Credit crisis highlights Fletcher's debt funding difficulties

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Anyone searching for further clues as to the severity of the financial crisis need look no further than Fletcher Building’s $200 million capital note offer.

In the investment statement for the capital notes, Fletcher Building reveals just how difficult the next two years will be.

Under the heading “what are my risks,” the company runs through a list of uncertainties, some already well canvassed such as its exposure to the depressed housing market, in the US especially.

What is particularly worrisome, however, is how the current credit crisis will impact Fletcher Building’s ability to refinance senior debt in the near term.

According to the investment statement for the notes, Fletcher Building must refinance $635 million of senior debt before June 2011.

Of that, $110 million must be refinanced during the 2009 financial year and $525 million during the 2011 financial year.

In addition, election dates for $236 million of capital notes will arise before June 2011, being $93 million during the 2009 financial year, $75 million during the 2010 financial year and $68 million during the 2011 financial year.

The investment statement notes that recent events in the credit markets and financial services industry have affected, and are expected to continue to affect the ability of companies to access interest bearing debt financing and the cost of that debt financing, due to a tightening of credit markets.

“There is no certainty that Fletcher Building will be able to refinance this and any future debt on commercially reasonable terms or at all,” the investment statement adds.

Fletcher had $1.98 billion worth of bank loans with $378 million undrawn as at June 30.

At its recent annual meeting the company accepted its 2009 profits could be up to 40% down on this year, but it says it's in a good position to weather the economic storm.

Chairman Rod Deane said that if current trading conditions were to be maintained throughout the remainder of the year, then net earnings should fall in the $289 milliion to $354 million consensus range.

The company's share price has fallen from $13 to less than $6 in the past 18 months.

The shares had climbed 11c to 5.53 at 3.30 today.

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