With waivers in hand, CPJ banking on revived tourism to keep creditors at bay
Caribbean Producers Jamaica, CPJ, breached loan covenant agreements relating to US$7.5 million ($1.1 billion) worth of debt, amid the group suffering the effects of the pandemic, according to company filings.
But banks, bondholders and private lenders have given CPJ waivers on the breaches and agreed to adjusted amortisation, or repayment schedules, into the future, Executive Chairman and interim CEO Mark Hart said on Thursday.
Additionally, CPJ’s landlords have reduced the leases payable by the company, while CPJ has adjusted worker pay and schedules, as well as reduced its workforce through redundancies to cut costs.
CPJ lost business when the tourist sector locked down earlier this year, but revenues are rising again as hotels and other hospitality ventures ramp up their operations. By the time the peak winter tourist season rolls around in mid-December, CPJ projects that revenue inflows would have risen towards half of their normal levels.
“At 50 per cent, we should make a modest profit. At 60 per cent, we make a decent profit. Once we start making profit, then the ratios will come back into play,” said Hart. “We have every reason to believe that we will be able to service our creditors.”
The annual report, released this week, indicated that the group breached two loan covenants relating to SU$7.53 million of debt, for which CPJ got waivers in August. Specifically, the group breached two ratios – for debt service coverage, which resulted in its operating revenue falling below 1.5 times its debt obligations; and the debt-to- earnings, or EBITDA, ratio which resulted in its debt exceeding its earnings 3.0 times.
Separately, Bank of Nova Scotia Jamaica granted CPJ a six-month postponement on repayment of two credit facilities totalling US$1.1 million, according to notes in the report.
“The group has seen some increased demand for products and services in the first few months of the new financial year 2021. Moreover, the group is seeing low occupancies but increased offtake from the hotels, which is very encouraging,” the company said.
The improvements should begin showing up in CPJ’s first-quarter earnings report for the July-September period, the release of which is due by mid-November.
Prior to the pandemic, CPJ sales and profit were trending higher, but those gains were wiped out due to COVID-19 mitigation measures and the adverse effect on the travel sector, Hart and Co-Chairman Tom Tyler said in a message to shareholders.
As a result, sales in the fourth quarter of fiscal year 2020, April to June, fell 79 per cent to US$5.78 million. Group capital declined to US$17.8 million, from US$22.1 million a year earlier, mainly due to the US$4.3-million full-year net loss, affecting accumulated surpluses.
CPJ utilised the downtime forced on it by COVID to push ahead with the changes to its technology systems, including enterprise resource planning software, a new warehouse management system, demand planning software, procurement system, costing system, truck dispatch software, logistics software and a remote sales system, among others.
“We are using this time wisely to re-engineer the company,” Hart old the Financial Gleaner. “We implemented 10 new software upgrades, and that’s a pretty impressive feat,” he said.
In late 2018, the company wrote off a new IT platform at nearly US$1 million, after the system failed, at implementation, to sufficiently integrate sufficiently with its accounting and distribution centres across three locations in Miami, Jamaica and St Lucia. Subsequently, it returned to its legacy system until a new fix was found.
“We are setting ourselves up for when the business returns, so that we will be in a much stronger position,” said Hart, who says he will continue to act in the role of CEO until normalcy is restored to the market. He took on the role of CEO earlier this year after Dr David Lowe departed the company for other pursuits.