F&P Appliances given breathing space on bank covenant

Fisher & Paykel Appliances has dodged a banking covenant bullet, confirming that a covenant it would breach today after last week’s earnings update has been waived.

Continued sluggish sales in the US were blamed by the whiteware manufacturer for the $19-$24 million drop in forecasted annual earnings revealed in Friday’s trading update.

Its trading performance for the six months ending today meant the company fell outside the 20% allowed variance under the budget performance covenant with its banking syndicate for that period.

But it has now revealed that its syndicate had agreed to waive the covenant test and also accepted a revised forecast that will be used to test the covenant for the remaining three months of the year and the six months ending March 31.

F&P Appliances was always confident its syndicate would waive the budget covenant due to the substantial debt reduction and deleveraging that has occurred in recent months.

Of the $53 million proceeds from the sale of part of its East Tamaki site, the company will use $34 million to complete the full repayment of its $235 million amortising debt facility in October, months ahead of schedule.

The remaining sale funds will also be used to pay off its term debt facility, with total debt expected to fall below $200 million by the end of March as inventory reductions and an expected improvement in cash flow kick in.