operating results that came in ahead of expectations. Consolidated operating income grew 8 per cent to €2.4bn.