(Alliance News) - Frontier Smart Technologies Group Ltd on Wednesday confirmed it is not expecting to meet covenant tests for Clydesdale Bank loan in December and has therefore agreed a new standby loan with shareholder Science Group PLC.
Frontier Smart is a digital radio, smart audio, and smart home devices firm and was subject to a hostile takeover bid by Science Group. Science Group's 35 pence per share offer expired July 19, with the company then holding a 48% stake in Frontier Smart.
Science Group and Frontier Smart have also agreed to enter a share subscription agreement. Under the agreement, Science Group will pay GBP1.0 million for 4.0 million new Frontier Smart shares, taking it's holding to 23.4 million shares, or a 52% stake.
While Frontier Smart expects to meet the covenant testing for its Clydesdale Bank credit facility at the next test date in September 2019, the company does not expect this to be true in December.
While Frontier Smart is in talks with Clydesdale over future covenant testing, failure to meet covenants could trigger an exit event, whereby Frontier Smart would have to repay the loan plus an exit fee.
However, Science Group has agreed to supply a standby credit facility to Frontier Smart if the Clydesdale loan is called or if the board decides to repay the loan. The standby loan expires April 2022 and is on broadly the same terms as the Clydesdale facility. However, the new loan will be a term loan instead of a revolving credit facility, will have an interest rate of three-month LIBOR plus 12% and will be convertible into Frontier Smart shares at 25p per share.
If the loan is fully drawn and converted into shares, Science Group will hold a 69% stake in Frontier Smart on a fully diluted basis.
Science Group has also agreed to provide liquidity to allow Frontier Smart shareholder to sell shares at 25p each. This will begin once Science Group has made its GBP1.0 million investment and is due to end September 6.
Frontier Smart will post its interim results on Friday next week. Following this, Science Group Chair Martyn Ratcliffe will be made chair of Frontier Smart and Science Group Company Secretary & Group Legal Counsel Sarah Cole will become a director at Frontier.
This follows the resignation of non-executive chair Hossein Yassaie on Wednesday last week. Non-executive directors Martin Harriman and Paul Taylor have also recently resigned.
In response to these resignations, Science Group has withdrawn its extraordinary general meeting requisition.
As at June 30, Frontier Smart's cash stood at USD3.6 million, in line with earlier guidance and benefiting from "working capital movements, particularly extended supplier payments". Frontier Smart said these may not be sustainable long-term and its working capital has been "partially realigned" since then, such that gross cash on July 31 stood at USD2.1 million.
Frontier Smart is attempting to mitigate costs and undertake a potential restructuring. This is likely to "incur significant costs" in 2019 but is a step toward meeting the company's "profitability objectives". This will include the investment of GBP1.0 million every year in developing internet-of-things technology.
Shares in Frontier Smart shares were down 2.0% at 23.51p on Wednesday morning in London. Science Group shares were down 4.4% at 183.09p.
Science Group (SAG)