Credit Ratings: Liquid Faces Financial Struggles After Downgrade
Liquid has to tighten its belt, generate positive cash flow, and dance through the debt minefield.
Credit Ratings: Liquid Faces Financial Struggles After Downgrade
Liquid Intelligent Technologies, a major player in the tech world, is currently wrestling with some serious financial hurdles. Recently, both Fitch and Moody's, those big-shot credit rating agencies, decided to give Liquid's credit rating a not-so-friendly makeover.
These downgrades have everyone raising their eyebrows and clutching their calculators. Liquid's financial health is under scrutiny, and the big question is whether they can keep their financial promises.
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Fitch took Liquid's credit rating from a respectable B to a less-than-stellar CCC+. Meanwhile, Moody's wasn't feeling generous either—they dropped it from B3 to Caa1. They suspect Liquid might be playing fast and loose with their debt agreements.
Liquid's got some hefty debt—$930.6 million hefty, to be precise. The downgrades have investors worried Liquid might struggle to pay back all that moolah.
Liquid's net debt-to-earnings ratio (EBITDA) is dancing dangerously close to the 3× limit set by their lenders. If they don't shimmy it down by the end of August 2024, they'll trip over some debt covenants. And trust me, those penalties and downgrades are no party favours.
Credit Ratings: Liquid Faces Financial Struggles After Downgrade
Liquid's piggy bank isn't as chubby as it used to be. Cash reserves have slimmed down from $57 million to $48 million. Blame it on high expenses and those pesky exchange rates. Fitch even gave them a heads-up: Refinance that R3.3 billion ($179 million) loan due in March 2026, or brace for a debt restructuring rollercoaster.
CEO Hardy Pemhiwa, Liquid's top dog, tried to soothe the market nerves. He waved around a $90 million cash injection, courtesy of the US International Development Finance Corporation. However, credit agencies are side-eyeing it. Even if Liquid throws the whole $90 million at their debt, it might not be enough to meet the 3× debt-to-earnings rule by August. And those delayed investment tranches? Not helping.
The downgrade isn't just a red flag; it's a whole fireworks display. Investors might need to pay higher interest rates if they lend to Liquid. That's like charging extra for a rollercoaster ride that's already making you queasy.
Fitch thinks Liquid can MacGyver their way out of this mess. Refinance debt, haggle for lower interest rates, or extend repayment deadlines—pick your poison. But here's the catch: It'll take more cash injections, better money management, and some financial wizardry.
Fitch isn't all doom and gloom. They're crossing their fingers that Liquid can pull off a refinancing miracle. Picture this: Liquid tightens its belt, generates positive cash flow, and dances through the debt minefield. But it won't be a walk in the park. The next few months are like a high-stakes game of Jenga—don't let the tower collapse!
