PACKAGING FIRM Smurfit Kappa is seeking support from its banks and creditors to extend loan deals and maturity on its debts to avert stress on its future financing needs amid a slump in profits, lower demand and falling prices.
Ian Curley, chief financial officer, said the restructuring of the debts, most of which mature in 2012 and 2013, would help insulate the company, which has net debts of €3.2 billion, from an extended downturn in the sector.
“It pushes out the capital structure and adds another year to everything so the first piece of debt due would be December 2013 instead of December 2012,” he said.
Smurfit Kappa is seeking agreement to sell up to €1 billion in bonds to refinance part of a revolving credit that falls due in December 2012.
Mr Curley said the company would reduce its loan commitments by a sixth in return for the maturity on the group’s revolving loan facility being extended.
Mr Curley said Smurfit Kappa’s discussions with its banks, which include Deutsche, Citigroup, CSFB and JPMorgan, had been positive, with backers of the refinancing scheme expected to benefit from giving the company more headroom on its borrowings.
The company will pay up to 125 basis points, or 1.25 per cent, on the debt as part of the refinancing.
Mr Curley said the scheme would increase borrowing costs by €33 million a year and also involve one-off costs of €26 million.
He said that the company’s cash net interest costs were still expected to fall from €243 million in the current year after the new costs were absorbed. Pretax profit at the company fell by 67 per cent in the three months to March, while pre-exceptional earnings before interest tax depreciation and amortisation (Ebitda) fell to €180 million from €257 million a year earlier.
A fall of 8 per cent on revenues and earnings increased the company’s net debt-to-ebitda ratio to 3.7, compared with 3.2 the previous year. The company’s key banking covenant is set at a limit of 4.7 times. Mr Curley said the company was seeking up to 20 per cent more headroom on its covenants.
Smurfit aims to secure a revised covenant of 5.4 net debt-to-ebitda to run until 2012, when it will return to its previous target.
It is also planning to extend the maturity of undrawn credit facilities of €600 million.
(Additional reporting - Financial Times)
