COVID-19: Gold Coast-based childcare giant G8 Education to raise $301M to pay down debt and shore up balance sheet

Gold Coast-based childcare giant G8 Education will raise $301 million to shore up its balance sheet and pay down debt amid the COVID-19 pandemic.

GOLD Coast-based childcare giant G8 Education has moved to cut its debt pile and position the company for post-COVID-19 growth as the Federal Government injects cash into the sector.

The Gary Carroll-led company on Thursday announced it will raise $301 million to provide liquidity and support the operation of its 475 centres throughout Australia. The announcement came after the company paused trading in its shares on April 2.

The raising included an institutional placement of $134 million and a 1 for 2.2 pro-rata non-renounceable entitlement offer of $167 million made up of institutional and retail offers of $89 million and $79 million respectively.

G8 will issue 377 million new shares representing 82 per cent of existing securities at 80 cents per share meaning it is heavily dilutionary to existing shareholders.

8 Education managing director Gary Carroll. Photo: Scott Powick

However, they can offset the impact through the entitlement offer.

Funds will be used to repay debt, shore up cash on hand and pay for transaction costs. The raising is expected to reduce leverage from 2.4 to 0.4 debt times pretax earnings. This results in net debt falling from $354 million to $65 million.

The G8 announcement comes after the Federal Government announced on April 1 that it will from April 6 make weekly payments to providers in lieu of the Child Care Subsidy and the Additional Child Care Subsidy.

The payments represent 50 per cent of each centres fees received in the fortnight prior to March 2.

G8 Education has struggled with occupancy levels since the start of the COVID-19 outbreak. Photo: iStock

Payments will be made until June 28 with an extension to be considered after this period and are meant to complement the JobKeeper program.

G8 said it expects all full time, part time, long term casual and support office staff employed as of March 1 to be eligible for the program, under which $1500 payments are made per employee from the first week of May. G8 has about 9000 staff at its centres.

The company said it expects average monthly wage costs to fall by $23 million due to the payments.

G8’s average monthly revenue has plummeted from $72 million to just $33 million during COVID-19. However, G8 believes by using the JobKeeper subsidy, reducing rent costs by 20 per cent and encouraging staff to take annual leave, it can bring costs down to meet revenue.

Since the COVID-19 outbreak like-for-like occupancy levels have plunged 9.7 per cent as of April 5 compared to the same period last year.

The company expects that figure to improve due to the government support.

It has also undertaken measures to improve hygiene such as new sanitising products, staggering meal times for children and increasing their time spent outside.

G8 said it will also be taking advantage of payroll tax deferall offered by the Queensland, South Australia and NSW governments and has begun discussions with its landlords on rent relief.

The company has also deferred all non-essential capital expenditure to save $15 million while its directors will take a 20 per cent fee cut through to September.

Mr Carroll praised the Federal Government announcements and said this will provide stability for the sector.

“In addition to those measures, the Board considers it prudent to take further steps to preserve cash, improve efficiency and ensure Balance Sheet flexibility and liquidity during this unprecedented period. The equity raising we have announced today, along with other capital structure and operational initiatives, will ensure G8 is well-positioned to navigate the current period and emerge from it in a strong position capable of delivering the high-quality services that Australian families expect of us,” he said.

“We will continue to prioritise the health and safety of the children in our care, families and team members and are committed to working with Government, industry and other stakeholders to ensure the right settings are in place.”

The company has suspended dividends and will not pay one next year.

It said a dividend “subject to financial performance” may be paid for the first half of 2021.

G8 has $135 million in cash and lending facilities, which is expected to increase by $289 million following completion of the capital raising.

Importantly G8’s lending syndicates have agreed to amendments to its debt facilities to provide covenant relief for the next two periods being June and December.

The institutional offer closed on April 9 while the retail offer is due to open on April 20 and close on May 1.