Caffyns’ debt level and pension deficit

Superficially, there is an impressive gap between the company’s market capitalisation, £12.5m, and property assets of £54.7m. But before getting carried away we need to consider whether the company is vulnerable to failure because of its debt levels and covenants on those loans.
Net bank borrowings fell between 31st March 2020 and 31st March 2021 from £16.1m to £10.3m, so that is encouraging. The makeup is £5.7m of cash and £16m of borrowing.
Debt facilities have been agreed with HSBC and VW Bank:

• HSBC term loan with an outstanding balance of £6.6m in March 2021. Repayable in instalments to 2038. Renewable in March 2023. An indication of Caffyn’s good standing with HSBC: In the preliminary results for the year to March 31st 2021 the directors stated, “In order to assist in the conservation of cash balances, HSBC granted capital repayment holidays on our term loans, for the March and June 2020 quarters, each being a repayment of £94,000.”
• HSBC revolving credit facility of £7.5m, renewable in March 2023. Balance in March 2021 about £5m.
• HSBC overdraft facility of £6m, renewable annually.  Preliminary Results: “The Company enjoys a supportive relationship with HSBC and, following the outbreak of the covid-19 pandemic in March 2020, the Company temporarily increased its overdraft facility limit from £3.5m to £6.0m. In September 2020, the Company reduced its overdraft facility back down to £3.5m.” At 31st March 2021 the total of overdrafts owing was £3m, but some of this might be to VW (see below).
• VW Bank overdraft facility of £7m renewable annually. The VW overdraft is asset-backed lending with cars being used a security.
• VW Bank term loan, now £1.5m, repayable November 2023. Preliminary Results to 31st March: “In order to assist in the conservation of cash balances, [VW] granted capital repayment holidays on our term…for the months of April, May and June 2020, each being a repayment of £42,000”.

There is plenty of headroom in financing, as demonstrated in the preliminary results to 31st March 2021: “Available but undrawn facilities with HSBC and Volkswagen Bank at 31 March 2021 were some £16m (2020: £10m)”.
Debt outstanding at March yearends 2021 - 2018
£m 2021 2020 2019 2018
Current 3.9 8.9 4.9 1.4
Non-current 12.2 8.7 12.6 13.1
Total debt 16.1 17.6 17.5 14.5
Less cash -5.7 -1.5 -3.9 -2.2
Net debt 10.3 16.1 13.6 12.3Preliminary results to 31st March 2021: “This substantial reduction [in bank debt over the year] reflected the strengthened controls over working capital and cost savings implemented during the year, as well as the significant covid-19 support received by the Company from the Coronavirus Job Retention Scheme and the business rates holiday.”
Covenants
The VW term loan and the HSBC debt, are subject to covenants tested with respect to:

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