RE:RE:RE:RE:RE:RE:RE:Risk Canacol will be offside on debt covenantMaybe you should have read page 14 of MD&A again. Canacol can only deduct restricted cash that is held in a debt reserve account, which is $18 million not $75 million, in the calculation of "Consolidated Total Debt".
In April Canacol's Consolidated Total Debt was equal to the following:
Bank debt (current and long-term) – principal: $240.7 million
(add) Office lease commitments: $5.1 million
Sub Total: $245.8 million
(less) Debt service reserve account balance ($17.5 million)
Consolidated Total Debt: $228.3 million
See Note 6 (on page 9 of Canacol's Q3 financials) regarding $74.3 million of restricted cash on its balance sheet.
"At March 31, 2015, restricted cash consisted of $47.4 million of term deposits used as collateral to secure the Ecuador IPC’s borrowings (classified as non-current), $8.2 million for work commitments and other capital commitments ($5.4 million classified as current; $2.8 million classified as non-current), and $18.7 million held in a debt reserve account as required under its senior secured term loan (classified as non-current)."
It's not a question of if Canacol will be offside on its Consolidated Leverage Ratio of 2.75, it is when. They will be in breach of this covenant now or in the months to come prior to the gas pipeline coming on-line.
I agree, if the pipeline gets built and Canacol can start marketing its gas at the end of this year the outlook is awesome and Canacol will be in a great position.
My issue is that until that pipeline is constructed there is going to be a lot of potential headwinds and risks that will need to be addressed. If I owned the debt, I would call it if Canacol was offside on its covenants and did not fix their balance sheet within the ussual 30 day cure period.
The bank and Appollo could own Canacol's assets for a $275 million investment. Where do you think Canacol's stock would trade if that was the case?