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Vocus Group Ltd (ASX:VOC) agrees new debt deal with bankers

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.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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