Construction giant Fletcher Building [FBU] has moved to head off a potential debt pinch in its next financial year by reworking the terms of its banking covenants - effectively giving itself more financial breathing space.
After the company had updated - and substantially downgraded - its financial forecasts for the financial year due to end on June 30, analysts had warned that Fletcher risked having little "headroom" with its banking covenants in the early part of the 2025 financial year.
Fletcher, which saw both its chairman Bruce Hassall and chief executive Ross Taylor quit in February, has preempted the potential problem.
In a statement to NZX, Fletcher announced amendments to its banking agreements that it said will extend the tenor of its debt facilities, "and enable it to rely on more favourable terms for covenant testing through to the end of calendar 2025 if required".
Essentially it means Fletcher will be permitted a higher debt-to-earnings-level and a lower level of interest 'cover'. The company provided the below table:
Fletcher's acting chief executive Nick Traber said given the current market environment and outlook, the company had taken preemptive steps to reinforce its "resilience" for the medium-term "to position ourselves to navigate the tougher trading conditions".
Fletcher has agreed with its Syndicated Facility Agreement (SFA) lenders to refinance "Tranche D" of its SFA.
Traber said this A$674.5 million facility was scheduled to expire in October 2025 but has now been extended into two longer-dated maturities, with A$424.5 million now expiring in July 2027, and A$250 million expiring in May 2029.
"The agreement significantly improves the tenor of the company’s funding lines, such that the next material debt maturity is in FY27," he said.
Secondly, Fletcher Building has agreed "certain amendments" with all of its lenders (including the SFA, "club" loan arrangements, and its US private placement - USPP - debt) that will, as highlighted in the above table, enable it to rely on more favourable terms for covenant testing for its Senior Interest Cover and Senior Leverage covenants for the period from June 2024 to December 2025 (inclusive) if required.
"Should the company need to rely on the amended covenant levels, it will not pay a dividend until it agrees to be tested by, and complies with, its existing covenant levels," Traber said.
The company confirmed that it expects to be in compliance with its existing covenant levels as at the end of the June 2024 financial year.
The Fletcher shares ended last week on the NZX at $3.11, down around 37% in the past 12 months. However, in early trading on Tuesday the share price rose 5c to $3.16.
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