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A crunch weekend could be on the cards for Countrywide, with ‘stress testing’ of its loans tomorrow (Saturday, June 30) against its likely earnings.

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Fri 29 Jun 2018

A crunch weekend could be on the cards for Countrywide, with ‘stress testing’ of its loans tomorrow (Saturday, June 30) against its likely earnings.

A crunch weekend could be on the cards for Countrywide, with ‘stress testing’ of its loans tomorrow (Saturday, June 30) against its likely earnings.

The date was given in Countrywide’s chief financial officer’s review in its latest annual report.

Yesterday Countrywide shares fell hard, with the City possibly scenting what – in theory – may lie ahead. The shares ended the day almost 15% down at just 40p.

Himanshu Raja, writing in the 2017 annual report published earlier this year, gave three dates for stress testing – June 30; September 30 (a Sunday); and December 31 (New Year’s Eve).

Outlining the position in the annual report, Raja said that as at the end of last December, Countrywide had net debt of £192m.

He wrote that the board had previously acknowledged the need to bring the leverage ratio down.

He said that Countrywide’s available bank facilities as at the end of last December, “excluding overdraft arrangements available”, consisted of a £340m revolving credit facility and accompanying £60m accordion facility repayable in March 2020.

His report went on to note that in February of this year, Countrywide agreed an amendment letter relating to its term and revolving credit facility with its lender partners, “which provides the company with the financial flexibility to invest in the business as it takes action to restore the sales and lettings business back to profitable growth”.

At that point in February, Countrywide reduced its borrowing capacity to a £275m revolving credit facility and accompanying £60m accordion facility, again repayable in March 2020.

Last year, according to Raja’s report, Countrywide drew down £210m from its then £340m facility and complied with the financial covenant requirements as to the leverage ratio.

However, he warned that in 2017 there was a deterioration of business “and consequently a worsening of the headroom on covenants, in particular the leverage ratio”.

He referred to the “supportive lender group of six banks” which have provided borrowing facilities since March 2013. He also referred to Countrywide assessing the “likelihood of a breach of the covenants”.

Since Countrywide’s chief financial officer wrote the above, Countrywide’s position has weakened further.

There does not appear to have been anything like the restoration back to profitable growth mentioned, with a profits warning on Monday.

This warned that EBITDA for the first half of this year will be some £20m lower than for the first half of last year.

Last year, Countrywide’s first half EBITDA was £28.1m. A £20m drop means it will be £8.1m, a drop of 70%.

Yesterday, while Countrywide’s shares closed at 40p, they had gone as low as 38.5p.

Countrywide’s annual report is here: https://www.countrywide.co.uk/media/59773/countrywide-plc-annual-report-2017.pdf

The chief financial officer’s review starts on page 24 and his observations about the debt situation are on pages 26 and 27.