Godfreys warns of covenant breach

Godfreys-WyndamGodfreys has warned that it will likely breach one of its lending covenants by the end of the financial year and has warned that it will only be able to make the lower end of its earnings guidance for full-year 18 as its trading woes continue.

On Monday the vacuum cleaner specialist said that a leverage ratio covenant related to its facility with 1918 finance, a lender associated with 99-year-old major shareholder John Johnstone, who recently made a bid to purchase the business, was at risk of being breached.

A continuation in deteriorating trading conditions will likely leave the business having to employ a waiver on the covenant that was granted by the lender in February.

Godfreys said that while “good progress” had been made on new chief executive Jason Gowie’s five-point turnaround plan for the business since February, trading remained “subdued”.

“Trading conditions remain subdued resulting in underlying EBITDA, prior to any restructuring and one-off costs, now expected to be around the lower end of the $5-6 million range previously advised and net debt higher than previously forecast,” the company said.

1918 finance has advised the vacuum retailer that it will not vary any of the covenants in its facility agreement, nor will it grant any further waivers.

Godfreys is still confident it will be able to satisfy its lending covenant requirements at the covenant testing date after 29 June, slated for 28 December.

The disclosure comes as Johnstone prepares to take a 32 cent per share offer to Godfreys shareholders to buy out their stake and take the business private for restructuring.

Godfreys current board has not made a recommendation either way on the bid yet but has brought on independent advisers to prepare a report on the bid.

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