MSB's Potential Partner, page-18

@col69,

That $52.9m figure you quote is derived from a "gain on divestitures" which relates to the capital profit that was recorded on the sale of the Nuclear Imaging business.

I wouldn't - nor would any self-respecting lender to MNK - treat that as a part of "normal" operating profits, out of which debt is able to be serviced.

To be fair, however, on the flipside there were $17m of non-restructuring impairment costs taken above the line which, it could be argued, are also non-recurring, so you are free to add this figure back to the reported operating profit.

But, either way, MNK's "normalised" operating profit is barely sufficient to cover the company's interest bill (and that is at the current record low interest rates; heaven help MNK if the cost of debt starts to rise."


The recent sales of a couple of businesses should reduce gearing and hey they have a LOC for $1bn available to assist in the tough times...

In fact, this highlights the pickle in which MNK finds itself: as it sells off businesses in an attempt to reduce gearing, it also loses the earnings associated with those sold businesses.

And the trouble - as the past quarter highlighted - the lost earnings is far greater than the reduction in the interest bill... meaning that underlying earnings are falling even faster than they ordinarily would.

So, because earnings falls faster than debt, gearing actually rises, instead of falling.

PS.  It's not a Letter of Credit that they have; it is a revolving facility. Big difference between the two.


"Many businesses would not survive or grow without going into debt ... that's a fact of life - just like going into debt to buy a house if you don't have funds to buy outright, how else are you going to get ahead / purchase one?"

With respect, that's a poor analogy, because the two situations are completely different

When a bank lends to a purchaser of a house, the mortgage is secured by the property.

When a bank lends money to a company like MNK, where 85% of the assets are made up of goodwill and other intangibles, there is no security for the lender, so it relies on solvency metrics (hence, it places covenants around these).  And, for MNK, they are right on the cusp of going through their banking covenants.