Boart Longyear hits trouble in search for funds
Boart Longyear is seeking to raise $US300 million through a five-year bond issue, with $US260 million via secured debt and the balance unsecured.
However, prospective lenders of the unsecured portion of the debt are wary of the company's near-term prospects and are believed to be trying to force it to provide security over the entire raising.
But this threatens to jeopardise security provided for existing debt on issue, complicating the company's fund-raising options.
The push back from US lenders comes after US credit ratings agencies Moody's and Standard & Poor's downgraded the company's credit rating this month, which put a cloud over the driller's near fund-raising prospects.
Late last month, Boart Longyear reported a June-half net loss of $329 million after the slump in drilling demand, with the company guiding full-year earnings before interest, tax, depreciation and amortisation of about $US116 million.
Management is slashing costs, although the slump in drilling activity is complicating its efforts.
After speculation over the pressure from US lenders, Boart Longyear sought a trading suspension on the ASX on Friday as it looks to resolve the impasse by the start of trading on Monday.
Several directors this month bought shares in the company at 48¢ or so a share. It last traded at 49¢. Others with an exposure to the sector, such as Imdex, have flagged continued sluggish demand before any upturn will emerge.
"The company anticipates activity in the mining sector will remain subdued throughout FY14," Imdex told its shareholders recently, although it has diversified further into the oil and gas sector in a bid to access a stronger earnings stream.
One of the difficulties for Boart Longyear is that it has a sizeable exposure to the gold sector, which accounts for 42 per cent of revenue in the June half.
The slump in the gold price has prompted gold miners and explorers to slash spending in a bid to conserve cash, amid wariness over the outlook for further declines in the price of the precious commodity after its sustained rise in recent years. The mining industry accounts for nearly all of Boart Longyear's operations, exposing it to the downturn in metal prices.
Boart Longyear's problems come as some players have been able to take advantage of the industry's slump. Five years after selling to AJLucas for $150 million, the Mitchell family is to merge its new drill sector assets into troubled contractor Drill Torque, in which Washington H. Soul Pattinson is a large shareholder.
Frequently Asked Questions about this Article…
Boart Longyear is seeking to raise US$300 million through a five‑year bond issue (about US$260 million in secured debt and the remainder unsecured) to provide the troubled driller with short‑term breathing space. For investors, the size and structure of the raising matters because it affects the company’s liquidity, debt profile and the priority of creditors if problems continue.
Prospective lenders for the unsecured portion are wary of Boart Longyear’s near‑term prospects and are believed to be trying to force the company to provide security over the entire US$300 million raising. That pushback is driven by concerns about the company’s recent losses, weaker drilling demand and recent credit rating downgrades.
If Boart Longyear is forced to grant security over the entire new raising, it could jeopardise the security arrangements that underpin existing debt on issue. That would complicate the company’s refinancing options and potentially make current creditors less protected.
Yes — US rating agencies Moody’s and Standard & Poor’s downgraded Boart Longyear’s credit rating this month. Rating downgrades typically increase borrowing costs, make lenders more cautious and can cloud a company’s ability to raise fresh debt, all of which are important risk signals for investors.
Boart Longyear reported a June‑half net loss of US$329 million and guided to full‑year earnings before interest, tax, depreciation and amortisation (EBITDA) of about US$116 million. Management is cutting costs, but a slump in drilling activity is making recovery more difficult.
Yes — after speculation about pressure from US lenders, Boart Longyear sought a trading suspension on the ASX on Friday while it looked to resolve the impasse by the start of trading on Monday. A trading suspension is a temporary step companies use to manage material announcements or negotiations.
Boart Longyear had about 42% of its revenue coming from the gold sector in the June half. That concentration matters because a slump in the gold price has led miners and explorers to slash spending, directly reducing demand for drilling services and putting pressure on Boart’s revenues.
Several Boart Longyear directors bought shares this month at about 48 cents each (the stock last traded near 49 cents), which some investors view as a signal of insider confidence. At the same time, peers like Imdex have warned mining activity will remain subdued and are diversifying into oil and gas, and other industry players are consolidating assets — all trends that influence drilling demand and the competitive landscape.
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