A multi-entity Saudi-based agricultural group with an existing SAR 1.8 billion debt spanning more than five years.
The group was concerned with the volatility in interest rates and the viability of the existing hedging and capital structure to protect the financial covenants from breaching limits.
Ehata’s mandate was to achieve the desired Balance Sheet Optimization (BSO) strategy, keeping in mind the Debt Service Coverage ratio (DSCR) covenant.
The BSO is taking place at a time where interest rates environment experiences a fundamental shift in the year 2022.
At the outset, Ehata’s approach was to identify the restructuring objectives and key initiatives across the Equity Bridge Loan (EBL) and Senior Debt.
The mandate team plugged the dividend policy into the BSO work.
Ehata team developed Base scenarios with set of assumptions and a variation to the base scenario showing alternative approach to protect the DSCR.
Risk quantification techniques such as Value at Risk (VaR) were used to assist the client to identify the right restructuring risk profile.
One of key objectives was to continue applying hedge accounting for existing hedging, so would only adopt accounting friendly hedging solutions.
The group has successfully implemented the debt restructuring plan without disturbing the existing financial covenants and hedging in place.
The Debt to Equity ratio moved close to management target, whilst maintaining a healthier DSCR levels with safety net.
The planned dividend pay-out ratio is kept intact.
More resilient protection against potential interest rate movements.
Very limited accounting implications from debt restructuring.