Home' Trinidad and Tobago Guardian : May 17th 2015 Contents On Friday, the regional
cement producing company
based in Claxton Bay, TCL,
held a news conference and
issued a press release to
announce that it had paid
off all of its existing
lenders a total of US$292 million.
The company announced that it had
paid off what it referred to as its previous
lenders by taking some of the cash from
its March 2015 rights issue, some cash
generated from its operations and by bor-
rowing new loans totalling US$245 million.
Some 59 TCL previous creditors were
impacted by the debt refinancing.
Citibank and Credit Suisse were the new
creditors for what is a nine-month loan at
LIBOR plus 6.25 per cent, which is a cur-
rent effective interest rate of 6.53 per cent,
with a provision inserted that the rate will
increase by one per cent for every quarter
that it is still in issue.
In other words, if TCL cannot arrange a
new long-term loan with its two new
creditors by mid-February 2016, the exist-
ing rate on the US$245 million will
increase by 100 basis points (which is one
In its press release, TCL said it negotiat-
ed discounts of between five and 20 per
cent of the outstanding loans if lenders
were repaid within a maximum period of
90 days, but that the prepayment discount
could be maximised if the repayment took
place within 45 days.
The company indicated that it was able
to repay its previous creditors within the
stipulated 45-day period, which ended on
May 14, and was therefore able to benefit
from the maximum discount offered by
The company also made the point that
its ability to negotiate the prepayment dis-
count with its creditors was based on the
approval by its shareholders earlier this
year of a resolution to remove the 20 per
cent ownership ceiling and the injection of
new equity of at least US$50 million,
which was done by way of a rights issue.
The rights issue, of course, led to TCL s
largest single shareholder, the Mexican
cement giant, Cemex, increasing its stake
in the local cement producer from 20 per
cent to 39.4 per cent.
What does the arrangement
mean for TCL?
Basically, the cement producer reduces
its total long-term debt by 16 per cent
from US$292 million to US$245 million,
by funding some of the debt prepayment
by its cash, both from its continuing oper-
ations and raised by the rights issue.
And because this short-term bringing
loan is at 6.53 per cent, which is an inter-
est rate that is less than the average rate
of eight per cent that the previous Rollin
Bertrand regime was able to negotiate in
2012, TCL will save on its interest pay-
According to TCL, among the immediate
benefits of the refinancing are a debt
reduction from prepayment of previous
lenders of US$31 million, a reduction in
financing costs in the form of quarterly
interest savings of up to US$1.7 million;
and a stronger balance sheet, with debt
that has gone down from 4.2x EBITDA to
The significant risk of the debt refinanc-
ing to TCL is if LIBOR (which is the Lon-
don Interbank Offered Rate, a benchmark
used for pricing loans the world over)
were to increase within the next nine
months of the term of the loan.
An increase in LIBOR would immediate-
ly increase TCL s interest costs by the
amount of the increase plus 6.25 per cent.
This means that if the US Federal
Reserve were to increase their base rate by
25 basis points (0.25 per cent) in Septem-
ber, the interest rate on TCL s short-term,
bridging loan would go to 6.78 per cent.
But if the Federal Reserve increase inter-
est rates in September, there is likely to be
a great deal of instability in the high-yield,
non-US, commercial market, which may
mean that TCL will be hard pressed to
negotiate favourable terms for the long-
term debt in the nine-month period.
This risk is obviously one that the board
of TCL, which is headed by business
executive Wilfred Espinet, thought was
worth taking. Only time will prove the
wisdom or otherwise of this decision.
What does it mean for creditors?
The original lenders to TCL would have
been required to impair their loans to the
cement producer as a result of its debt
default at the end of September last year.
Those lenders should be in a position to
take mark-to-market gains as a result of
the debt refinancing, which may have a
positive impact on their next quarter s
financial results, especially Republic Bank,
which from my calculations extended
US$123 million in loans to TCL.
This is an area that we will have to do
some more reporting on before further
Because existing creditors are being
repaid to the tune of US$292 million, the
transaction could mean that local financial
institutions could have more US dollars on
And what of TCL's shareholders?
The shareholders of the cement produc-
er have the consolation of knowing that
the company in which they have invested
the money is in the process of turning
around and cleaning up its balance sheet.
The new board of TCL has worked hard
at building relationships: with the trade
union that represents the employees; with
the creditors that hold the company s debt
and with its shareholders in general, but
especially with it s major shareholder,
Cemex, with whom the previous board
had a strained if not hostile relationship
going back more than a decade.
It is clear that the foundation of the
rights issue was the new money, some
US$57 million, that TCL got from it rights
issue, which would not have been possible
without the removal of the 20 per cent
cap on shareholding.
The current, local directors of TCL
obviously feel that the price of putting the
company on a stronger financial footing
was more significant control by Cemex.
That could work in the national interest
once there is consonance between what is
best for T&T and what is best for Cemex.
MAY 17 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
According to TCL, among
the immediate benefits of
the refinancing are a debt
prepayment of previous
lenders of US$31 million, a
reduction in financing
costs in the form of
quarterly interest savings
of up to US$1.7 million;
and a stronger balance
sheet, with debt that has
gone down from 4.2x
EBITDA to 3.5x EBITDA.
Will TCL be a case
study or basket case?
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