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Fletcher Building guarantees financial salvation
Fighting in the Fletcher Building (ASX:FBU) obviously predicts that the current struggles will persist over the next 18 months to two years, judging by Monday’s announcement that its backers have agreed to reset the company’s banking arrangements by the end of next year.
Furthermore, the agreement extends the next maturity of the principal debt by three years, thus relieving pressure on the company’s finances. This extension allows it to restructure, overcome its current problems and weather the downturn in construction activity in Australia and New Zealand without the imminent threat of a significant debt obligation.
The FBU informed stock exchanges on both sides of Tasmania on Monday that the agreement “will allow it to rely on more favorable terms for testing the agreement until the end of calendar 2025 if necessary”.
However, there will be a cost: if the company’s finances become too tight and exceed bank debt covenants, shareholders will not receive dividends while this situation persists.
FBU stated that it had reached an agreement with its Syndicated Facility Agreement (“SFA”) creditors to refinance Tranche D of the SFA. This A$674.5 million credit line was initially set to expire in October 2025. The agreement extends the maturity date of this credit line into two longer-term maturities: A$424.5 million will now expire in July 2027 and A$250 million will expire in May 2029.
The company noted: “The agreement significantly improves the term of the Company’s financing facilities so that the next material debt maturity is in FY27.”
Fletcher Building also disclosed that it has agreed to certain changes with all of its lenders (SFA, Club Loan and USPP), which will allow it to rely on more favorable covenant testing terms for its Senior Interest Coverage and Senior Leverage covenants. from June. 2024 to December 2025 (inclusive) if necessary.
“If the company must rely on the amended agreement levels, it will not pay dividends until it agrees to be tested and complies with its existing agreement levels,” the company warned.
Acting CEO Nick Traber said in Monday’s statement that, “Given the current market environment and outlook, we have taken preemptive steps to bolster the company’s resilience over the medium term to position ourselves to navigate the toughest trading conditions.
“With between $0.8 billion and $0.9 billion of liquidity expected as of June 30, 2024, we have a solid liquidity position and today announced agreements with our credit partners that reflect their continued support and confidence in Fletcher Building,” he said.
FBU will report a significant loss for the year ending June. It will be confusing, with substantial writedowns (many already known, but potentially magnified in August’s annual results). The company is also looking for a new CEO and other senior executives, as well as a new president and board members.
Shares rose 2.9% last Friday, but are still down more than 36% in the first five months of 2024.