Spire announces covenant waiver and dividend suspension

Spire Healthcare has suspended dividend payments and reached an agreement with its lenders to waiver covenant testing between 30 June and 31 December, the listed hospital provider said today.

On 21 March, Spire entered into an agreement with NHS England to turn its entire hospital capacity over to the NHS for a minimum of 14 weeks to help battle the Covid-19 outbreak.

Under the deal, which could be extended beyond the initial term, Spire will be paid at cost, weekly in advance.  It said this would provide sufficient liquidity and financial stability during the contract, but that the covenant waiver gave it ‘further flexibility’. In addition, it has an undrawn revolving credit facility of £100m.

The Group, which has withdrawn its 2020 guidance in light of the Covid-19 crisis, said it was also ‘prudent and in the long-term interest of shareholders and stakeholders’ to suspend dividend payments until the current crisis is over.

Accordingly, it will not be putting forward for approval to shareholders at its forthcoming AGM the previously announced 2019 final dividend payment of 2.5p per share.

Chief financial officer Jitesh Sodha said: ‘We have had constructive and helpful discussions with our group of lenders, reflecting our solid relationship with them, and would like to thank them for their support while we assist NHS England in combatting Covid-19.’

Analysts at the Royal Bank of Canada said that while the dividend suspension was disappointing, the covenant waiver was positive and should dispel any doubts over Spire’s near-term financial viability.

‘Spire’s deal with the NHS protects the P&L and provides it sufficient liquidity, while its deal with the banks removes near-term risks of financial viability. In the mid-term, we believe that Spire will emerge from the COVID-19 crisis in strong shape, with a well-invested portfolio and substantial pent-up demand across all payor groups,’ it said.

Royal Bank of Canada updated its target price for Spire to 100p based on a 7x EBITDA multiple, giving a fair value of 145p at end-2020 discounted by 30% to reflect near-term uncertainty around the length of the pandemic.