A crunch weekend could be on the cards for Countrywide, with ‘stress testing’ of its loans tomorrow (Saturday, June 30) against its likely earnings.
The date was given in Countrywide’s chief financial officer’s review in its latest annual report.
Yesterday Countrywide shares fell hard, with the City possibly scenting what – in theory – may lie ahead. The shares ended the day almost 15% down at just 40p.
Himanshu Raja, writing in the 2017 annual report published earlier this year, gave three dates for stress testing – June 30; September 30 (a Sunday); and December 31 (New Year’s Eve).
Outlining the position in the annual report, Raja said that as at the end of last December, Countrywide had net debt of £192m.
He wrote that the board had previously acknowledged the need to bring the leverage ratio down.
He said that Countrywide’s available bank facilities as at the end of last December, “excluding overdraft arrangements available”, consisted of a £340m revolving credit facility and accompanying £60m accordion facility repayable in March 2020.
His report went on to note that in February of this year, Countrywide agreed an amendment letter relating to its term and revolving credit facility with its lender partners, “which provides the company with the financial flexibility to invest in the business as it takes action to restore the sales and lettings business back to profitable growth”.
At that point in February, Countrywide reduced its borrowing capacity to a £275m revolving credit facility and accompanying £60m accordion facility, again repayable in March 2020.
Last year, according to Raja’s report, Countrywide drew down £210m from its then £340m facility and complied with the financial covenant requirements as to the leverage ratio.
However, he warned that in 2017 there was a deterioration of business “and consequently a worsening of the headroom on covenants, in particular the leverage ratio”.
He referred to the “supportive lender group of six banks” which have provided borrowing facilities since March 2013. He also referred to Countrywide assessing the “likelihood of a breach of the covenants”.
Since Countrywide’s chief financial officer wrote the above, Countrywide’s position has weakened further.
There does not appear to have been anything like the restoration back to profitable growth mentioned, with a profits warning on Monday.
This warned that EBITDA for the first half of this year will be some £20m lower than for the first half of last year.
Last year, Countrywide’s first half EBITDA was £28.1m. A £20m drop means it will be £8.1m, a drop of 70%.
Yesterday, while Countrywide’s shares closed at 40p, they had gone as low as 38.5p.
Countrywide’s annual report is here: https://www.countrywide.co.uk/media/59773/countrywide-plc-annual-report-2017.pdf
The chief financial officer’s review starts on page 24 and his observations about the debt situation are on pages 26 and 27.
Okay I will be the first to show my lack of knowledge.
What constitutes a failing of a stress test. How likely is it and what would happen if they fail it?
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It means they are in breach of covenant and the company could immediately put into administration over the weekend,flatpacked and appear in a different form on Monday.It’s a high stakes poker game.This is how it has ended up at the mercy of a vulture fund That’s why the 30th June was chosen as a date
The formula is
“The leverage ratio (the ratio of net debt to adjusted EBITDA) and interest cover (the ratio of adjusted EBITDA to net interest payable),
You can safely say the drop in EBITDA has blown the rivets and its failed spectacularly . The BODS knew this months ago. There is almost a sense of managed decline . It’s one big game between Oaktree who hold 30% and the banks Banks of course ever mindful that they could see the whole of the £192m vanish if Oaktree decide to wind it up
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I would suggest staff print a pre ma, ma and stock list as insurance over the next couple of days then for insurance in case the worst happens.
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Always out of hours for the market so ‘preparation’ for the release of bad news can be done in time for market opening…tick tock tick tock….
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A stress test is when the company sets up a big fan and the bank hurls a large lump of poo at it. If they miss it, all is well. If however the poo and the fan connect then that is a rather messier affair…
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As J Paul Getty once famously quoted:
“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
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Would probably go someway to the seaming lack of search for a new CEO. Remind me again how much did Platt get paid off ?
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Looks to me like this was all planned sometime ago using the potential threat of either taking the company back into the private sector at junk share value, put it into Administration or force the banks to bend over backwards to come out of this mess with at least some of their money back but no-where near 192 million. Clever strategy if you know what you are doing i guess. A profits warning just a week before a bank stress test. Really? No wonder a decent CEO wouldn’t touch it. But what do i know.
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Long probably now being useful for his enhanced salary granted a few months back ferrying coffee and arrowroots to the boadroom where the serious hustlers from Oaktree are getting to grips with the 6 banks
It must be a salutary experience for the fine professional staff at CWD to know their careers and livelihoods are at stake in a poker game handled by those who might not necessarily have their best interests at heart Absolute disgrace .Its the biggest name in town
Meanwhile some of the BODS will quietly slip away leaving the carnage behind.Take another directorship elsewhere yet another stipend as as a professional Director reputation untarnished .
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I think it’s hilarious. Having been on the receiving end of some shocking management decisions I have no sympathy. The good agents, of which there are many, will be fine and find other positions. The awful management/directors will hopefully end up eating humble pie and realise that it was their fault.
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Well if you think the prospect of many admin ,junior and backroom staff losing their jobs beause of catastrophic decision making hilarious goodfor you!!!!There are no winners here apart from the vultures
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The good staff will be fine. The ones responsible will hopefully have a hard time. Deservedly so. Lets be fair, they arent going into administration anyway, it will be a restructure followed by some weeding and selling parts off, which will keep most in jobs. But hey, que sera sera. Dont expect me to lose sleep regardless.
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What is likely is that shareholder value is reduced to nil . Many small shareholders are long serving staff whose side of the business more than likley still profitable seen their futures decimated maybe close to retirement . I don’t expect you to lose any sleep .You don’t sound the type
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Still interested, Russell?
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For what it is worth,
I would like to thank Rosalind for the story and also all the people who have commentated on the story.
Lots of information, lots of empathy and a lot of thoughts we do not read everyday.
A great read and shows how wonderful PIE can be in educating and supporting our industry.
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I’ve watched with interest some of the propaganda being published on LinkedIn over the last few days with staff encouraged to take snapshots of their Rightmove stats showing them to be No.1 in their respective areas, of course these screen shots omit any date ranges, areas covered or actual volume.
The market is tough out there and in our area, one corporate with three branches are showing 113 instructions and 75 sales agreed (combined) between January 1st & June 28th of 2018. This equates to 4 sales a month per branch, it doesn’t take alot of working out to know these numbers will not sustain you.
Another corporate with with two branches are showing 54 instructions and 45 sales agreed (combined) with a further corporate showing 44 instructions ytd and 17 sales agreed.
By comparison, the top three agents (by volume) which are all single offices are showing an average of 130 instructions and 100 sales agreed for the same period.
I’ve never seen so many agents being involved with local sponsorship before but several agents, mainly the start ups, have more sponsorship and fly boards than they have properties for sale. It would be nice to think that there is enough to go round but with so many hungry mouths to feed you have to fear that there will be some casualties in the not too distant future.
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Very sad affairs, I think it will be asset stripped. The poor staff will suffer.
Nothing to do with FSBO agents just pure government policies.
I worked for the countrywide group and their systems and procedures back in the late nineties were spot on. If they are going back to basics, that’s the basics plus a bit of new technology they need to implement.
Good luck to Countrywide, it’s a shame to see such a business being killed off slowly.
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