Struggling Fletcher Building (ASX:FBU) obviously foresees current struggles persisting for the next 18 months to two years, judging by Monday’s announcement that its financiers have agreed to reset the company’s banking agreements through the end of next year.
Furthermore, the deal extends the next major debt maturity for three years, thereby alleviating pressure on the company’s finances. This extension allows it to restructure, overcome its current problems, and weather the downturn in building activity in Australia and NZ without the looming threat of a significant debt obligation.
FBU informed stock exchanges on both sides of the Tasman on Monday that the deal will "enable it to rely on more favorable terms for covenant testing through the end of calendar 2025 if required.”
However, there will be a cost: if the company’s finances become too tight and exceed the bank debt covenants, shareholders will not receive a dividend for as long as this situation persists.
FBU stated that it had reached an agreement with its Syndicated Facility Agreement (“SFA”) lenders to refinance Tranche D of the SFA. This A$674.5 million facility was initially set to expire in October 2025. The agreement extends the expiry date for this facility into two longer-dated 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 tenor of the Company’s funding lines, such that the next material debt maturity is in FY27."
Fletcher Building also disclosed that it had agreed to certain amendments with all of its lenders (SFA, Club Loan, and USPP), which will allow it to rely on more favorable terms for covenant testing for its Senior Interest Cover and Senior Leverage covenants from June 2024 to December 2025 (inclusive) if necessary.
"Should the Company need to rely on the amended covenant levels, it will not pay a dividend until it agrees to be tested by, and complies with, its existing covenant levels,” the company cautioned.
Acting CEO Nick Traber stated in Monday’s statement that, “Given the current market environment and outlook, we have taken preemptive steps to reinforce the Company’s resilience for the medium-term to position ourselves to navigate the tougher trading conditions.
“With between $0.8 billion and $0.9 billion of liquidity expected at 30 June 2024, we have a solid liquidity position, and have today announced agreements with our lending partners which reflect their ongoing support and confidence in Fletcher Building,” he said.
FBU will report a significant loss for the year ending June. It will be messy, with substantial write-downs (many already known but potentially expanded in August’s annual results). The company is also in search of a new CEO and other senior executives, as well as a new chair and board members.
The shares rose 2.9% last Friday but are still down more than 36% for the first five months of 2024.
