Real Good Food PLC (LON:RGD) has agreed a 'cash-collateralised' overdraft facility with Lloyds Bank to rectify a short-term working capital deficiency.
The deficiency came to light last month after the auditors discovered two substantial sugar purchase claims.
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The cake decoration and bakery products company is in the midst of major investment programmes at its Renshaw and Haydens businesses during the autumn stock build, while finance house Downing has elected not to follow up on its June investment in the company with a further cash injection of £1.5mln, leaving the company short of ready cash.
The company said the need to fund an autumn stock build is normal for a strongly seasonal business such as Real Good Food, and Lloyds has agreed to provide the company with an overdraft facility of up to £2mln to tide it over. Two major shareholders – Napier Brown Holdings and Omnicane Limited – are each lending the group £1mln each as security.
The shareholder loans have an interest rate of 6.5% a year and are secured against the company's assets.
The board considered other options that could be provided by other debt providers; however, it concluded that these could take a number of weeks to arrange and that the Lloyds offer of a cash-collaterised overdraft facility backed by the shareholder loans was the way to go as a short-term fix.
The shares perked up on the news, rising from 27.125p to 28.7p before easing back to 28.25p, up 0.9% on the day.