Ann: AJ Lucas Completes refinacing, page-4

Hey @carey18 & @SunderlandTech

While I am also a little underwhelmed and worn out by the refinancing results - I do think you folks might be glossing over a couple of modest wins in the announcement (not surprising given the way it was worded!).

Key Takeaways:

• Retiring the Junior notes facility is a pretty positive development - with our Senior lender (Balmain) having done its due diligence & happy to increase our facility limit from $35 to $50M to retire the junior debt. Balmain must be happy with the value of the assets they have lent against, and we will in time always secure more economical borrowing costs for secured loans (than unsecured).
• Interest Rates we were paying (as of the last half-yearly):
• Senior Loan = 10.95% (c$19.36M)
• Junior Notes = 17.94% (c$16.35M)
• [On drawn debt on the above, we were paying a blended rate of approx. 14.15% by my calcs]
• Kerogen Loans = 18% (c$88.3M AUD equiv)
• New Rates:
• Senior Facility = 13.2% (can reduce to 11.7% in 2026, see below) ($35.71M).
• Junior Notes = Nil (paid out, using increase in Senior facility loan). ($Nil)
• [On drawn debt of c$35.71M new rate would be 13.2% for 9 months, reducing to as low as 11.7% at end of 9-month Stretch period in Feb-26]
• Kerogen Loans = 16.4% Blended Rate (if continue capitalising interest on the loan);
• BUT Kerogen Interest rates will drop by 8-10% to just 8-9% (Tranche 1) and 9-10% (Tranche 2) if pay our loan interest in cash.
• So - savings & potential savings look something like:
• Senior & Junior Notes = just under 1% saving for first 9 months, increasing up to 2.45% savings after the 9 month stretch period. Equates to around $340k initially, increasing to $875k pa after Feb next year. [Modest savings]
• Kerogen Loans = This is where the potentially big savings are to be achieved, which have the potential to really begin to shift the dial on AJL's challenged financial situation. On US$57.7M loans ($90M AUD @ 64c) - the 1.6% (blended rate) immediate reduction in interest rate will save over $1.44M pa right now, assuming we continue to capitalise interest on the loan. However should we pay cash on some/all of the loan, there are potential savings on offer of around 9% pa (blended rate) which on $90M AUD would equate to up to around $8.2M pa in savings from current servicing requirements.
• So putting it all together there are potential savings of up to $10.4M pa - which is enough to seriously shift the dial on our predicament. The crux is however, will we have the capacity to take advantage of the savings on offer (ie by servicing our Kerogen interest bills in cash).
• I presume we may not have this capacity initially (during the stretch period) - however I imagine once we have dealt with the stretch period - we may increasingly be able to take advantage of some or even all of the interest savings on offer. They sound like they have been investing in some large new plant & equipment with which to service profitable growth - with which perhaps we can begin to gradually get on top of our debt pile. Provided we can keep our senior lenders happy (meeting our loan obligations & what we've said we'll do) - then I imagine we can pivot to paying Kerogen loans interest as our highest priority. Earning an 8.5% return effectively at nil cost, simply for not capitalising our interest bill - that shoudl be our absolute highest priority, as soon as reasonably possible.

While it's not an immediate game changer I'd been hoping for - the Board have to their credit - finally set an achievable pathway back from financial purgatory that AJL has been in for the past 6 years or more, to a future whereby we can relieve ourselves of the incredible debt burden we've been under and with time finally start to see the value of AJL's unique & profitable core business again reflected in the SP & prospects.

What would be really nice during that transition period to that future - is if the CEO & Board returned to providing more regular & informative communications to their minority shareholders from time to time, so we could feel engaged with the company & its future (rather than the status quo of a six-monthly announcement & perpetual virtual AGMs so they never need to see or answer to those pesky minor shareholders who actually make up the other 40% of the company's ownership)...!