OHL bonds allow for more than 1bn dividends: Covenant Review
By Robert Smith
LONDON, Aug 12 (IFR) - Obrascon Huarte Lain's bonds allow it to return more than 1bn to shareholders, according to a report from credit research firm Covenant Review, as long as the Spanish construction firm can meet an all-important interest coverage covenant.
OHL's bonds fell to distressed levels last week, after poor first-half results were compounded by reports of a damaging shareholder agreement and an unexpected stock buyback. On Friday, its 317m 5.50% 2023 bond is bid at 64.50 to yield over 14%, having recovered from lows of 54 a week before.
Attention turned to the finances of the company's majority owner, Grupo Villar Mir (GVM), after it emerged that the drop in OHL's share price could create liabilities for GVM under a complex share agreement with hedge fund Tyrus Capital.
The agreement ends in May 2017 and GVM's CFO told Reuters last week that they are "covered" on the deal, without providing further detail. GVM said at the end of 2015 it had a 180m liability with Tyrus, but the share price has more than halved since the start of 2016.
GVM is a holding company run by OHL's chairman, Juan Miguel Villar Mir, and the two companies' finances are entwined in other ways, as GVM also has margin debt and a 150m convertible bond on OHL stock.
A report Covenant Review published on Friday said that if GVM "wishes to extract value" from OHL to meet its obligations, OHL's bonds restricted payments basket gives it room to do so.
High-yield bonds place strict limitations on what borrowers can do with their money, through a series of covenants and terms investors usually require to lend money to riskier companies. But they typically have certain baskets and carve-outs allowing specific pots of money to be used more freely, with restricted payments baskets allowing cash to be returned to shareholders.
"OHL currently has well over 1bn in Restricted Payments build-up basket capacity under the covenants for its outstanding bonds," the report said. Continuación...