Shipbuilder and marine engineer Harland & Wolff (HARL ) announced it has entered into an exclusive term sheet with Astra Asset Management for a proposed refinancing of Harland's credit lines.
Harland said the current proposed facility is £70m, and that both parties will be working together to increase it to £100m "in due course". The transaction will entail the full refinancing of Harland's existing debt with Riverstone Capital Partners, plus additional financing toward the company's working capital requirements.
The new facility will be in effect for a period of two years with three annual extension options. As part of the transaction, Astra will be issued 15m warrants over new ordinary shares in Harland at a price of 6.2385p/share (the 14-day volume weighted average at time of execution). The warrants will expire in 60 months from date of issue.
Financial close is expected in 4-6 weeks. Harland will make further announcements at financial close.
John Wood, CEO of Harland & Wolff, commented: "We are delighted to be entering into this new facility and partnership with Astra. The enhanced financing will be incredibly useful to meet our capital expenditure and working capital obligations towards some key and large contracts that we have been negotiating over the last 18 months, due to come to fruition in the next couple of quarters.
As a UK based private debt lender, Astra are intimately aware of local dynamics of shipbuilding, levelling-up and energy security and we look forward to closing this transaction with Astra within the agreed timescales."
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Last month, Harland activated Riverstone's accordion facility with an initial drawdown of US$15m, used to fully settle the remaining Appledore deferred consideration, and fund its working capital needs. The move was a significant milestone for Harland as it consolidated its Appledore assets.
Today, Harland has agreed a better financing deal with Astra. Upon closing, the new facility structure should leave Harland on better terms than its existing debt facility with Riverstone, contingent on further movements of the BoE's base rate or other major market movements prior to financial close in 4-6 weeks.
Astra's facility will provide Harland with further headroom and flexibility to grow its business, and ensure the company remains well-funded to execute on its £100m backlog of contracts going into 2023.
Harland now has a significant presence in defence, energy, renewables, and cruise ship maintenance, with an estimated £1.2bn of opportunities across these markets. Harland's reputation in the defence field continues to grow, following the signing of the £55m M55 Regeneration Programme contract in July. Payments from that contract will be spread across FY22, FY23, and FY24.
Despite inflationary pressures, Harland delivered 22% gross margin in 1H22 as forecast, tripled revenues, and nearly tripled gross profit. The company is looking at a busy 4Q22 and FY23 with the aforementioned £100m forward backlog position expected to convert to revenues in the next two quarters.
With a series of contract announcements made post-1H, Harland's revenues this year will be weighted towards 3Q and 4Q. The company is already seeing a material increase in revenues from projects that were contracted at the beginning of 3Q22.
Harland should comfortably reach its goal of £65-75m of revenues in FY22. Looking ahead, Harland sees potential revenues of £100-115m in FY23. At £200m turnover and above, the company expects to be in a position to initiate returns to shareholders.
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