Ausdrill (OTCPK:AUSDF) continues to be proactive about its financial situation as the company has announced it entered into a new debt facility agreement with its main lenders. The new debt facility will allow the company to draw down $125M and is valid for 3.5 years. The company intends to use the funds to pay down the currently existing $300M credit facility.
By lowering the total ceiling of the debt facility by $175M, Ausdrill says it will save $2.2M per year. This could both be due to a lower interest rate on the new debt facility as well as removing a potential 'standby' fee for the unused portion of the $300M facility. As the company has been focusing on free cash flow generation and deleveraging its balance sheet, it doesn't need the excess headroom as investment in new equipment will be very limited in the foreseeable future. Ausdrill has encountered some bad luck in the past year with contracts being deferred and clients entering into bankruptcy procedures, but I remain confident the company will be able to generate a substantial amount of free cash flow. I still hope Ausdrill will skip its dividend for a year or will pay a symbolic 1 cent dividend, as every cent it shaves off its annual payouts saves the company $2.5M in cash outflow which could obviously be applied towards debt reduction.
The company's EBITDA will likely take a hit in the financial year 2015 (which ends in June 2015), but I have the impression the management isn't sitting on its hands so I'm not too worried about the net debt/EBITDA situation by the end of the current financial year. The share price has collapsed since my original article, but I continue to average down on Ausdrill as the company will continue to generate free cash flow, is trading at a fraction of its book value and is still trusted by its lenders, as the new refinancing debt facility proves.
Disclosure: The author is long AUSDF.
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