TCL close to a deal with creditors - Finalising 8-year plan at higher interest rates
Published:Friday | June 24, 2011 | 12:00 AM
Lavern Clarke, Business Editor
Trinidad Cement Company is "close" to an agreement with its major creditors that its latest disclosures suggest will allow the group eight years to pay its debt but also appears to impose a new level of austerity on the regional operation that denies it use of excess cash.
The restructuring plan will cost TCL in higher interest rates beyond the current band of 6-9.7 per cent last disclosed over a year ago in annual financial reporting by the cement maker, as well as an unspecified "consent fee" to the holders of its debt.
The draft plan that is now the subject of intense negotiations covers an estimated 73 per cent of TCL's TT$2.6 billion of liabilities.
Company secretary Alan Nobie declined this week to name the debtholders, but former disclosures have tagged World Bank affiliate IFC and Republic Finance & Merchant Bank among them, both of which previously made concessions to TCL Group back in late 2009 when they agreed to relax performance benchmarks on liquidity and short-term borrowing limits.
Then the bonds, loans, project financing and swaps had maturities extending up to 12 years, more than half of which were due for redemption in four years. Much of the debt is collateralised by the cement group's fixed and floating assets.
TCL says the talks to finalise the draft agreement, the crafting of a term sheet and legal documentation cementing the restructured debt programme should wrap up within the third quarter ending September 2011.
"We're very close," said Brian Young, the chairman of Kingston-based Caribbean Cement Company Limited as well as director on TCL group's board.
"We have one or two I's to dot and T's to cross," Young told the Financial Gleaner on Tuesday, fresh from a round of robust meetings the week before to narrow differences between TCL and its, he said, "polyglot" of Caribbean and international lenders, among them Citibank and IFC.
The cement maker declared a moratorium on debt repayment from January 14 until the new agreement is in place — a move that auditor Ernst & Young labelled a default four months later, saying it leaves TCL vulnerable to legal action from creditors.
The standstill arrangement benefits Caribbean Cement, whose debt to its parent is serviced in the form of lease payments on the assets its operates at Rockfort.
"The majority of creditors have agreed that there will be a standstill agreement," said Young, a chartered accountant and businessman who operates from Jamaica but is also commercially tied to Trinidad.
"As part of that we don't have to pay the lease; it's been added to the principal amount outstanding."
TCL raised the debt that funded Caribbean Cement's US$177-million modernisation and expansion because it had a stronger balance sheet and was then highly profitable — a situation that changed with the economic downturn when the construction sector, and with it the demand for cement collapsed across the region, Young said.
TCL declared in its yearly earnings report out last month that 2010 was undoubtedly the most challenging in its history when it made a loss of TT$49 million; its Jamaican operation lost J$2.2 billion (TT$167m).
The outlines of the negotiating positions on the debt plan suggests the constraints could deepen.
It includes a 'cash sweep' which would require TCL to pony up excess cash flow generated by the business for debt servicing, a provision likely to place limits on how the cement manufacturer operates over the plan's eight-year horizon.
TCL reported operating cash in hand of TT$45 million at the end of March, post the debt moratorium, an improvement on the TT$6 million deficit a year earlier.
Nobie declined comment on details of the proposal, saying discussions with lenders were "at a very sensitive stage" and that no details would be offered beyond the last market disclosure.
That notice, however, was somewhat opaque.
"The new facility is proposed to have quarterly principal amortisation's and covenant testing, as well as an excess cash flow repayment sweep," said the advisory of June 17, issued on the same day that the parties wrapped up a fourth meeting extending over a month from May 12.
"TCL Group`s existing financing facilities will remain in place and be modified by a master override agreement that will amend and harmonise each underlying facility in relation to key terms of the proposal."
The transaction also calls for outstanding interest to be capitalised and paid off in quarterly instalments, starting at the closing of the refinancing deal and ending June 2012.
The majority of TCL's debt, TT$2.16 billion or 83 per cent, was classified as 'current' or due within a year at March 2011.
TCL is being advised by BroadSpan Capital LLC in the talks, and the creditors by FTI Consulting Canada ULC.