Member Info for danl90

You all just have to hold. You’re not allowed to adjust on new events

@carllop

The debt markets are open atm and are looking to do generous deals. There isn't a need for an RI here it's purely a timing point in terms of getting the EBITDA back up once stores open

https://www.morningstar.co.uk/uk/news/AN_1614594534837535800/in-brief-restaurant-group-agrees-to-gbp500-million-debt-facilities.aspx

This Restaurant Group this morning. Key point

"Signs commitments for GBP500 million of new debt facilities, consisting of GBP380 million term loan facility to 2026 and GBP120 million super senior revolving credit facility to 2025. Notes the new facilities provide the group with enhanced liquidity and long-term financing, with the term loan being used to repay and refinance in full all of the group's existing debt facilities.

Restaurant Group says no leverage tests will be held until June 2022. Adds net debt as at December 27 is GBP340 million, which is in line with its expectations."

I'll say again

"Restaurant Group says no leverage tests will be held until June 2022" - this is a far more generous deal than Card need but it shows we can refinance and get covs waived for the next few months - easy!

12 months time back to £80m EBITDA we'd be 1.1x debt/ EBITDA. Put £20m or so into digital and advertising. The rest? Dividends!

@oldboys how do you see this info?

@carllapos - have you not seen the Restaurant Group refi? They are giving cash away and waiving covenants

The debt markets are open atm and are looking to do generous deals. There isn't a need for an RI here it's purely a timing point in terms of getting the EBITDA back up once stores open

https://www.morningstar.co.uk/uk/news/AN_1614594534837535800/in-brief-restaurant-group-agrees-to-gbp500-million-debt-facilities.aspx

This Restaurant Group this morning. Key point

"Signs commitments for GBP500 million of new debt facilities, consisting of GBP380 million term loan facility to 2026 and GBP120 million super senior revolving credit facility to 2025. Notes the new facilities provide the group with enhanced liquidity and long-term financing, with the term loan being used to repay and refinance in full all of the group's existing debt facilities.

Restaurant Group says no leverage tests will be held until June 2022. Adds net debt as at December 27 is GBP340 million, which is in line with its expectations."

I'll say again

"Restaurant Group says no leverage tests will be held until June 2022" - this is a far more generous deal than Card need but it shows we can refinance and get covs waived for the next few months - easy!

12 months time back to £80m EBITDA we'd be 1.1x debt/ EBITDA. Put £20m or so into digital and advertising. The rest? Dividends!

Look at the dividend record fella. Just read your last few posts I think you seem to jealous of others earning more than you? Don’t worry about it

@steve which ftse100 company is paying directors more than shareholders?

The point here is say we RI for £70m so we are at the 3x ebitda leverage point. In 12 months when ebitda is back at £80m we can go back to 2x leverage so in effect take out a big bank loan to pay back the RI. This is the policy card factory has been very clear on over the last few years just take a look at those special dividends they payed every year

@md but what on earth do we need £50m for?

This issue isn’t too much debt. It’s that the EBITDA is too low. All we need is to bridge until the EBITDA recovers

This business is very solvent and cash generative. We are just at a point where we are technically breaching a cov but when stores open we will be so far inside our covenant we will just have a silly amount of spare cash and debt headroom we can just draw the debt back and pay shareholders the RI back

@paddy you don’t know how these things work. You model and forecast

And I’m saying when we got the waiver these things which will have been modelled as known at the time have all moved favourably. Ie I might model 10% revenue growth. If I do 15% then that’s upside

I might model the £ at 1.2 a $ but then it moves to 1.4 that’s upside

So these things are all known or very likely upsides to the forecast

But as I say model a 30% fall in profitability on the pre-covid trading and we would sail under the covenants

You’ve still never answered the question. What does the business actually need the cash for?

@paddy you’re flipping your story now. First it was leases and debt that wasn’t know, ebitda isn’t right as doesn’t factor those in and then when you’ve been shown you double counted that you’ve changed to the “unknown” risks

Well here are some knowns now which weren’t known when we got the first waiver
- the £ is materially higher so our cost base falls
- there’a £6million CASH on the way
- stores are opening earlier than forecast

Also when stores opened up last time the LFL performance was 15% ABOVE the pre covid same months. So from open store data in October / November we know that customers want to get back to stores. You’re ignoring that

But as I say factor in a 30% downside and we still sail under the covenants

Paddy you’re double counting the downside then. You can’t say I only care for profit not ebitda and then say the lease liabilities aren’t included. The profit figure includes the lease liabilities and all. So if you use your £50m of pure profit then a debt load of £90m looks very manageable also considering that the profit figure includes the interest cost! So you’re double counting the down side

EBITDA is used as that’s the view of the operating business before the capital structure. So if we do an RI and get rid of the debt then profit becomes the EBITDA figure

The FY20 profit was £65m so we’d be inside the 2x cov even on that basis!

