Arq Group has lowered guidance for its enterprise division and revealed that it is in breach of terms set by its lenders, who will therefore approve any asset sales.
A new investor update posted on the ASX today (pdf) says that preparations for the sale of either or both of Arq’s SMB and/or enterprise division have commenced. Advisers have been appointed, marketing is under way to “interested parties” and “a number” of entities have signed non-disclosure agreements related to a possible sale.
The statement also reveals that Arq is currently in “breach of net leverage ratio under its loan facilities.” That means the company is at risk of being unable to sustain loan repayments at agreed levels. Lenders have been “supportive” and waived some conditions, the update says, indicating they believe Arq will be able to service its debts. But the lenders are also making it known that they will insist the proceeds of any asset sales be funnelled to paying down debt.
It’s not hard to see why lenders want that outcome: the update reveals that opportunities being chased by Arq’s enterprise division “have been delayed” and that the division will tip from forecast EBIDTA of $1m to $2.5 into a $1 - $2m loss. The SMB division’s performance is holding, with forecast EBITDA of $9.7m to $10.7m on track.
Arq did offer some reasons for optimism, suggesting that delays to Enterprise division deals mean it has a “strengthening” pipeline for 2020. The company also believes its cost-cutting measures have kicked in and made an impact.
The company’s shares remain in a trading halt, making it hard to assess market reaction to this news.