Mart Resources Inc MAUXF

Distribution of dividends vs debt covenants

[Fernando2010]

I understand that, generally, financial debt carries some covenants limiting the payment of dividends when certain financial ratios (net debt / operating cash flow ratio, for example), goes below certain minimum values.

In case the company make a distribution prohibited by the debt agreement, this situation will be considered an "event of default", triggering the inmediate repayment of all of the debt outstanding.

Considering the deterioration of our cash flow in recent months (due basically to increased pipeline losses), what are the chances of the next dividend being restricted by the covenants of  the debt agreements?

Comments are welcomed as usual

Thanks in advance

Fernando

[zeus55]

Last quarter's numbers were affected by a surprise increase in pipeline theft that AGIP "discovered" form way back in Q1. Mart wanted to get it out of the way, so expensed it immediately against Q3. So that will not be repeated. With some increases in pipeline flow and thus production, we should be in much better shape now. I see no issues with the debt, and the dividend will come as

[zeus55]

So if it weren't for the "surprise" pipeline losses, Mart's Q3 funds flow would have been around $28 million, more than enough for the dividend and capex.

[Fernando2010]

Zeus: I have a different understanding of the situation, as follows: Operating cash flow for the first nine months of 2013 (before changes in non-cash working capital): US$ 24,8 millons + 27,2 millons): US$ 52 millons. This operating cash flow clearly wasn´t enough to pay for capital expenditures (US$ 2,4 millons + US$ 36,8 millons) + payment of dividends (US$ 52,5 millons) during the same

[zeus55]

The AGIP pipeline was shut down for most of Q1, so pretty hard to expect Mart to be making much for cash flow during that period. So using those numbers is totally meaningless. I know the numbers haven't been pretty, and I was the only one predicting that 11 months ago, and took lots of abuse for being right. But, the situation has changed, and that is why I bought back in. Do a cash flow

[Fernando2010]

Zeus: I think you don´t understand my point. A cash flow going forward doesn´t anything to do with the possibility of a dividend payment provoking a breach of covenants with the lending banks in the current situation. But don´t worry, let wait for the BOD to decide on this matter.

[zeus55]

I do understand your point. But I know that the last thing Wade is going to do is cut the dividend, so they will work with the banks if there are any problems, and would get a temporary easement on the covenants, whatever they might be. Remember, Q3 was an anomoly, and the banks will recognise that. It has been a tough year, and i understand your caution. If the situation makes you uncomfortable

[Treetop2]

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[zeus55]

Treetop, just to go a bit further, Mart's expenditures on capex are to increase the production and thus increase cash flow, which could lead to a higher dividend down the road (although I would like them to use it to buy another asset).  And as you said, borrowing for such expenditures is standard procedure, as is paying a dividend out of cash flow from existing assets. This is not rocket

[Bejeezus]

Nice work Fernando...Yes yes I do concur Hemoglobin....wake up...lol....oh that Walter he`s an angry bird thats for sure, now look at alll his  postings to show how an investors groupie is far superior to a hedge fund manager? at a major ... just a geuss on my part...but I don`t think I`m too far off, Oh the Wade copperfield slight of hand game is quite fun to watch....