Net debt stood at £2.7bn at the end of the first quarter on March 31, and since then demand has not recovered prompting the company to contemplate a £350m rights issue.
The story was broken at the weekend by the Sunday Telegraph leading Rexam to issue its own statement.
No upturn
The second largest consumer packaging firm in the world confirmed that trading conditions had not improved from the first quarter and that the absence of an upturn will reduce its ability to pay down debt in 2010.
There is therefore a risk that its ratings will be cut to junk status, which would make it more costly to service existing debt and reduce the availability of future credit.
The statement said: “The Board has concluded that the risk of a downgrade to sub investment grade has significantly increased and has now become unacceptably high.
“The loss of investment grade credit rating would be detrimental to the Group, both in terms of the cost and the availability of future credit.”
To relieve the situation, Rexam is considering a number of options, including equity raising but said no final decision has been made.
Its second quarter financial results are released on Thursday and an update may be issued then. In the meantime, the stock market has reacted badly to the news, with shares falling 9 per cent before recovering slowly.
Rexam had said earlier in the year that an upturn was likely as the year progressed but the latest news reveals that no recovery has been forthcoming.
Despite the failure of an upturn to emerge, the company said its half year results would at least meet market expectations.
Cost saving measures
To help protect profits and service debts, Rexam is also considering plans to introduce new cost savings measures.
“Management has launched a number of significant cost saving initiatives and is considering others which, with those already announced, will have a material benefit on Rexam’s performance in 2010.”