Covenant Breach - The End is Nigh

PaperlinX is absolutely teetering on the brink of the abyss.

Reading the detail of the announcement, some key disclosures are set out below. These tell you that PPX is probably reviewing on a daily if not hourly basis whether it is entitled to continue to allow its shares to be bought and sold on **promotion blocked** and to continue to trade as a business. Expect either of the following at a moment's notice:

a) shares suspended from trading until financial position can be clarified (because the directors are not entitled to allow punters to buy and sell the shares if a buyer today could find the company is in administration tomorrow)
b) administrators called in (because the directors are not entitled to allow the business to continue to incur debts to suppliers if they have any reason to believe those suppliers might not get paid).

Either of those would completely wipe out PPX and PXUPA, and it seems like either or both of those could be imminent. See the disclosures below which are copied and pasted word for word from Friday's announcement, with emphasis added to compensate for the fact that they were buried in the detail where the average punter may not see them:

Extract from Note 12
The EBITDA, net worth and gearing level debt covenants were breached at 31 December 2014.

Extract from KPMG’s Audit Report
There are uncertainties in relation to the ability of the Group to execute a sale or restructure of its European operations (including the resolution of legal and commercial issues relating to material pension plan obligations), meet its operational cash requirements in certain jurisdictions, complete the Canadian sale, remain within the requirements of the existing debt facilities and renegotiate the covenants and extend the term of its main facility in Europe.

Extracts from Directors’ Report
The Directors are aware that a material uncertainty exists … which may cast significant doubt upon the Consolidated Entity’s ability to continue as a going concern.
The debt facility from the main lender in Europe is due to expire in September 2015.
The financial covenants under this facility were breached at 31 December 2014.
The financial covenants under this facility are due to be remeasured in the March 2015 and June 2015 quarters and based on current trading forecasts for the European operations, THESE FINANCIAL COVENANTS ARE EXPECTED TO BE BREACHED.

The EXPECTATION that the covenants will be breached in March is the clincher. This says that the company has at most 31 30 29 28 days to live.