Will TCL survive?

(Trinidad Guardian) For more than a year now, the Trinidad Cement Ltd (TCL) group has been negotiating a restructuring of its debt, which is estimated to be about TT$1.8 billion, with a lenders’ steering committee who hold about 75 per cent of that debt among them. TCL was forced into the position of having to restructure its debts because sometime in the second half of 2010, the company took a hard look at its declining revenues and profits from the sale of cement and related products to its markets in the Caribbean region. It soon realised that while it may have been able to continue meeting the interest payments on the TT$1.8 billion debt between 2011 and 2013, it did not have the financial resources to be able to pay both the interest on the debt and the principal.

On January 14, 2011, therefore, TCL issued a notice to its lenders that it would stop servicing its debt, pending a restructuring. That declaration, according to the company, was made after informal agreement with the majority of lenders “who wanted to ensure adequate liquidity to allow for continuity of business operations and equality of treatment among lenders.” It is estimated that about 52 per cent of TCL’s debt of $1.8 billion is in TT dollars ($936 million) 35 per cent is in US dollars ($630 million) and about ten per cent is in Barbados dollars ($180 million). In his statement accompanying the company’s 2010 audited financial results—which were delivered to the market on July 18, more than 90 days after they were due—TCL’s chief executive, Dr Rollin Bertrand was unusually blunt about the group’s predicament: “Due to the weak results for the year, key loan covenant ratios on short-term debt and working capital (current ratio) were violated at December 31, 2010.

“The group was, therefore, in default of its loan agreements and consequently all long-term debt in default was reclassified into current liabilities. As a result, the Group is showing a working capital deficit position of TT$1,359.1 million at year end. “Negotiations however, were started for a re-profiling of the Group’s debt with lenders who have agreed to a process for doing so.” The obvious implication of TCL being in default of its debt obligations at the end of 2010 is that any of its lenders could have gone to the High Court and applied to have the company declared bankrupt.  In effect, the restructuring of TCL’s debt pushes back principal payments which would have fallen due during the 2011 to 2013 period but adds two per cent to the interest rates that the company would pay. TCL’s interest payments are due to resume in nine months and principal payments in one year. Here’s how the TCL board explained the situation in a statement it issued on October 3 last year: “Agreement has now been reached with the steering committee on the terms and conditions of the debt re-profiling, subject to final approval by the lenders’ credit committees and by TCL’s bondholders.

“All of the Group’s short and long term debt, with the exception of those of Readymix (West Indies) Ltd and TCL Packaging Ltd, will effectively be converted into an eight-year facility with quarterly payments of principal recommencing from March 2013, resulting in a principal bullet payment of 46 per cent due in 2018. “Interest payments would recommence in December 2012 and interest rates will be incremented by 200 basis points effective January 14, 2011, with interest increase penalties from 2016 if certain performance metrics are not met. “A two per cent acceptance fee is payable to lenders which together with unpaid interest will be added to the debt to be serviced. The Group is required to provide new security to the currently unsecured lenders, as well as currently secured lenders, and maintain specific financial ratios and expenditure limits during the life of the re-profiled debt.” In addition, the company is being required to provide the steering committee with certain governance undertakings, which are subject to final approval by shareholders. These governance undertakings include the expansion of the parent board to include two new directors and the requirement that all directors to be subject to re-election every two years.

When the shareholders have signed off on the terms of the restructuring, TCL will also be required to make a payment estimated to be TT$113 million, which relates to the lenders’ fees and costs. This sum will be charged to TCL’s statement of earnings, which more or less ensures that 2012 will be a loss-making year. In an interview with the Business Guardian in May last year, Banking Association president, Dennis Evans, who is the chief executive of Citibank in T&T, seemed to indicate that the banks were understanding of TCL’s plight.  “We are waiting on them to come with the plan and we expect them to do so in the not-too-distant future. I think all of those who bankroll TCL know the nature of their business and know that it is cyclical.