Ann: Refinancing and Market Update-BOL.AX, page-4

@MarsC,

Boy, it's like crawling over broken glass with this stock.

There are some brickbats and some bouquets in this "update":



First, the brickbats: Gross Debt of $51m @ 30 June is, to my way of thinking, disappointing, being down just marginally on the 31 Dec 2015 figure of $53m, and just coming in within the $52.5m amortisaton limit.

But then we don't know quite yet how much cash was on hand at the balance date, so we can't say whether this is very disappointing or just marginally so. Certainly, the cash balance at the December half balance was a very skinny $1.3m, down from $7.0m @ 30 June 2015, so this would have flattered the Gross Debt position @ 31 Dec 2015.

If the company's cash holdings have indeed gone back up closer to the $7.om mark (the average cash position post the commodity boom is $6.8m, so the Dec. 2015 figure is a clear outlier), then the net debt picture might be not that bad.

For what its worth, I have penciled in cash of $4.0m, meaning Net Debt will be $47.0m, down from $51.8m @ 31 Dec, 2015. This reduction is of the same order of magnitude as the amount raised from asset sales in the half, meaning the company generated no Free Cash Flow in the half.

With EBITDA of around $4.8m (implied by the mid-point of today's EBITDA update), and interest payments of around $2.0m it means that there has been an increased working capital investment in the half.

All in all, tough going.

As for the new, multi-lateral finance package, I have a mixed interpretation of that outcome.

For, while the company line is that this new arrangement paves the way for growth, I see this as, maybe 30% of the story, with 70% being more a case of a combination of the following:

- the asset sale program now having run its natural course (on the positive side, "assets being withdrawn from the sales process due to project requirements", although "significant pressure on the used equipment market" is not),

- the banks saying, "Right, we are almost done here; we are ready to have our residual risk exposure parlayed off to some other parties and, in return, we'll stay committed for $12.5m and cut you guys some slack by granting you better terms and 18 months of breathing space before we want you to start principal repayments", and

- Boom management saying, "We are tired of operating in straight jackets; we'd like our jobs back."


So, instead of having one funding source (i.e., the syndicate involving ANZ and NAB), we now have three: the banking syndicate, someone to whom we will put our Receivables on the hook, and finally someone to whom we will put some of our operating assets on the hook.

That's all fine and dandy, but I'm thinking that none of these parties do what they do in the name of charity, so I wonder what these arrangements are costing our company, not just in ongoing costs, but in terms of one-off set-up arrangements.


Now, the bouquets: when I first read the announcement, I was somewhat nonplussed.

But then, upon some reflection, I have come to the view that, if there is a redeeming ray of light, it lies in the tone and the body language of the announcement which provides several hints of the company's management feeling the need to be in a position of financial flexibility to respond to improving demand conditions.

There are several references to leading signs of an improving 2017.

Maybe they see the pipeline and don't want to be caught with their trousers down when the phones start ringing again.

Because they didn't need to enter into these new arrangements that offered them all this additional "flexibility" and the "platform for growth"; they could have just continued running with the existing arrangements.

Of course, that "better 2017 anticipation" may just be wishful perception on the part of management, who have known little but hard yakka these past few years.


But no matter.

For me the investment thesis for BOL now becomes one that is predicated on waiting for the external environment to improve (and who knows when that might occur) when it initially was thought by me to be driven by the company itself.

But even that I am not sure about, because I have no real insights into the drivers of the EBITDA result in the most recent half. Has Revenue been particularly weak and fully offset by lower fixed costs (that would be the desired outcome), or has Revenue been reasonably static, along with no real inroads into eliminating overheads.

So its a bit of a nothing update, for mine, with n number of variables and n+1 number of equations (written more like something targeted at a debt market audience than an equity market one).

But one thing is for sure in my mind: what started out as a 12-month investment story, and then got extended to 18 months, and then 24 months, now just became a 30-month story.

That's cigar butt investing for you.

For my part I will do nothing until I have seen the entrails of the full-year result, and have spoken to the company's management (assuming they'll be fielding questions this close to the release of their full-year result).