"do or die" year...

Good to see in the AR that Savcor managed to refinance their debt facilities on Friday. Should be some relief! However, this is not a permanent solution and still leaves them with a few more challenges to negotiate. Perhaps key to survival is that they now face an EBITDA covenant in December, as well as amortisation payments in June and September. The EBITDA covenant is probably going to need about $6-$7m in EBITDA to avoid extra payments - so a little above the $5.9m generated by continuing business in 2010.

The amortisation payments of $3m in June and $3.4m in September could be tough to come up with. I presume they are counting on being able to sell some of the Cencorp shares to help do this - not the most liquid of listed companies, so might see some more losses. In fact, Cencorp share price might prove an indicator of how Savcor are going (cash-wise) over the next 6 months... (Of course, the best possibility would be that improvements to receivables/cashflow management could extract a good part of this amount and combine with ongoing businessl cashflows to make debt repayments! But I'm not holding my breath for that to happen... )

If they can get through this with EBITDA of $6.5m, then they should be on track for operating NPAT around $1.7m plus and will start to look good value. (There's also some potential to do a lot better than that if they can sustain revenue and restore gross margins - $4m still possible, but they are not yet giving me confidence management could extract this type of performance).

Still a small risk that they will want to raise capital, but I doubt this would suit their major shareholder, so they will probably try to avoid.