SML - Synlait

[Minimoke]

Covenants were

"The following summarises banking covenants effective for the year ending 31 July 2023:
1. Total shareholder funds of no less than NZD $600m at all times.
2. Working capital ratio of no less than 1.5x at all times.
3. Interest cover ratio of no less than 3.0x at all times.
4. Leverage ratio of no greater than 4.0x at 31 July 2023.
5. Senior leverage ratio of no greater than 3.0x at 31 July 2023.

[winner (n)]

Lot of debt eh mini

And last 12 months cash flow close to a $100m outflow

[Minimoke]

Lot of debt eh mini

And last 12 months cash flow close to a $100m outflow

I'de be worried if I was an unsecured bond holder.

[Hectorplains]

I give them credit for taking some time to decide how best to loose money - so I think this would have been flagged in the last guidance.

I think the only 'credit' will be drawn from shareholders' pockets.  Another Cr seems inevitable.

[Hectorplains]

I'de be worried if I was an unsecured bond holder.

Trading at 9.35%...

[Teitei]

Trading at 9.35%...

On trading halt so could see 10%+ after announcement.

Could be good buying as rights issue is almost inevitable.

[Basil]

On trading halt so could see 10%+ after announcement.

Could be good buying as rights issue is almost inevitable.

A lot of other risk remains.  You have to make an assumption in tandem with a substantial rights issue that the banks will roll over a lot of their $350m debt that comes due in October 2023 and that they can turn this ship around in FY24 so there's decent scope for servicing all the remaining debt going forward.
Bonds mature in Dec 2024.  I think it's the risks around the return of your money or not, not the return on your money in the meantime that should be front and central with investors considerations here.

[Arbroath]

I'd be more worried about the equity c. $450m instead of the bonds.  Remember Sky TV did a rights issue at 12c so they could pay off their bonds that at one point yielded 40% with a year to maturity.  Buyers of the bonds got their return...SML likely similar - could be a raise at c. $1 a share to shore them up...probably need $200m+ to take care of the bond and some cash comfort etc

[winner (n)]

I'd be more worried about the equity c. $450m instead of the bonds.  Remember Sky TV did a rights issue at 12c so they could pay off their bonds that at one point yielded 40% with a year to maturity.  Buyers of the bonds got their return...SML likely similar - could be a raise at c. $1 a share to shore them up...probably need $200m+ to take care of the bond and some cash comfort etc

Jeez it's just over 2 years ago since they raised $200m at $5.10

Was a bargain back then ..punters couldn't enough ....overvsubscribed

[Minimoke]

I wonder what the Auditors are thinking / doing?

[Basil]

Jeez it's just over 2 years ago since they raised $200m at $5.10

Was a bargain back then ..punters couldn't enough ....overvsubscribed

Production for the new international customer was expected to commence mid 2022 and have a positive impact on earnings in FY23  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362927/334702.pdf
They made a "whopping" $4.8m in the first half of FY23.

[Minimoke]

Apart from the $180m of bond debt lets look at their other debt facilities

• A secured revolving credit facility (Facility A) of NZD $66.7m maturing 1 October 2023, with NZD $33.3m amortising
31 July 2023 and the remainder maturing on 1 October 2023.

• A secured revolving credit facility (Facility B) of NZD $50m maturing 1 October 2023.

• A secured revolving credit facility (Facility C) of NZD $50m maturing 1 October 2023.

• A secured working capital facility of NZD $250m maturing 1 October 2023 which included temporary increases to
NZD $300m from 20 October 2022, to NZD $330m from 21 December 2022, and then decreasing over 6 months
to NZD $250m from 30 June 2023. Facility limits were updated on 21 December 2022 in an amended agreement.

So, revolving credit is maxed out at $166.7m and due 1 October 2023

And they have $184.3m in working capital taken up and maturing 1 October 2023. So essentially no head room there.
they have to get that working capital debt down to $250m by 30 June 2023. Then the next interesting date is all other debts sorted by 1 October 2023. None of those dates are far away.

[Minimoke]

Production for the new international customer was expected to commence mid 2022 and have a positive impact on earnings in FY23  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/362927/334702.pdf
They made a "whopping" $4.8m in the first half of FY23.

Which compared with $27.9m the prior year. This new international customer must be a taker, not a giver.

[Basil]

Don't forget folks if considering making a bid for the bonds in due course that they are subordinated and unsecured.  i.e. rank behind all bank debt.  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/345177/313032.pdf

[Minimoke]

Don't forget folks if considering making a bid for the bonds in due course that they are subordinated and unsecured.  i.e. rank behind all bank debt.  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/345177/313032.pdf

And then you have account payable sitting at $423m against receivables due of $140m and $12m cash on hand.

There will be a bit of a long line for any available cash if things turn pear shaped.