I dont think the covenants will be No 1 issue for the new CEO. On the face of it the covenants position looks quite scary with how the shareholders funds measure is close...
However I dont think these are major causes for concern for the following reasons;
- The bank debt is not that significant ($100m) compared to the amount of cash the company generated from operations ($164m in last half year - which includes payments to landlords).
- Although the bank has covenants to protect its interests, the bank will only pull funding as a last resort. Banks typically work with companys first as getting repaid their principal and interest in an orderly manor is usually a better outcome for them.
- So based on the fact Myer is paying a lot of principal and interest back to the bank, I see the risk of the bank pulling funding in the near future as remote.
So in my opinion anyone who talks about a doomsday scenario for Myer where in the near term administrators are called in following a covenant breach are misinformed / a downramper.
(all my own opinion - DYOR)
MYR Price at posting:
45.0¢ Sentiment: Hold Disclosure: Held
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