Heavily indebted pubs group Enterprise Inns has agreed two new bank facilities, paving the way for it to return to paying dividends in the future.
The company has sealed a new forward start facility (FSF) of £220m commencing December 16th 2013, comprising one facility (facility A) of £70m which runs through to December 15th 2015, and two £75m facilities (B & C) which run through to June 15th, 2016.
Facility A has been secured with initial margins commencing at five percentage points over the London inter-bank offered rate (LIBOR) - the rate at which banks lend to each other. The company will be paying four-and-a-half points over LIBOR on the other two facilities.
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The company will keep its bankers sweet if, among other things, it keeps net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) and interest cover at the same levels as the existing facility and fixed asset cover at 1.33 times or better.
During the period to December 16th 2013 the company will incur an incremental interest charge of 1% on £220m of its existing facilities, which will result in an estimated incremental interest cost of £0.8m in the year to September 2012 and £2.2m in the year to September 2013.
The good news for shareholders - apart from the increased chances of the company surviving another credit crunch - is that once tranche B of the existing facility is repaid the company can, if it wishes, resume dividend payments.
Before that happy day arrives, however, it is probable that the company will want to further reduce its debt mountain. After over-extending itself massively in the previous decade, the group has reduced its loan facilities from £1.1bn in 2008 to a current level of £446m, of which £389m is drawn net of cash.
The company has already announced plans to raise another £200m by the end of September this year through pub disposals, with £150m worth of disposals targeted in the next financial year.
Cash flow from the pub estate is evidently strong enough to satisfy the bankers that the group can meet the interest payments.
"The successful signing of this facility allows us to focus on further improving the operational performance of the business and delivering long term value to our shareholders," said Ted Tuppen, Chief Executive of Enterprise Inns.
The market said "cheers" and marked the shares up 1.25p to 66.5p in early trading.
JH
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