Pact Group Holdings Ltd (ASX: PGH) shares rose as much as 11.4% today as the company announced refinancing. However, the announcement wasn’t all good news.
About Pact Group
Pact is a leading provider of specialty packaging solutions in Australasia, servicing both consumer and industrial sectors. Pact specialises in the manufacture and supply of rigid plastic and metal packaging, materials handling solutions, co-manufacturing services and recycling and sustainability services.
Debt Refinancing
Pact Group announced this morning that it has successfully extended a debt of $380 million which was due to mature in July 2020. It has been extended until January 2022 at what the company describes as “competitive terms”.
Pact Group also announced a new $50 million six-year subordinated unsecured term loan which will be used to pay down senior debt and provide improved funding flexibility.
These new arrangements provide the company with an alternative source of funds and, according to Managing Director and CEO Sanjay Dayal, will not materially change the company’s cost of funds.
“The arrangements are very cost-effective and give us the balance sheet capacity to continue planned rationalisation activities and complete existing growth projects,” he said.
Revised Guidance
Along with the refinancing announcement, Pact Group also announced that FY19 EBITDA is now expected to be at the low end of previous guidance, which was $230 million to $245 million (click here to learn what EBITDA is).
Significant items after tax are expected to be a loss or approximately $370 million.
Is Pact a Buy?
The refinancing removes some short-term risk and should provide the company with further flexibility over the term of the loan.
However, the guidance stands out as a red flag to me. The Pact Group share price has been declining for some time and is down about 33% over the last six months. The half-year results showed declining EBITDA and EBIT and a significant 29% drop in net profit after tax. To hear that the company now expects to reach only the low end of guidance is enough to deter me from investing.
I’d rather invest in one of the companies mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
