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"rental income is significantly above the interest charges and the dividend combined"
For now. As property values decrease, renters will expect a reduction in rents and the company itself risks the equivalent of negative equity - difficult to get loans under these circumstances.
I've been pretty lucky here in that I sold 90% at 21p on the spike before this recent news looking to get back in at 19p ... but I've seen all this before with debt and high interest rates. The problem lies with the value of equity compared with the loan required and overall debt.
It seems bizarre that a company would put such effort into hedge the bulk of its debt leaving the August 2024 call so late and for so relatively little. I can only presume that it was thought to be a trivial matter and as such overlooked.
Yesterday's RNS strongly pointed to a big problem. A reminder from last September:
" The Directors believe that should financing be required at the bond maturity date then appropriate borrowings will be in-place in adequate time."
Something is not going to plan, obviously.
MTB,
Once again, I am with you. This business generates a lot of cash, easily covering interest costs and its viability should not be in question.
There is much exaggerated talk about the potentially calamitous consequences associated with need for replacement of the retail bond. It is only £50 million and it is a replacement of existing financing. There are many perfectly satisfactory options available for dealing with this.
TOD - certainly well named.
Whilst uncertainty remains high, I just keep going back to the fact that the rental income is significantly above the interest charges and the dividend combined, whilst any lender gets real asset backing. As such, I think there's reasonable chance that the re-financing goes through with little issue. If so, upside of over 100% here I think, whilst downside limited. Just my view.
"Nothing has really changed"
Press speculation is one thing, this another.
"The Company confirms that significant preparatory work has been undertaken to date in respect of both the debt and equity options, which remain under active consideration."
Reads to me as though a third party has just walked away from whatever deal was being prepared forcing the directors to notify the market .... Divide £75 million by 5p to see how many more shares are likely to be produced at current valuations then ask whom is going to stump up the money - will there end up beoing a D4E? If so, shareholders will effectively wiped out IMO.
Glad I've only got a few quid in here after this morning.
I imagine their hand was forced by MAR. The plan was probably to release some good news in the annual report around sales, leasing activity post year end etc and then try and use that as a springboard for an equity issue. I truly hope that plan is now dead and they do what they should have done months ago, which is agree a flexible debt refinancing at whatever cost is necessary while continuing with asset disposals, along with a dividend cut if required. Appalling mismanagement of the situation but as many have pointed out, the value of the portfolio and cash flow situation have not suddenly changed.
Really they should make an announcement before the annual report that the equity raise is being abandoned and disclose whatever debt deal is on the table. Another 10 days of this nonsense is unacceptable.
Weird ? Forking insane. Never seen anything like this sheet show.
I have been lucky here getting out twice at profit. Having ventured back in I didn’t see the bond as a big issue but a lot of noise as it headed towards 30p so I got out until there was more clarity on the whole setup. I can honestly say I wasn’t expecting an RNS like that one. I just don’t understand it’s purpose and even though I was looking at an entry around 20p I certainly won’t be diving into this again
The debt holders aren't going to foreclose on this. That amount of asset value protection combined with the cash flow from the 98% rent being paid means lenders should be queuing up. Remember, we're not talking an increase in debt, just a refinancing. I think the share price move today will put pay to this being equity financed - and yes, the statement from the Company actually stating that an issue was being considered at a large discount to the the price was weird and damaging in the extreme, but does not mean the property is suddenly worth less. Anyway, whilst risks remain , the upside potential here now is substantial, and fortunately, my broker did allow me to trade, and I initiated a position at 13p this morning. Happily, you don't have to put a lot into these sorts of stocks to make a difference if the story plays out so just a couple of £k for me :-)
My take on this...
What influence did the nomad have? If they strongly advised that an RNS was necessary what could the BOD do apart from agree with them?
It would have been considerably better to have requested a suspension of share trading pending a refinancing (of whatever nature).
Why has the situation apparently deteriorated so much from when they announced the dividend?
By making the announcement they have made matters considerably worse. IMHO an equity raise is now out of the question - or at least a very last resort.
Heads should have rolled ages ago. Where's the guillotine?
From a fuming LTH...
Reckless directors in my view . They have trashed the share price..
The £50 million bond equates to just 2 years of dividends
There is no way that the share price would be so low now if nil dividend had been declared to reduce fixed term debt in order to boost LTV
They would have been in a far healthier position had they done that , with long term prosperity and security
The problem with that option is the shareholders would likely sack the board..the way they chose , they stayed in employment for 2 years
Carillon revisited , and nobody is held to account
It says they are very advanced in both equity AND debt options. We are talking about a 50m bond - and even if they sell the property portfolio at a 20% discount to the December valuation they would still return well in excess of the current share price. Everyone seems to forget that their LTV is 55%, not 80%.
