Mercer halts principal repayments to non-banks, mulls refinancing options

Friday 14th May 2010

Mercer Group, the manufacturer of stainless steel products, has halted its principal repayments to non-bank lenders and is mulling its refinancing options after it breached its banking covenant last year.

The company is only making interest repayments to non-bank lenders as it continues to pay down its debt with Westpac Banking Corp. The company breached a covenant last year when its earnings to funding costs ratio fell below 2.25 times to 1.9 times, according to a statement on the NZX after the close of trading. Mercer breached this ratio in the 2009 financial year, and had this part of the covenant waived by Westpac, it said.

As at Dec. 31, the manufacturer had $11.4 million in borrowings coming due in the next 12 months, including $1.5 million it borrowed from related party Gresham Finance Ltd. in November to pay down its bank debt.

It also has $1.4 million to repay to cornerstone shareholder Allan Hubbard’s South Canterbury Finance. The Gresham loan is due on Nov. 30 at a rate of 12% per annum, while the South Canterbury loan is due in February at an annual rate of 15%.

Mercer said it’s “considering a number of refinancing options for the group” after Westpac extended its $8.85 million multi-option credit facility until Sept. 30.

Auditor PricewaterhouseCoopers flagged bank funding as “inherently uncertain” and said it could impact on the company’s ability to trade as a going concern, in Mercer’s annual report last year.

The shares, which trade infrequently, were last at 30 cents.

Businesswire.co.nz

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