Bank offers Feltex a reprieve

Carpet-maker Feltex has been given a reprieve by its bank while it seeks new capital after breaking banking covenants.

ANZ has agreed to take no action despite Feltex being in breach of certain covenants in its bank facility agreement and one of its loans expiring last Saturday.

Feltex said yesterday that all banking facilities would continue until the end of September while it pursued equity raising and restructuring alternatives.

"The bank will undertake interim monthly reviews and will formally review its position at the end of September."

Feltex chief executive Peter Thomas was unavailable for comment.

Shares in the company were flat yesterday at 22c a share.

Feltex's projected year-end debt position with ANZ is $110 million, or $129 million including its trade bill facility.

In last year's annual report Feltex said it had a term loan of $82.1 million which would expire on July 1, 2009 and a term advance of $27.4 million, which expired on Saturday.

David Tripe, director of the Centre for Banking Studies at Massey University, said the loan structures could contain conditions making all facilities repayable on demand in the event of a breach of covenant.

"On the other hand [the bank] would probably also recognise that if they were to demand repayment on demand that might entail things like appointing a receiver ... which might not be an altogether satisfactory outcome," Tripe said.

Macquarie Equities investment director Arthur Lim said in such situations finding new capital was a far better outcome for a bank than sending in the receivers.

"Any injection of capital will reduce number one the bank's exposure and number two provide the company hopefully with a stronger platform to trade itself out of trouble," Lim said.

"It does say that the bank does believe that the party that they are negotiating with is a credible party."

An update from Feltex last month said the company had breached certain covenants but had received a proposal from a potential cornerstone investor.

Market sources have identified the potential new investor as fishing company Talley's Fisheries.