ARI (Arrium) : At Rock bottom, ore not?

[Snoopy]

'Gearing' = (Net Debt) / (Net Debt + Equity)

If I use that definition with the data:

Interest bearing liabilities = $1,611.3m
Cash is $181.7m
Total Equity = $2,962.2m
Total Assets = $6,406.0m

then I get the following:

'Gearing' = ($1,611.3-$181.7) / ( ($1,611.3-$181.7) + $2,962.2) = 32.6%

This same percentage is later referred to as 'Statuatory Gearing'.

Throwing a few numbers into the mix here to see what the Arrium balance sheet might look like at the start of FY2017, the year in which the next large tranche of debt rolls over.

I am forecasting a normalised operating loss of -$74.4m for FY2015. Lets say half of that ( $37.2m) happens in 2HY2015. I need to add to that another $70m lost in 2HY2015 because of the close out of the contracting workforce at Peculiar Knob. Then I need to add another $45m of losses for FY2016. That is a total of $152.2m

Depreciation and amortisation of assets on the balance sheet over the next 18months will be approximately 1.5 x the figure on the FY2016 forecast: 1.5 x $350.2m = $525.3m

Now I can modify the data that I was using before:

Interest bearing liabilities = $1,611.3m
Cash is $181.7m
Total Equity = ($2,962.2m-$152.2m-$525.3m)= $2,284.7m
Total Assets = ($6,406.0m-$152.2m -$525.3m)= $5,728.5m


'Gearing' = (Net Debt) / (Net Debt + Equity)
= ($1,611.3-$181.7) / ( ($1,611.3-$181.7) + $2,284.7) = 38.5%

Immediately before the capital raising the gearing was 31.4%, reducing to 17.9% once the money was raised (but before the HY2015 billion dollar writedown). 38.5% is certainly higher than desirable. But if Arrium can pay their interest bill (they can) what are the banks going to do about it? I am not sure how many senior bank executives would have any ambition to run Arrium themselves. How does this potential level of gearing compare to other companies where the banks have stepped in?

SNOOPY