Saskatchewan Wheat Pool’s proposal to obtain more credit from its lenders could be its last attempt to turn the company around, says a University of Saskatchewan commerce professor.
The proposal, developed by the pool, its bankers and financial note holders and announced Jan. 3, would see the banks extend $375 million in senior secured credit. As well, $300 million in medium term notes would be converted to a new series of public notes that would mature in 2008.
Sask Pool chief executive officer Mayo Schmidt said this would give the company more time and money to get back on its feet.
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“If the marketplace gives them this one last chance, it probably will be the last chance,” said the university’s Marv Painter.
“Just the fact that they’re asking for more debt or extending the terms is a bad sign.”
Painter said the pool already has a huge amount of debt, pointing to the $804 million in total liabilities listed in the most recent annual report, compared to equity of $403 million. The $804 million includes long- and short-term debt, member loans and accounts payable.
He said the
equity isn’t worth that much because it is based on book value of the company’s shares.
“This company is swimming in debt,” Painter said.
Schmidt said the company’s banks support its financing proposal.
The lenders would supply up to $240 million in operating credit, $35 million in seasonal credit during fiscal 2004 and a new $100 million term loan maturing in July 2008. The loan would replace the company’s current securitization program.
“It’s fundamentally the same working capital availability that the company has had in the past,” Schmidt said. “What’s new about it is how it’s structured.”
The company will send out information and voting instructions to note holders later this month. The restructuring deadline is Jan. 31.
Schmidt did not want to consider what would happen if the proposal is not approved.
Painter said if note holders do approve, they have to be prepared for the risks.
“It’s especially risky if this new debt is going to be taking a senior position to these note holders.”
He also questioned who would buy the new bonds, since he would consider them to be high risk.
If the bond holders and banks both turn down the proposal and the pool runs out of cash, it would technically be bankrupt, he said.
“Maybe the government would come in and make it a crown corporation,” Painter said. “It wouldn’t surprise me that they’d come in and buy a huge chunk.”
Agriculture minister Clay Serby has said the government does not intend to bail out Sask Pool.
Schmidt said there have been no direct discussions about a bailout.
