Sealegs breaches covenant, repays loan
Amphibious boat maker Sealegs has repaid a $500,000 loan to the ANZ Bank after breaching a banking covenant.
The breach, outlined in the company’s just-released annual report, was for a negative variance of more than 10% between budgeted and actual full year net profit.
Sealegs, which makes wheeled boats, posted a loss of $5.76 million for the year to March, against a loss of $1.7 million last year.
Operating revenue was up 20% at $11.5 million but the bottom line was hit by IFRS and a one-off cost of cancelling the Employee Share Option Plan.
The company warned in October last year that earnings would be lower than forecast and a loss was expected due to deteriorating economic conditions.
ANZ Bank notified Sealegs on April 3 this year of the breach, but subsequently applied a waiver.
Sealegs says the bank continues to provide support under the terms of the current facilities. However, post balance date, the company has repaid in full $500,000 drawn down from a $700,000 bulk facility.
Sealegs has no other liquid borrowings and had cash reserves of $3.1 million as at March 2009.
Despite the widening loss, the company is seen as having long-term growth prospects, particularly in the US, once that market recovers.
McDouall Stuart rates the stock a “speculative buy”.
Shares in Sealegs closed last night at 12.4c.
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Comments and questions4
Your headline is sensational reporting... not incorrect but historial and of little relevance... but achieves the purpose of attractng the reader.
isnt this just debt swapping and no real big deal
I found the article Interesting and informative
As it indicates that the company's forecasting which should have been on a conservative basis for projecting covenant's was more than 10% astray.
Covenants are usually disclosed in the Annual Report and the disclosure of breaches is appropriate under continuous disclosure rules.
The consequences of a breach without a waiver could result in term debt needing to be reclassified as current and therefore trigger funding restrictions and/or the need to refinance terms or facilities.
Given the 'GFC' the new terms may not be as favourable or worse case unavailable from the current and other providers. This could trigger a number of other events that an astute investor should recognise may affect the value of their investment or the company's ability to source funding requirements in the present and future.
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