Nova Austral’s liquidity squeeze results in 180 million-dollar losses for bondholders

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Big challenges after extensive losses.

With major coronavirus problems in Chile and its main fresh markets, the United States and Brazil, salmon prices have fallen, giving way to a significant drop in fish. Among those who have frozen salmon are Nova Austral, owned by private equity companies Altor and Bain Capital. Nova Austral, which farms at the southern tip of Chile, has also struggled with high mortality, misreporting, fines and litigation. Despite this, Nova Austral plans a significant build-up in biomass in the years ahead.

In sum, this has resulted in a hefty liquidity slide in the company where former SalMar CEO Yngve Myhre is chairman of the board.

Scrapping at the bottom of the barrel
In a written request to Nova Austral’s bondholders, dated 27th July, the company described its liquidity situation as “challenging.” Cash at the end of June was a modest USD 3.4 million, not least since the company’s so-called “revolver” has been withdrawn and trade receivables of USD 23.1 million are unpaid.

Last week the company asked bondholders for significant changes to the USD 300 million loan agreement.

“The owners behind Nova Austral are actively working to bring the company back to normal operations. Altor is not on its way out of the company,” said Klas Johansson, who is the responsible partner for the investment, to Finansavisen.

Large paper losses
The company has already initiated discussions with banks and bondholders to address the challenges it faces.

The bond’s coupon rate of 8.25 per-cent indicates the high risk associated with the investment. According to Finansavisen, the bonds are now being traded at around 40 per-cent of the facet. This means that the investors who chose to lend money to Nova Austral have so far a paper loss of about USD 180 million.

According to the new loan document, it is proposed that the bond be split in two, with USD 200 million to owners with priority and USD 100 million to owners with second priority. This proposal assumes that DNB will increase the loan limit for the “revolver” to USD 50 million while increasing the coupon rate to bondholders and extending the maturity by five and a half years.

Junk bonds
First priority obligations are increased to 10 per-cent, while second-priority bonds are offered 12 per-cent, as the loan agreement soon resembles so-called “junk bonds,” with sky-high interest rates and ditto risk.

If the company is unable to repay the loan by maturity, the bondholders will be given the opportunity to convert debt into shares.

“Altor and Bain have already invested significant amounts in Nova Austral and will contribute an additional USD 15 million in risk capital in this proposed funding round,” Johansson told the newspaper.