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28 Nov 2008 07:00
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Update on QWIL's Financing Facility
As at 27 November 2008, the Company had drawn β¬40.5 million against its financing facility andΒ had undrawnΒ availabilityΒ of β¬94.5 million. Given current market yields,Β the CompanyΒ should beΒ able to achieve its return objectives on new investments without the need for additional leverage. In addition, in today's highly volatile markets, the Company could have been exposed to material change clauses that might have triggered the requirement for the repayment of the facility on unfavourable terms.
In light of these circumstances, the Company has successfully negotiated amended terms on a reduced facility, involving a flexible two year repayment schedule of the outstanding debt andΒ has reduced the riskΒ associated withΒ material change clausesΒ that could have forcedΒ a repayment of the debt on unfavourable terms.Β The Company's cash balance of β¬16.5Β millionΒ as at 27 November 2008Β and continued cash flows from its investment portfolio support the repayment schedule and the timely redemption of the loan facility. The Company believes thatΒ the renegotiated loan facility is moreΒ prudent than continued dependence onΒ anΒ unpredictableΒ lending market.
The Company hasΒ completed negotiations with its lenderΒ and the key elements of the amended facility are summarised below.
The Company has committed to repay the outstanding balance of the facility byΒ OctoberΒ 2011,Β pursuant to an agreedΒ loanΒ amortisation schedule and will not make any further draw downs. The CompanyΒ believesΒ it shouldΒ be able to satisfy the loan amortisation schedule with theΒ β¬16.5 million ofΒ cashΒ currentlyΒ on the balance sheet and the expected cash flows from its investment portfolio. In addition, at the end of each quarter, the Company has pledged to keep theΒ outstanding balance of the financing facility below the product of the then applicable advance rateΒ ("Applicable Percentage")Β and the value of theΒ investment portfolio plus cashΒ (the "Borrowing Base"). At present, the Company's Borrowing Base is approximately β¬62.9Β millionΒ versus a loan balance of β¬40.5 million.Β
At the end of each calendar quarter, the Company has agreed a target loan amount ("Target Loan Amount") with the lenders. The Company has also agreed to anΒ Applicable PercentageΒ for every quarter. The Target Loan Amount andΒ Applicable PercentageΒ Schedule are detailed below:
|
Date |
Target Loan Amount |
Applicable Percentage for Residuals |
|
31 DecemberΒ 2008 |
35,000,000 |
30% |
|
31 March 2009Β |
33,000,000 |
30% |
|
30 June 2009Β |
31,000,000 |
30% |
|
30 September 2009 |
28,500,000 |
30% |
|
31 December 2009 |
27,000,000 |
27.5% |
|
31 March 2010Β |
25,000,000 |
20% |
|
30 June 2010 |
12,000,000 |
20% |
|
30 September 2010 |
10,000,000 |
20% |
|
31 December 2010 |
0 |
20% |
|
31 March 2011 |
0 |
10% |
TheΒ Applicable PercentageΒ for the Company's investment grade bond portfolio will be 50%, 40%, 30% and 15% for AA and above, A and above, BBB and above and BB and above; rated bonds respectively.
TheΒ Target Loan AmountΒ will reduce by β¬11 million in the event that the Magellan 1 transaction is re-financed by the originator, BCP Millennium, before June 2010. TheΒ Applicable PercentageΒ for residuals will reduce to 25% if the Magellan 1 transaction is re-financed by BCP Millennium before 31 December 2009.
The Company has committed to use a percentage of its Free Cash (cash proceeds in a quarter less dividends and operating expenses) to amortise the facility. Prior to the Magellan 1 transaction being refinanced, 75% of the Company's Free Cash will be used to repay the facility. After the Magellan 1 transaction is called, 66% of the Free Cash will be used to repay the debt. Once the outstanding balance of the facility is below β¬22 million, 50% of the Free Cash will be used to repay the facility. If the outstanding balance of the loan facility is less than the Target Loan Amount on the relevant date, the dividend will be capped at β¬2.25 million perΒ quarter (or approximately a 19% dividend yield on the share price as atΒ 26Β November 2008). If the Company is unable to satisfy theΒ loanΒ amortisation schedule, the dividend will be capped at 8%Β on the share price prevailing at the end of each quarter. A failure to meet the loan amortisationΒ schedule would not trigger an event of default.
In the event that the balance of the facility is greater than the Borrowing Base, the Company will have 20 business days to remedy the breach. Failure to remedy the breach would constitute an event of default.Β
The Company has agreed to more asset specific tests in exchange for limiting the scope of the material change triggers and believes that the investment portfolio can support the amended facility.
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