Banks Circling As Allco Asset Sales Fall Through

The Age

Wednesday October 22, 2008

Danny John

THE continuing fallout from the global financial crisis yesterday saw Allco Finance Group again throw itself on the mercy of its bankers, after it revealed it was in danger of missing its next two key debt repayments.

With its corporate life dependent on meeting a revamped schedule of lower debt commitments, Allco's hopes of selling assets to cut its loan burden on a regular basis have been scuppered by the turmoil in equity and credit markets.

The move has prompted Allco to begin urgent talks with its banks about changing the terms of the repayment schedule they agreed to only three months ago.

If it fails to make the payments, it will be in immediate default of the new debt facility.

Any failure to meet the terms under its banking covenants could also see the group placed in receivership, an outcome that both the company and its lenders have been seeking to avoid, given the belief that Allco's management is best placed to dismantle what they built up.

Potential buyers have, however, sought to take advantage of Allco's weakened state to snap up at fire sale prices the infrastructure assets that the group needs to sell if it is to meet a $35million payment to its bankers at the end of next month (November) and a further $112million sum in December.

But the group was not prepared to accept such low offers and yesterday alerted the banking syndicate and its remaining investors that there was a "significant risk" it would not be able to meet the coming repayments.

Allco has been on corporate life support since its sharemarket value collapsed at the start of this year in the first wave of the credit crisis.

It has agreed to sell the bulk of its assets to help cut its debt from $1 billion as of last December to $400 million by next June. It currently owes its banks $666million.

In its announcement to the ASX yesterday, Allco said equity and credit markets had deteriorated even further since September, when it last briefed investors on its plight.

"The most recent deterioration in market conditions has exceeded the contingencies included in the strategic business plan, which sets out the asset sale program and anticipated values," the company said. "Allco's directors do not believe it is in the interests of stakeholders to transact at these values."

Allco's shares slipped 2.5 to 13 yesterday.

© 2008 The Age

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