Debt deal saves Ocean Terminal's position

Published on Tuesday 23 December 2008 20:08

FORTH Ports yesterday admitted that a fall in the market value of the flagship Ocean Terminal shopping centre in Leith was likely to have seen it breach its loan terms if it had failed to renegotiated terms with co-owner HBOS.

Revealing that Forth Ports is set to write down the value of all of its property assets for the third time in two years, chief executive Charles Hammond said the company had foreseen a "possible" breach of its loan-to-value covenants for the shopping complex, but refinancing had now been agreed in principle.

Technically such a breach could have led to Ocean Terminal defaulting on its loans, but analysts said it was always likely that refinancing would be achieved, with Forth Ports' joint venture partner on the complex, HBOS, also bankers to the mall.

Hammond said the potential breach was spotted early, prompting the company to strike a deal in principle to refinance the loans.

"You have to be very factual in these statements," he said, after Forth Ports released a generally bullish trading update. "What you don't see is that behind the scenes the discussions were always very supportive."

Despite the writedowns and covenant risks, Forth Ports said it had renegotiated new banking facilities for 275 million in debt, which will result in interest rates falling from 6.3 per cent this year to 4.4 per cent in 2009.

Mark McVicar, an analyst at Forth Ports' house broker Dresdner Kleinwort, said that, while some companies were struggling to agree decent banking terms, the Edinburgh-based group's steady revenues were attractive to bankers.

"This is a very high-quality set of assets; it's not like they're refinancing, say, a house builder. It's a ports business that turns out 60m to 65m of Ebitda (underlying earnings] every year, come what may, and that's the bit that's being refinanced."

Forth Ports assured its underlying pre-tax profits would be in line with market expectations, although it is planning to conserve cash next year "as a measure of prudence".

Hammond said this was likely to see capital expenditure cut on both the ports and property sides of the business, but stressed Forth Ports was not planning to cut back on dividends.

The company had seen weakness in some parts of its ports business, in particular at the deep-water container unit at Tilbury, on the river Thames. However, mostly the business was remaining strong.

More than 80 per cent of the firm's port revenues come from the transportation of "basic and essential commodities", Hammond said, putting it in a stronger position to cope with a downturn than those transporting more in the way of consumer or automotive goods.

While Forth Ports said it is insulated from problems because it does not need to sell its assets, Hammond warned he saw no signs that the property market was improving and predicted it could be "some time" before it does. Shares rose half a penny to 949.5p.