Some of the content has been in my previous posts.
By 31 October 2019 RFG must extinguish/pay back all of senior debt facilities amounting to $285 million (refer announcement, RFG presentation, statutory accounts). They may become due earlier, depending on RFG performance and the bank’s attitude.
ALL proceeds from sale of assets in the interim MUST be applied toward the reduction in the bank facilities.
This leaves cash flow and working capital management to provide and pay for business strategies (investment in plant and equipment, upgrading of facilities, etc.)
Current position:
Weak (and declining?) cash flows;
Capital expenditure requirements ?;
Costs of closing franchisees (rent, guarantees, etc.) is not able to be determined; and
All major segments of the company are showing declining operations, profitability and cash flows.
Re: Invesco: Currently holds 13.385% of RFG – refer 11 Sept announcement.
A possible scenario is that Invesco approach the secured lenders and negotiate to buy the secured debt over the company. At a significant discount (think Slater Gordon), paying 20 cents on the dollar (i.e. $51.8 million). Then the fund (realising that the company has very little possibility of meeting its debt maturity obligations) approaches the company with a deal that looks like this:
- offer to cancel say $150 million (face value) of the debt they hold in return for the issue of shares in the company at an agreed issue price of $0.25 per share.
Net result: company has reduced outstanding debt from $259 million to $109 million and has issued 600 million shares (outstanding now is approximately 183 million shares).
Total shares on issue: 783 million of which fund has 600 million and the company has a reduced debt profile.
Share price after issue would likely be less than $0.25
Alternatively:
The company is NOT generating sufficient funds from operations. This will adversely impact its strategies.
Subsidiaries are for sale (refer article in Australian newspaper). The realities for the sale process are that the due diligence process will be protracted and thorough and take some time. Additionally, potential purchasers know that the company is stressed and will therefore likely offer (if at all) low ball prices for the subsidiaries.
It is not feasible for the company to take on more debt (if at all) and working capital manipulation will not generate significant cash. Therefore, any capital must come in by way of an equity issue. Such an issue will be dilutive and have an adverse impact on the share price (could be substantial).
Plainly, the company is not in a position to generate sufficient funds from operations so meet its strategic costs and its debt obligations which are due for repayment on 31 October 2019 (or potentially earlier).
Therefore, it is likely that the company will have to have an equity issue. The amount and pricing of which is at this stage not able to be determined with any degree of confidence. Once the results are published, realistic assumptions can be made. That said, the raising will have to be significant and at a steep discount to the current share price.
RFG Price at posting:
48.0¢ Sentiment: None Disclosure: Not Held
