all over red rover, page-36

Hi Markie,

Nice to have some real analysis on this stock.

The stat that stood out to me was FEA's debt has been reported in newspaper articles to have increased from $190m at time of the capital raising to either $200m or 216m. Thus if you add in the $39.5m raised (less costs, say 5.5m) that's a rough negative cashflow of $45m-$60m. Is this level normal for MIS companies at this time of year?

They do only get in $$ near the end of the FY in May/June etc but still that is quite a cash burn!

The problem for the banks is that FEA as a going concern has the right to earn a significant amount of recurring income on its last 15yrs of plantations for things like pruning, general maintenance and administration.

Combined with a guaranteed way to wind down at least some of their land bank via future MIS sales, a profitable SmartFibre, a mill which is near break even and an improving timber sales outlook it must be tempting to just waive the covenants.

On the flipside if the banks tip FEA into receivership they add additional forestry land into a flooded market further depressing the price, have a mill to either run or close down which would depress tree prices further, again further affecting the value of the land bank. They could sell the 50% of SmartFibre to Guns though they are hardly capable of paying a high price at the moment!

As I have said before this is must be a tough call for CBA & ANZ and no doubt why "negotiations" are taking a while...