Eagle Energy Inc EGRGF

Potential covenant breach by June!

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You have to read the latest MD&A to realize the risk from this new loan.

The banks had relaxed their covenants and the company could go all the way to 6:1 debt to EBITDA until June. With $61.2 million drawn, the ratio was 3.3:1 at December 31. Moreover, we have heard this complaining about Canadian banks but, to my great surprise, the semi-annual review was actually completed in November with no change! The credit line, covenants, level of approved dividend was all renewed by the banks.

They have already drawn $82 million on the new loan and the max debt to EBITDA is 3.5:1. If we are to assume the same amount of EBITDA as 2016 or $18.5 million, they are at 4.4:1 on this loan. They need to generate a minimum of $23.4 million in EBITDA in the 4 trailing quarter before June 30 to not exceed the 3.5:1 covenant. While true that Q1 of 2016 was terrible, this does not seem like an easy target to achieve.

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