Telecommunications company Vocus Group Ltd (ASX: VOC) has announced a new and increased syndicated debt facility of A$1,270 million and NZ$150 million.
Vocus had a previous debt facility of A$1,095 million and NZ$160 million which has concurrently been repaid and cancelled.
The announcement states that, "whilst interest cover and gearing ratios remain unchanged, the Net Leverage Ratio ("NLR") has been amended to provide financial headroom and flexibility".
Vocus defines the NLR as Net Debt / Last Twelve Months' EBITDA.
Vocus also disclosed that the maximum NLR per the facility agreement was as follows:
| Testing date | As at 30 June and 31 Dec 2018 |
As at 30 June and 31 Dec 2019 |
As at 30 Jun 2020 |
As at 31 Dec 2020 and thereafter |
| Maximum NLR | 3.75x | 3.50x | 3.25x | 3.00x |
What does this all mean?
Vocus management are pleased with the new facility agreement as it gives them more room to implement their strategy. Vocus CFO Mark Wratten said the agreement will, "provide Vocus with the flexibility required to execute its strategic initiatives over the coming years".
I think for shareholders, it's not necessarily great news as the company has essentially taken on more debt room to implement a strategy that has uncertain results.
Critically for Vocus shareholders, the new debt facility has a weighted average tenure of 3.4 years and the Syndicated Facility Agreement stipulates that dividends will not be paid until the NLR is below 2.25x for two consecutive testing dates.
When Vocus announced its FY 18 interim results, it stated that it expected the NLR to be in the "vicinity of 2.75x – 2.90x" as at 30 June 2018 which would imply that a dividend declaration is some way off.
Vocus expects net debt at 30 June 2018 to be in the range of A$1.03 – $1.06 billion.
Foolish Takeaway
Vocus and other telcos including Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) are going through some fundamental changes. I wouldn't add any new money to them but I also wouldn't sell existing positions.
For now, I would stay away from Vocus and focus on these companies that have been identified by our team of experts as the best shares to buy right now.
