Boart's risky debt raising

The stark contrast between the haves and the have-nots within the mining services sector was on display this morning.

While Uncapped 100 stock Forge Group (FGE) boasted of winning yet another big contract, Boart Longyear (BLY), the Utah based but Australian listed global heavyweight of drilling, made good its promise to attempt a refinancing of a large slice of its $450 million bank debt. But at what price?

The debt plagued group has seen its shares plummet this year, down almost 80%, while the price of its corporate bonds has also fallen sharply, indicating that it will be slugged double-digit interest rates on any new offering.

This presents a potentially lethal combination for the company.

Given the sudden switch among resource houses to delay new projects and can uneconomic expansions as they focus on maximising production from existing operations, revenue is likely to be further squeezed.

That will necessitate more tightening of operations, even after the sacking of thousands of its workforce in recent months.

The $300 million debt raising is nothing more than a juggling act, doing nothing to alleviate the company's chronic gearing situation.

Clearly, the banking syndicate – which will be owed $150 million if the raising  succeeds – is driving the initiative. They have also moved to protect the outstanding debt by adding new covenants, requiring a minimum of $30 million and a minimum asset coverage ratio.

They also retain first priority over accounts receiveable, inventories and cash and a second priority over all other tangible and intangible assets.

"The amendments will also restrict Boart Longyear's ability to incur additional indebtedness, make capital expenditures, acquisitions or other investments, pay dividends, and prepay or redeem its notes or certain other indebtedness," the company said in the statement.

Boart shares dropped a further 4.5% to 52.5c this morning on the news.