Ann: Financial Covenants , page-17

Hi zwu,

I'm still not convinced, FEA first breached their covenants in June 2009 according to the annual report. I am guessing they breached a covenant related to profit.

The banks have had 7 months to ask for their money back. They haven't because nothing would be a surer way of ensuring that they take a sizable loss. Much better to play for time and wait for the forestry investment and building industries to bounce back.

All the money raised in the capital raising went into the company and none to the banks. This is the time when the banks would have been expected to demand early repayment (the first tranche of debt is not due till next year).

Plenty of other companies in the last year have breached their covenants, done what they had to do (sell assets, deeply discounted capital raising etc) and bounced back strongly. To pick two such examples, FPA and NPX.

A couple of positives I see for FEA:

* MIS investment has traditionally tracked capital gains in other asset classes and thus there should be plenty of people looking for a way to cover their huge capital gains over the last year in June.

* Timber demand has always been very cyclical and we are past the bottom of the cycle. Indeed FEA stated at the AGM in November that their stock levels were now at an acceptable level.

For sure its a finely balanced equation for FEA with big gains and losses both plausible outcomes.