GFH Announces Payment of US$300 Million and Six Month US$100 Million New Debt

GFH announced today that it had reached agreement with the West LB syndicate on its US$300 million loan maturing today.  It will repay the full amount of US$300 million and has received a "new" US$100 million six-month murabaha facility from the lenders.  In effect, it will pay US$200 million in cash and the lenders are deferring payment on the US$100 million due today for six months.

GFH's press release touts this as a significant accomplishment  and a vote of confidence by its lenders.

However, I think there is a subtle message in the statement of West LB's Representative.

“We were pleased that we were able to act as a bridge between the syndicate and GFH in finding an acceptable solution to all parties within such a short period of time. We believe that the terms of the refinancing provide GFH with the necessary time to execute the comprehensive plan presented to the banks to return to profitability. The fact that GFH was able to secure unanimous support of the banking group is as a direct result of the pragmatic way in which all parties approached the situation,” added David Pepper, Head of CEEMEA Syndicate at WestLB.

First, his language is that of a problem solved:  "acceptable solution", "pragmatic way".  This is not the language of unbounded enthusiasm.  The banks were presented with two alternatives.  The first was to insist on full repayment.  This likely would have meant a default on the US$100 million.  All sorts of unpleasant consequences for the lenders (and for GFH) would have followed.  The second option was to extend and pretend.  From where I sit the decision seems quite an easy one.  As well in terms of  pragmatism it will be interesting to see the terms on the new facility and how they differ from the previous one.  Unless there is disclosure from GFH in the interim we will have to wait until the release of the 31 March financials for that data. 

Second, the extension is billed as providing "GFH with the necessary time to execute the comprehensive plan presented to the banks to return to profitability".  It is unclear how an institution with a fundamental problem in its business model is going to return to profitability within six months.  I certainly don't believe it's possible and frankly wonder if Mr. Pepper does as well.  Of course,  the banks had to give some justification for the six month tenor.