Debt testing relief for struggling Retail Food Group

SHARES in Retail Food Group have soared after its lenders said they would waive testing for its debt obligations. The company is struggling with debt worth almost $260 million amid heavy criticism of its relationship with franchisees.

Richard Hinson is the boss of troubled franchise operator Retail Food Group. The company has been provided some relief this morning from its debtors. AAP/John Gass

EMBATTLED Retail Food Group executives breathed a sigh of relief this morning after lenders for the franchise owner gave the company a break on its debt obligations.

RFG said in an ASX statement that its lenders had agreed to waive testing of the company’s financial covenants under its debt facilities for the financial year.

The company has been under strict obligations including: 60 per cent of net proceeds of any asset disposal to be applied to repayment of debt; any variance from quarterly underlying pre-tax earnings of more than 20 per cent to trigger a breach of the covenants; and an operating ratio of three times debt to pretax earnings.

GET FULL DIGITAL ACCESS FOR 50C A DAY

RFG had $259.7 million of net debt as of the end of last year.

The company, under the terms of its debt covenants, must still achieve a minimum budget for FY19 of underlying pretax earnings of $90 million.

RFG said it will be subject to additional reporting obligations under the terms of the waiver, and that it remains focused on repairing its balance sheet, including assessing potential asset sales.

Investors responded positively to the latest news of the debt testing waiver, sending RFG shares up 29 per cent in intraday trading to 55¢.

RFG shares hit a new low of 41.5¢ this week.

One year ago shares were worth $5.14.