19.11.2009

Lavendon raises £81 million through new share offer

The Lavendon Group has announced that it is raising £80.8 million (£76.8 million net of expenses) through an open offer of new shares

The new shares will be offered in two tranches at 70 pence per share, a 45 percent discount on yesterday’s closing price of 128p. The new issues have been fully underwritten by Investec and Altium.

Lavendon says that “it has concluded that it is in the best interests of the group and its shareholders to reduce the group's debt, renegotiate the financial covenants to restore headroom and establish a more appropriate capital structure for operating the business in the current market environment.”

The funds raised from the sale of the new shares will be used to reduce the balance outstanding on its multi-currency revolving credit facility. The reduction will also strengthen the Group's balance sheet, reducing the ratio of net debt to EBITDA, while providing additional financial and operational flexibility to manage the company through the current economic downturn provide liquidity that will allow it to take advantage of further consolidation opportunities.

In a further statement “it says that it “believes that its overall medium-term strategy remains appropriate, that is, to use its scale to maximise its position on major projects and with larger customers and to grow through a combination of selective investments in its fleet and acquisitions when appropriate opportunities arise.” Although its short-term focus is on cash generation and debt reduction.

The new share offer is subject to approval by shareholders at an Extraordinary General Meeting to be held on 7th December.

Lavendon's chief executive, Kevin Appleton said: "The fundraising we are announcing today will provide a solid financial base for the business, whilst also providing us with the necessary flexibility to drive the future development of the Group. Alongside the proactive measures we have taken to respond to the tough operating environment, we are well placed for the eventual market recovery."

"We have a clear strategy in place, with an immediate emphasis on cash generation and operating efficiency. Whilst we are anticipating that market conditions will remain challenging in the short term, we are confident in our ability to develop the business and to take advantage of consolidation opportunities in the medium term."


Vertikal Comment

This issue of new shares achieves three major objectives for Lavendon.
1, It reduces its debt, cutting interest costs.

2.More importantly the debt reduction takes it well clear of its loan covenants, the breaching of which not only causes serious problems if, as is usual, they are breached at the worst part of the business cycle, but also cost dearly if they are successfully renegotiated.

3. The extra liquidity will provide it with additional ability to make quick decisions on any acquisition or expansion opportunities that may arise. And there will be a fair few of these over the next six months as the economy begins to recover.

The company has had to discount the offering heavily to get it done, but given the current economic situation it is without question a good move. Giving the business the financial security that will allow it to concentrate on the operational aspects of the business rather than constantly looking over its shoulders at its bankers.

The company has also released an interim trading statement today which will be covered in a seperate report.