Saskatchewan Wheat Pool has finalized new financing arrangements that were first announced at the end of February.
But the refinancing wasn’t enough to prevent a major bond rating agency from downgrading the pool’s credit rating.
The new deal, which provides $557.5 million in credit, along with a $325 million program to finance ongoing sales of grain inventories and trade receivables, was announced May 2.
That same day, Dominion Bond Rating Service, citing the pool’s weak financial profile, reduced by one level the pool’s ratings for long-term debt and medium-term notes, and for commercial paper.
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The agency also attached a “negative” trend to the pool’s rating, down from “stable.” The agency had put the pool’s rating under negative review in February.
“SWP’s financial profile is weak with excessive debt and the new bank line agreement leaves limited financial flexibility to encounter unforeseen problems in the near term,” said the rating service.
The pool’s new deal with five lending institutions replaces separate deals previously in place with the Bank of Montreal, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Saskatchewan Co-operative Financial Services Ltd.
The new credit arrangement includes operating lines of credit of $107.5 million, plus up to $100 million to finance seasonal peaks in the pool’s business cycle.
Term loans of $350 million mature on Nov. 30, 2003, with the outstanding balance being reduced to $200 million in 2002 and $120 million in 2003. The remaining balance is payable on maturity.
Chief executive officer Mayo Schmidt said in a News release
news he was pleased that lenders have thrown their support behind the pool in its efforts to regain long-term profitability.
“We have demonstrated that we are taking the necessary actions to further strengthen our financial position and we will continue to build on that track record of execution.”
He said the financing creates a stable environment in which the company can pursue its strategic and business objectives.
The rating service said the downgrade reflects the fact that the pool’s new agreement provides the banks with first ranking security interest over property of SWP for an amount of $50 million, which would be paid before the holders of the pool’s senior long-term debt and medium-term notes.
The negative trend reflects the pool’s reliance on assets sales in the near term to reduce debt levels.
The pool is coming off two disastrous financial years, losing almost $90 million in 1999-2000 and $13 million the previous year. The company spent heavily on its new elevator construction program, accumulating a huge debt in the process and eventually finding itself in violation of financial commitments with its lenders.
In the first six months of the current fiscal year, the pool recorded a net loss of $25.5 million, compared with a loss of $29.3 million at the same point in the precious year.
However, company officials said the pool is on the road to recovery. For the last three consecutive quarters the company has recorded improved earnings before restructuring provisions and interest, taxes, depreciation and amortization, or EBITDA.
EBITDA of $51.7 million in the first six months was double the previous year. Provisions for restructuring related to elevator closures and a number of oneÐtime costs are now in the past, officials said.