If they equity raise is turned down and the company is unable to replay the retail bond in August, aren't they insolvent?
They may have a chance to persuade the retail bond holders to extend and pretend since the secured creditors would have priority in the windup that would inevitably follow a default. (I haven't seen the terms but would imagine that all secured notes would become immediately payable on default or insolvency.) However I would very much doubt that they would be able to salvage anything much for the shareholders.
I'm guessing that any institutional shareholders that have not already sold will not want to play Russian roulette and so will vote for the equity issue to salvage something - especially if they are offered a sweeter deal that PIs :(
I also could not buy (via Bank Vontobel in Switzerland).
It’s extraordinary given that the information around an equity issue was already out there. Nothing has really changed, they have just made everything worse by saying absolutely nothing new. What I expect now is the release of the annual results alongside the announcement for the equity issue and a shareholder vote. Hopefully that is roundly voted down and there is a lot of opportunistic buying happening today anticipating just that.
The RNS does say that they are very advanced in both an equity and a debt option, therefore we may actually find out that there is actually a debt option on the table. That would make sense because they will need it for the going concern disclosure in the annual report.
Ideally we get a similar chain of events to Hipgnosis with the board being removed and a new board put in place to wind the structure down.
I am surprised that the shares haven’t been suspended given this fiasco.
MTB,
I am with you. Surely, aren’t people forgetting that this business generates a lot of cash (as you describe) and its viability should not be in question.
However, having said that, the crass nature of that RNS is quite extraordinary and utterly counter-productive. Instead of providing a calming message containing details of a viable, well considered plan to deal with the situation, it has intensified concerns that the company may be facing insurmountable financial difficulties.
Interestingly, Halifax/Lloyds/Iweb have banned clients from buying Regional. Just tried to add a few to average down. Got this message in reply to my attempted purchase. ---
Investment into this asset is currently unavailable through our service. This could be for a number of reasons, such as the asset no longer meets our policy, the manager of the asset has declared it does not provide value or due to a change in regulation.
I've said this previously but if anyone was interested in buying their assets in bulk it would be easier to wait for the first default and/or covenant breach. Once the domino effect from that kicks in and they're on their knees, the hypothetical buyer could either lowball or better yet pick up unencumbered assets out of administration.
I feel sick after stupidly buying back into this. Surely the only option now is a managed wind up of the company and a rejection of the equity option by shareholders.
So what am I missing here. Debt of 437m, at 3.5% = 15.3m interest per year
Annual rent roll of £67.8m, so interest is over 4x covered.
Current annual dividend of 4.8p per share = £24.8m, so easily covered by rental income after interest - why do they need more finance??
Div Yield of 36%
Surely someone's going to come and buy this aren't they?
Retail bond price seems pretty relaxed about today's announcement.
Again, hope you're right on all counts Penta. Fingers crossed.
This isn't rocket science, Inglis only needs to sell £80 million of offices, call it at 11% yield. His made the situation bad by in action.
And the situation would be stabilised.
Don't know why his hanging on, he needs to call his mates I other REITS/property sector who have cash to buy a good 11% yield.
The dividend should be paid in script not cash.
This is bieng made into a debacle, the market is valuing the company at £60million plus debt now far from the so called NAV.
Wake up Inglis get a move on.
@Krusty, ah yes i see. under that assumption it tracks. but we're not there yet IMO(I hope). i'm not gonna agree or contradict the likelyhood as all of our input is quite equal here. But i understand the point of view.
i agree on the logic that it would make 0 sense to pay dividend if the bond was at risk. But that is also just our assumptions. What may be (il)logic to us, could have another reasoning behind it, that we have no idea of.
Maybe management was acting under the assumption of ongoing options and considered it a non-risk. Aside from this horrible RNS (lets assume forced by info leak), it could be that various options are on the table.
We can just hope that the RNS has not changed The terms that were already in motion.
Agreed re divi. I assumed things were in train re bond when they announced the divi otherwise it would be stupid but they obviously are stupid after seeing todays making a bad situation worse
They really need to get this resolved this week after todays clanger
Penta, see my post at 8.55 re valuation. I sincerely hope you & Roger are right but I can't see it I'm afraid. What the hell they're doing paying a dividend when they've got a £50m bond to settle in August is beyond me. Seen these situations before, when things start going bad. Never ends well for ordinary shareholders. Let's see what happens next.