AFG 0.50% $2.01 australian finance group ltd

allco future hangs on banks decision

  1. LLM
    36 Posts.
    The Age, Australia

    Eric Johnston
    November 4, 2008

    ALLCO Finance Group was last night battling for survival as talks with bankers for relief over a repayment schedule on about $670 million of debt remained in the balance.

    Allco's banks, led by the Commonwealth Bank, were weighing up whether to agree to changing the repayment terms on the debt facility after the recent dislocation in global markets slowed its asset sales program.

    Allco's board was looking for assurances from its banks that they were prepared to support the business, which leases aircraft, ships and rail rolling stock, over the medium term. If agreement isn't reached, the company is likely to be placed into voluntary administration, with directors hoping not to risk trading while insolvent.

    Voluntary administration would also cause headaches for transport operators around the world, including Qantas, which leases planes from Allco.

    Allco yesterday morning placed its shares under a trading halt ahead of an outcome with the talks with banks, which also include Westpac and St George. Allco shares last traded at 14¢.

    The group is due to repay $35.5 million and $112 million this month and next month under a revised deal agreed with its banking syndicate in August. That involves Allco reducing its debt to $400 million by next June.

    The company recently told shareholders it could be placed into administration if it did not reach a revised payment schedule or at least roll over its monthly repayments.

    Allco chief executive David Clarke recently told shareholders the company faced a "tough road" even if the debt payments were rescheduled.

    While Allco had expected to win support from its banks in its latest attempt for a debt rollover, those close to the process yesterday said the troubled company's situation was increasingly tenuous.

    Banks have been prepared to keep Allco on a financial lifeline for most of the year, but a person close to the talks said they were increasingly looking to quarantine themselves from further losses.

    Earlier this year, Allco was forced to consider a break-up to pay down crippling debt, but opted to go it alone with support from its banks.

    If Allco moved into administration, this could force large write-downs among several of its lenders, including all the Big Four banks.

    Allco had been pushing ahead with a program of asset sales under which the company has nearly halved its senior debts and commitments from $1.09 billion to $670 million since December.

    But market turmoil since the start of September meant it had received much lower than expected offers for many assets — mostly commercial property.

    Allco has rejected the bids, saying it was not in the interest of its stakeholders — which include the banks — to sell the operations at low-end prices.

    But without the cash coming from the planned sales, it is unable to meet the next two monthly instalments.

    Allco recently outlined a survival plan, including slashing an additional 220 jobs over the next few years and getting out of its rail leasing and real estate operations.
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