Dorchester debt position immediately after TUA acquisition
Quote:
Originally Posted by
Snoopy
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
Looks like Dorchester's actual three way funding mechanism for acquiring TUA was a little different to what management expected. From p4 of the interim HY2015 report.
Share issue at $0.25: 125.8m at 25c = $31.4m (4.8% higher than projected)
Bonds: $23.2m@ $1.00 =$23.2m (28.9% higher than projected)
New Bank Debt: $10.0m (45% lower than projected)
The closing comment in the interim report says:
"The final consideration mix and successful capital raise to fund the Turners acquisition has resulted in a balance sheet with headroom for further merger and acquisition activity." ($29.55m of borrowing headroom by my calculation)
The subsequent acquisition of "Greenwich Life" announced on 10-04-2015, and "Southern Finance" on 30-07-2015 certainly made sure the 'new' TNR made those acquisitive ambitions a reality!
I should note that although this information is in the HY2015 interim report with accounts dated 30th September 2014, the new shares, bonds and new debt were allotted after balance date. So the interim account figures do not represent the post Turners Auctions acquisition position.
Quote:
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.
TNR has transformed remarkably since HY2015 (30-10-2014) balance date. So the following figures from HY2015 are rather historical.
Finance Segment Assets: $94,909m
Finance Segment Liabilities: $72,763m
Nevertheless it is comforting to know that the finance sector assets were on the books at a 30% premium to the finance sector liabilities at the time.
SNOOPY
BC1: EBIT to Interest Expense Test, FY2015
Quote:
Originally Posted by
Snoopy
Updating the performance metrics for the financial year just gone. I am interested in the underlying performance of the finance business at DPC. So I am leaving out the equity accounted earnings of Turner's Auctions in which DPC has a significant stake.
In addition, I leave out the effect of the substantial tax losses brought back onto the books which benefitted DPC shareholders during the year. While the benefit of bringing these losses back onto the books is very real for DPC shareholders, they are not useful when assessing the performance of the underlying business going forwards.
DPC paid no income tax for FY2014. So EBIT can best be estimated by adding to operating profit (huh, I thought EBIT was operating profit - obviously not so in the case of DPC) the interest expense:
($4.171m + $2188m)/$2.188m = 2.91 > 1.2
=> a big improvement from last year. DPC now passes the EBIT to Interest Expense Ratio test.
Updating for the FY2015 financial year (ended 31-03-2015)
The underlying interest expense is shown under note 7 (AR2015) to be $7.381m.
The underlying EBIT is a bit more complicated. There is a $7.058m gain recorded because of the write up in the value of the then Dorchester's existing stake in TUA to 'market bid value' level. But the market bid was made my Dorchester. So Dorchester have in effect bid up the value of their pre-owned TUA shares to a market level that they themselves have chosen. $7.058m is a one off self controlled capital gain that is not repeatable. IMO this should not be included in any underlying EBIT to Interest Expense ratio.
(EBT +Interest Expense)/(Interest Expense) = [($18.264m-$7.058m)+$7.381m]/$7.381m = 2.52 > 1.2
=> Pass Test
SNOOPY
BC3: Tier 1 and Tier 2 Lending Covenants FY2015
Quote:
Originally Posted by
Snoopy
I made a hash of this last year, but PT put me straight. So let's see if I can get it right this year.
I do realise that Tier 1 and Tier 2 capital are usually terms reserved for banks, and that DPC is not a bank. But to enable a comparison with other listed entities in the finance sector, please bear with me.
We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves defined as:
Tier 1 capital > 20% of the loan book.
(Dorchester has only Tier 1 capital for these calculation purposes.)
Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $74.052m - $25.912m - $6.761m
= $41.379m
Not sure if I should make another deduction for 'Investment in Associate' (the Turners shareholding) but my gut feeling is no, so I won't.
The money to be repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:
1/ 'Financial Assets at fair value through profit or loss'
2/ 'Finance Receivables'
3/ 'Receivables and deferred expenses'
4/ 'Reverse annuity mortgages'
For the FY14 year these come to $77.65m
$41.379m / $77.65m = 53.3% > 20%
This is a big improvement on the fail grade of last year, and shows the result of the recapitalisation of the company during the year.
I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (AR2015, p32).
We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and we are looking for disclosed reserves defined as:
Tier 1 capital > 20% of the loan book.
(Dorchester has only Tier 1 capital for these calculation purposes.)
Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $121.002m - $103.595m - $8.532m
= $8.875m
The money to be eventually repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:
1/ 'Financial Assets at fair value through profit or loss': $17.350m
2/ 'Finance Receivables': $142.827m
3/ 'Receivables and deferred expenses': $5.946m
4/ 'Reverse annuity mortgages': $13.253m
For the FY15 year these come to $179.376m
$8.875m / $179.376m = 4.9% < 20%
=> Fail test
Care needs to be taken in interpreting a result like this. A big increase in Intangible Assets over the year have done the damage to this statistic.
From note 22 in the annual report, $45.6m of intangibles was brought onto the books with the acquisition of TUA. $30.454m was brought onto the books with the acquisition of Oxford Finance. These companies were bought outright to become profitable acquisitions. A good margin over asset backing was paid because these assets were highly profitable, demanding any buyer to pay a premium. The downside is that should either of these assets suddenly become less profitable than expected an urgent capital raising from TNR shareholders could be required!
SNOOPY