RFG totters making its way

Retail Food Group remains in danger of collapse as it tests the nerve of its financiers. The multi-brand franchisor has racked up losses of more than half a billion dollars in the past 18 months; its market capitalisation has fallen below $50 million, with its share price dropping to 25¢ last week on the Australian Securities Exchange.

Directors have been attempting to sell assets in a bid to reduce debt to satisfy bankers and ensure the company can continue to trade.

The problem is that most of the assets have little value in real terms and, in some instances, carry significant liabilities in respect of store lease commitments, exit costs on unprofitable and unfranchised stores and prospective legal action by disgruntled franchisees.

The results for the first half of the 2019 financial year would indicate that the entire company is struggling to survive and is facing imminent administration if it cannot quickly conclude a significant asset sale.

Debt covenants tested

A waiver of debt covenants by lenders NAB and Westpac expired on December 31 – and are due to be tested by March 31. Without clear indications of the viability of the company on an ongoing basis, lenders are unlikely to hold their nerve.

Directors of the company have been unable to conclude a deal on any asset sales despite the company reporting the Donut King and QSR Division as discontinued operations in its FY19 first-half results released last week.

Directors advised investors that negotiations were ongoing but no formal binding agreement had been achieved with a proposed buyer.