Saga PLC (LON:SAGA), the insurance and holidays specialist serving people born before 1971, has negotiated some additional breathing space on its lending arrangements.
The company, which has seen its holiday business devastated by the coronavirus pandemic, has reached an agreement to amend covenants on its loan and revolving credit facilities and is also on the cusp of signing a one-year extension to the debt deferral on its cruise ship facilities.
Dividends will remain restricted while the deferred principal on its cruise ship debt is outstanding and while leverage (excluding the cruise debt) is above 3.0 times annual earnings.
The new arrangements will give it extra wiggle-room while uncertainties over holiday planning persist because of the pandemic.
"The successful conclusion of these discussions is the latest step in reinforcing Saga's financial position, and I would like to thank our funding partners for their ongoing support. We continue to see strong pent-up demand for travel among our customers and remain well placed to deliver on this opportunity when the guidance on international travel changes,” said Euan Sutherland, the chief executive of Saga.
“On the face of it, this does not materially change the covenants this summer, but it gives Saga some breathing room at year-end (January 2022E) should government travel restrictions extend to 2h21 [the second-half of 2021],” said Peel Hunt.
“The Cruise business can borrow up to £50mln from the group to fund its burn cost (£6-8m per month) and principal payments on the Cruise ships have been deferred to the end of March 2022E.
“However, the Group must have £40mln of cash or undrawn facilities at all times; Saga currently has £50-60mln in cash and £100m in undrawn RCF [revolving credit] facilities plus the available cash flow of the insurance business,” the broker added.
“We believe the covenants remain tight and it is the Tour operations that generate the sensitivity around the covenants, whose restart remains uncertain. Saga has stress-tested its debt covenants through the summer and is apparently comfortable with its headroom; the key issue is a late 2021 restart of the Travel business, which is being addressed by some additional debt flexibility at year-end,” it added.
Shares in Saga were up 1.0% at 403.6p in lunchtime trading.
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