Emergency equity raising possible as car repairer AMA races to refinance

Car repair network AMA posted a $25.75m loss for the six months to December, but that was down from its $46.3m loss a year ago.

AMA is once again in focus as the clock ticks on its negotiations with Suncorp ahead of its critical refinancing.

It could be one of the biggest refinancing jobs at the big end of town if it stumbles, potentially sparking an emergency equity raising.

But so far it remains on track.

The stakes are high for AMA, a car repair network. Its share price was at 12.5c, taking its market value to $134.5m, and any raise would be highly dilutive.

While an equity raising could not fund all of the refinancing, lenders might insist on one.

Hedge funds are betting on some action ahead and are on the scene. European fund Azvalor Asset Management amassed an 8.92 per cent stake in April. New York-based Mittleman Investment Management held 7.69 per cent in April, but later sold shares.

The company’s share price fell dramatically in April after it lowered its EBITDA guidance to between $60m and $68m for the 2023 financial year, compared to $70m to $90m earlier.

Strong demand was offset by industry-wide labour shortages and margin compression.

Industry contracts have not accommodated pricing pressures.

AMA has plans to recruit staff internationally.

It satisfied debt covenant testing requirements for December 31, 2022 and had been expected to satisfy them for March 31.

It ended the third quarter with $20.5m of cash and unused finance facilities of $1.1m. It generated $300,000 of net cash from operating activities.

Before the refinancing takes place, AMA needs to lock in its Capital Smart contract with Suncorp. That is on track to happen in June and be in place by July 1.

The bank and insurer will be hoping to get negotiations wrapped up so it can start sending cars for repairs by that date.

Sources close to the company say that Suncorp is working collaboratively with AMA.

DataRoom reported in April that AMA had hired Grant Samuel to assist with its refinancing plans at a time of higher funding costs.

At December, AMA had $182.7m of net debt, up 11 per cent from June.

Capital Smart was purchased from Suncorp in 2019 for $440m, and it remains a customer.

AMA debt is set to expire in October 2024. Its offshore lenders are likely to be replaced by non-bank financiers that typically fund private equity deals.

ANZ has syndicated some of the debt to other banks, predominantly offshore.

Other lenders include Bendigo Bank and Bank of China, while other top-four Australian banks also provide loans.

Of its gross debt of $215m, 23.3 per cent consists of convertible bonds, 35.5 per cent is senior unhedged debt and 41.2 per cent is senior hedged debt.

AMA posted a $25.75m loss for the six months to December, but that was down from its $46.3m loss a year ago as demand for repairs began to strengthen after the Covid pandemic.