So I say again what on earth would the business need an RI for now? What would we spend the cash on?

@paddy not answering my point?

@scorpio you don’t think management will have factored this into their models? Since then £ got higher so called sets are falling and £6m about to land to cover this unwind. Add to that that online sales are beating expectations

Being such a well versed advisor you’d know there will be a management case and downside case. On all fronts we are seeing clear upside to the forecasts.

Oh and let’s not forgets model was for stores to open end of April and this is even sooner

£80m EBITDA will sort out any cash crunch. Bank just need to bridge the gap

But what’s the need for a rights issue? What covenant are you trying to fix paddy?

The debt to ebitda cov is the problem but that’s fixed when stores open. The debt isn’t the issue here it’s the low ebitda

Ebitda that was £80m before covid hit. Even a 30% downside and assuming no online growth (which is currently 140%) then that’s £56m and well inside the 2x covenant

So what do you want to do with the RI cash? You’d just give it back to shareholders in 12 months time anyway!

@34a but the covenant issue will sort itself with a return to stores opening when these new covs were set it was agreed 3x EBITDA but the world thought we were all open again and no more lockdown. We have had two since which have been much longer and harsher so the covs weren’t set for the world we are now in

Outside of covid the cov is 2x EBITDA this business the year before covid did £80m EBITDA. We have £90m of debt. When normal trading resumes we are barely over 1x

This isn’t a solvency issue it’s purely a shops closed issue. The business has still generated cash and grows online. What’s the need for the cash? Banks can see they only need to wait a few more months and all be fine

The banks might as well refinance, sort themselves a nice fat fee, and lock in a cash generative interest paying customer for the future. This way the bank gets paid. Taking lots of equity for their debt? Is bad PR and pain for them as then have to run it

@scorpion but the data doesn’t show a loss of market share. When stores were open they traded a head of PY. Yeah a bit of this was Christmas brought forward but shows the emotional attachment a lot still have to card purchases

Also the freehold estate point I get but it’s not a solvency point here it’s purely a timing point. Debt to ebitda multiple and our ebitda is low as stores are closed. Even if there are some customers who are gone (let’s say 30%) and assume no online growth (so I think a fairly strong downside case as stores went up after last lockdown and estate trading also went up) then knocking 30% of FY19 EBITDA is £56m so we are well under the 2x normal covenant period. This isn’t a solvency issue at all it’s purely a “we can’t tick that box as the stores are closed”

Raising cash will reduce that debt number and just mean we are back on track sooner

On the grants point from chancellor im sceptical we will get anything

@scorpion not meaning to argue just more curious on your insight

As I say this was £80m EBITDA before Covid. Even if you see that falling by 30% you’re easy back in 2x cov range needed

Even if they raise equity now. When this all goes back to normal the business will just be generating cash and have a clean balance sheet?

Do you not think this could be a straight refinance? In a Mitchell and butler RNS at the same point they said “recapitalisation” and said equity was being considered. This RNS reads different

Go on card factory RNS website and you can search it

@paddy say it how you want net debt moved £29m. So either we are holding £29m more cash or have paid back debt. It’s really quite easy fella

Also EBITDA is a proxy for cash is what I said. This is why it’s used by investors (common with PE) as each owner will have their own capital structure (ie different interest and depreciation depending on the model they use)

@scorpion - stakeholders has been used by card a few times and I think here it can mean a lot particularly as before this it is referring to stores opening

On a business which can generate £80m of EBITDA why do you think there is such need to pay the debt now?

This could be refinanced and in three months time the run rate position will show the debt is manageable?

Trading update in Jan-21

“ Despite the unprecedented nature of this year, our aggressive but considered management of costs and cash has resulted in a material reduction in our utilisation of the debt facility, resulting in net debt being reduced to £90m as at 31 December 2020, compared to the net debt of £119m as at 31 December 2019”

£119m - £90m is £29m

Also the £10m loss is accounting adjustment and not cash. EBITDA earnings were £5m and EBITDA is a proxy for cash

The banks got paid back £29m last year. Why is it risky for them? The stores will reopen. Vaccine roll out is happening

Last year stores were closed for a lot longer than they will be this year

Stores were even closed over peak Christmas!

All said we handed back £29m

This year cheaper cost of sales, growing online, more store activity and Christmas