Demetriou’s Capitol Health seeks $50m to retire debt
Michael Bennet
The Australian
April 27, 2016 12:00AM
National Australia Bank’s private wealth arm has begun testing interest from clients for a $50 million bond sale by the Andrew Demetriou-chaired radiology company Capitol Health to pay off debt owed to the bank.
In a note to clients, NAB Private Wealth said it was seeking “expressions of interest” in the senior unsecured notes that would partly be used to pay back more than $130m of secured facility with the bank, the company’s sole lender.
“Capitol will use the proceeds from the issue of the notes to repay existing outstanding debt of the Capitol Group, including indebtedness owing to National Australia Bank Limited under the Australian Dollar Bilateral Facilities Agreement, and for the Capitol Group’s general corporate purposes,” the note to clients says.
One NAB client told The Australian the deal raised eyebrows, labelling it “ethically suspect” and high risk for the bank if investors lost money from the bond.
At the end of December, Capitol’s non-current — beyond 12 months — loans and borrowings totalled $96.1m.
The first-half accounts, which included a 52 per cent dive in profit to $2.2m, added that Capitol had renegotiated the revolving secured loan facility with NAB to $138m on “more favourable margins and financial covenant requirements”.
“The group complied with the applicable covenant ratios throughout the reporting periods,” the radiology company added.
Covenants included net debt to earnings not exceeding four times through to December, before dropping to a cap of three times.
In February, the board suspended dividend payments pending “capital management activities”, pledging a review at the full-year results “subject to profits and debt levels”.
In a video accompanying the email, Capitol chief John Conidi said the idea of issuing a bond came from another company and NAB had not forced the capital raising, which would overhaul its financing structure to free up capital.
“Servicing debt is not an issue when it comes to an industry or a company like ourselves,” he says, noting it was “very stable” with strong cashflow because government funds were received within 48 hours.
In the video with Mr Conidi, NAB director of capital financing Mark Todd also assured potential investors that “it’s not something we’ve asked you to do, it’s something that you’ve come to us (with)”.
A NAB spokeswoman added: “NAB regularly undertakes these types of raisings to wholesale investors and it’s common practice for the business to seek expressions of interest for a wholesale bond issuance.”
After trading as high as 92c a year ago, Capitol’s share price yesterday closed down 1c at 18c.
The bonds have a maturity of four years and an indicative yield of 8.25 per cent, subject to final pricing. There is an option for Capitol to buy out the bonds in two years.
Melbourne-based Capitol owns and operates about 70 clinics throughout Victoria and NSW, conducting more than a million procedures every year and employing 50 full-time radiologists.
The company is chaired by Mr Demetriou, the former CEO of the Australian Football League and a director of Crown Resorts.
In the first half, Capitol’s revenue grew 57 per cent on a year earlier to $77.4m, boosted by acquisitions in a self-described “difficult” period for the industry.
“The outlook remains challenging to predict but we remain confident that the transformative nature of the acquisitions we made in 2015 coupled with the continuing investment in technology will drive earnings in full-year 2017 and beyond,” Mr Conidi said in February.
Capitol did not return calls for comment.
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so it's not a Convertible note issue - its just straight debt.
it is an Unsecured facility to replace (wholly or partly?) a Secured facility
only 1 lender NAB
CAJ better off not having facility secured, because it gives CAJ more leeway to manage its affairs.
it can be repaid early (wholly or partly)
we have not been told exactly what all of the facility will be used for - will it all be drawn down??
CAJ Price at posting:
18.0¢ Sentiment: None Disclosure: Held
(20min delay)