Fletcher Building: New Banking Agreements Improve Debt Flexibility

Changes to Fletcher’s banking agreements provide additional financial flexibility if the recovery in New Zealand construction takes longer than expected. Fletcher has twice downgraded its earnings expectations for fiscal 2024 amid weaker residential construction demand, and we forecast a deterioration of net debt/EBITDA to 2.3 times at the end of fiscal 2024, above the firm’s target of 2.0 times. Although we view the balance sheet as stretched, we do not expect the firm to breach its covenants, but the new, more generous short-term covenants and longer loan terms provide extra leeway if needed.