By Chris Becker
Explosive news out of the AFR this afternoon – it looks like Fortescue Metals (FMG) has asked for a 12 month waiver on its debt covenants:
The proposal was foreshadowed in a call with lenders on Friday, and put to them in writing early this week.
If the banks were to reject Fortescue’s request to waive all loan covenants across all the facilities, Fortescue could find itself unable to draw down any further debt on its existing banking lines.
It is understood the company hopes to have the waivers in place by the end of the December quarter.
Fortescue has a number of lending facilities in place, including bi-lateral loans and leasing facilities with the big four Australian banks, and others including Bank of America Merrill Lynch, UBS and JPMorgan.
With more than $10 billion in debt, the market didn’t really like that – closing down nearly 14% to $2.98 a share, erasing the dead cat bounce gains of the week.
Here’s my recent techincal study of the bounce, with original notations – savvy traders would have re-entered their shorts on a close below $3.47 – and although I was stopped out on my daily system (for a 12% gain in 2 weeks) on my weekly system, there is still room for FMG to move:
So far, there’s been no word from the iron ore miner but if the AFR has printed this, its more than a rumor. There’s further speculation we’ll see a substantial equity raising in the near term, which would seriously dilute existing holdings.
For a recap, here’s where the price of iron ore sits – below $100 on the spot market:
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. A free 21-day trial is available at the site.
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