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Letsbuyit.com teeters over debt abyss

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Letsbuyit.com, the online buying club for e-bargain hunters, was suspended today on the Neuer Markt, after announcing it wanted a debt moratorium.

Letsbuyit's holding company, based (for the usual tax reasons) in the Netherlands, issued a statement yesterday saying it wanted to defer repayment of debt, as allowed for in Dutch law, the FT reports.

Letsbuyit has has a torrid time in 2000 - the company missed the IPO peak at the beginning of the year, and was forced to go to market in July at a much smaller market cap than previously anticipated (it raised E66 million, against the E130 million it wanted) to cover its burn rate. This meant that its credit rating was less attractive - which meant that it could not get such favourable terms with manufacturerers, which meant that it was an even less attractive venue to buy from. This in turn meant staff and marketing cutbacks - but it's not been enough; in November the company revealed that it needed 80 million euros to see it through to expected breakeven sometime in 2002.

But where will this money come from? Not from existing shareholders, surely. They've seen the value of their investments sink since IPO - so why would they put good money after bad?

What about debt financing? Banks will lend money to loss-making businesses - but they want security (director's houses, plant, company property etc. and Letsbuyit won't have too much of that to mortgage). Or they want a loan repayment plan in which they can trust. Unfortunately for Letsbuyit, the mismatch between revenues and cash needs are far too great for any orthodox banker to stomach.

Which leaves a trade sale - by far the most likely option, if Letsbuyit is to be saved.

In November, the company announced its intention to seek a strategic alliance with an offline retailer - in effect it was putting up the for sale sign. But at what price? Letsbuyit's existing debt, continuing losses and possible warranty obligations could mean that the value of the company is already less than zero.

It will be interesting to see what Letsbuyit's creditors have to say about the company's moratorium proposals. In the current uncertainty, Letsbuyit's credit rating will be falling through the floor (and hence creditor insurance premiums on Letsbuyit debt will be raised through the roof - if granted, at all). This will affect its ability to trade. The company is perilously close to a death spiral. ®

Related stories and links

FT: Letsbuyit suspended after statement on debts
AFX: Letsbuyit.com am Neuen Markt 'bis auf weiteres' ausgesetzt - Deutsche Börse
Letsbuyit wants £48m to help it into the black
Letsbuyit boosts sales and slashes staff
Letssellit.com. Oh dear, oh dear
Letsbuyit.com pulls out of IPO (again)

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