Post by
batmaninvestor on Feb 18, 2023 9:25am
My opinion on the Amendment of the credit Facility.
As the cfo mentionned on the last call when asked about the debt covenants on the credit facilty ;
"The credit facility is the one that’s the most restrictive. So, the leverage measurement under the bank credit facility is a little different than what we report. It doesn’t include net debt; it’s gross debt, and there’s some adjustments for minority interests. So I’ve said in the past that, if you look at the reported leverage of 3.38, we would be typically, for bank measurement purposes, about a quarter to a third of a turn higher than that. And the covenant, I think, is pretty well known as 4.25. So, we’ve still got lots of room there. And obviously, with the way leverage has gone up pretty rapidly, we’re watching that carefully."
I saw the amendemend that a fellow contributor posted and the credit facility covenants have temporarly been increased to 4.5 for feb 28, 4.75 for august then back to to 4.25 for after december.
My personnal opinion on this is that managment is being cautious and did the right move by increasing the convenats as they are facing certain temporary obstacles that is affecting their operating cash flows such as canadian content spending catch up and ad market pressure and hence all that is putting pressure on the allowable leverage ratio on the very restrictive convenants but these are expected to get slighly better going into the second half of 2023 and alot better in 2024. Regardless of all that according to my estimaties corus will still generate at least 150 million in free cash flow for 2023 and dividend payments are only about 50 million for the year. In order to allow for continued dividend payments they have increased the covenants and the banks have agreed as they see these obstacles as a temporary headwind also and they can see the fiancial strenght corus has and the lucrative amounts of free cash flow they can generate for their size. My point being I see no cause for concern with this amendmend. Amendement's are very common and are a non issue, as an accountant I've seen many occur and it's just part of buisiness.
Just my opinion :) good luck to all would love to read your opinions !
Comment by
YassineNoBS on Feb 18, 2023 10:41am
Hi batmaninvestor, thanks for your contribution. As an accountant could you shed some light on the reasoning behind deleting clause (i) (deleting cash interest expense from the calculation of free cash flow) iand replacing it by total debt to cash flow?