Waterford Wedgwood, the crystal and ceramics business controlled by Sir Anthony O'Reilly and Peter Goulandris, has said that it will not pay the interest due on a bond, paving the way for a financial restructuring.

The manufacturer, which also owns Royal Doulton, has been bailed out repeatedly by Sir Anthony and his Greek brother-in-law, but it is moving into talks that will lead to the two men losing control of the business they have tried to rescue. The two men own nearly 60 per cent between them, but they are willing to see their holdings diluted as they try to raise new equity - as much as €200 million (£165 million) at a company worth €80 million - from American investors to salvage a business that has struggled with high costs and unfavourable currency movements.

Problems at Waterford Wedgwood come at a unfortunate time for Sir Anthony, who is also grappling with €1.4 billion of debts at Independent News & Media (IN&M), his media group. Although the two companies are entirely separate, both are under pressure, with IN&M trying to offload its Australian business to reduce debts.

Waterford Wedgwood has a 30-day grace period on its €166 million bond, which pays 9.875 per cent interest, as the rescue talks continue. After that, the company has a further six months “standstill” period, during which the bondholders cannot enforce a default except with the permission of its senior lenders. The company said it had the agreement of its banks, led by Bank of America, which rank ahead of the bondholders, giving it time to pursue a range of recapitalisation options.

With more than €400 million of debts, owners and management believe that there is no possibility of the company surviving with its existing debt burden. Last year it lost €241.6 million before tax, on turnover of €671.8 million. One possibility is to buy out the company's bondholders and a further €41 million of unsecured debt held by Anglo Irish Bank, possibly at a discount to their face value. The bonds are trading at about 20 per cent of their face value. Cash for a buyout would come from the new investors.

However, executives continue to examine alternatives, including a debt-for-equity swap and a simpler refinancing. The company expects to save at least €78 million a year by cost-cutting measures that have involved it abandoning crystal manufacturing in Waterford on the southern coast of Ireland and moving production to cheaper locations in Eastern Europe.

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