Melrose agrees improved covenants with banks

Melrose Industries has agreed improved financial covenants with its banks after the Covid-19 crisis caused revenue slump at the industrial turnaround group.

The FTSE 250 company said it rearranged its primary borrowing arrangements until the end of 2022. After that date the loans will revert to the original covenants.

Melrose's banks have waived covenants until the end of June 2021. At the end of 2021 Melrose's covenant will be 5.25 times net debt to earnings, dropping to 4.75 times in June 2022 and 4 times at the end of 2022. After that the covenant will revert to 3.5 times net debt to earnings.

The company reported a 27% revenue drop in the second quarter on 22 July as the Covid-19 crisis hit production at its automotive and aerospace components operations. After buying GKN in 2018 the company has a big exposure to those industries, which have been badly affected by the emergency.

Melrose said the looser covenants would allow it to concentrate on cash generation and adapt to current market conditions. There is a small cash cost attached to the new terms but no change to agreed interest rates, it said.

Simon Peckham, Melrose's chief executive, said: "We thank our banks again for their continued support which gives us the headroom and flexibility to continue to focus on cash generation and adapt the group as needed. Melrose also retains over £1bn of cash liquidity. We are confident that we can position the group to produce good returns for shareholders."

The group's committed £3.2bn revolving credit facility is due in January 2023 and Melrose has an option to extend its £0.9bn committed term loan until April 2024. Melrose also has £750m of bonds that have no financial covenants.

Melrose shares rose 5.9% to 93.4p at 09:29 BST. The shares have more than halved in value from 242p at the start of 2020.