BC2: Liquidity Buffer Ratio HY2015
Quote:
Originally Posted by
Snoopy
Why is the liquidity buffer ratio important? It doesn't matter how profitable a finance company is. If there is a need for cash in the current year, and the company cannot call on enough current assets to pay up, then the company will likely go out of business. This is effectively what happened when almost the whole finance sector in New Zealand collapsed a few years ago. So with that still fresh in the memory of high interest hunting debenture investors (and finance company shareholders) , this is probably the most important financial statistic of all. It is very frustrating when a company's annual report does not detail the headroom in their banking facilities. However, with a little sleuthing I know have it (a minimum of $22m with the banks). So, at last, we can see where DPC stood at the end of their financial year.
From note 26b in AR2014, we can see that the company's Financial Assets that are due to mature in the next twelve months are:
$26.463m + $8.229m = $34.692m
On the same page we see that borrowings that must be repaid or refinanced with Dorchestewr's banking syndicate amount to:
$0.723m + $7.648m = $8.371m
Under note 24 secured bank borrowings are $17.565m. That still leaves borrowing headroom of:
$22m - $17.565m = $4.435m
This is the extra amount of capital that DPC could borrow at 31-03-2014 -should they need to- without any renegotiations with their bankers.
However, in this case the $34.692m in maturing business more than covers the $8.371m of capital due. So there is no need to resort to borrowing headroom. DPC's liquidity is just fine.
Time to update this most critical of statistics for the just finished half year. On 21st August 2014 Dorchester announced they had renegotiated their banking facilities, presumably to rather more than the previously disclosed $25m ceiling, in anticipation of the takeover of Turners Auctions.
On 9th September 2014, Dorchester announced they had secured a bank debt facility of up to $39.55m to fund the acquisition.
In the same press release the projected debt required to be taken on in repect of 100% acquisition of Turners (which is what happened) was declared as:
(iii) Acquisition of 100% Shareholding
(Purchase of 80% in addition to the current 20% shareholding)
Share issue at $0.25 $30.0m
Bonds $18.0m
Bank Debt $18.0m
$66.0m
So this means the bank debt facility projected to be available to the rest of DPC was:
$39.55m - $18m = $21.55m
Unfortunately the detail in the HY2015 press release, outlining the match or mismatch of maturing customer loans to the underlying bank debt was non existent. So until more detail is published in the half yearly annual report, this is as far as my analysis can go.
SNOOPY