Connect Group carries substantial risk (even when shot of Tuffnells)

Smith News, freed from the shackle of Tuffnells, has a lot going for it. But there is a risk that it runs out of money before shareholders benefit from the simplified and focused company.
The Group has £175m committed bank facility available until 31 January 2021, of which £68m is current unused, implying that around £107m is being borrowed.
The directors reckon they will still need to borrow £83m in the new year. They have already been in discussions with current bankers for a renewal of lending.
“However, following preliminary negotiations the company has not been able to secure refinancing terms it considers commercially acceptable…and has decided to defer the refinancing process given the current uncertainty and tightening of the debt markets, including as a result of the onset of the COVID-19 pandemic. The Company expects to re-commence the refinancing process following Completion of the Proposed Transaction (which has been consented to by the requisite majority of the Company’s existing lenders) and when the debt markets and general market conditions each settle following their current period of heightened volatility.”
In other words, Connect directors reckon they’ll get a much better deal from bankers once they have dumped Tuffnells and can point at the long history of profits and cash flow at Smiths News.  They say,
“Taking into account the underlying profitability and cash generative nature of…Smiths News, which generated adjusted EBITDA of £48.6m and free cash flow of £36.8m in the year ended 31 August 2019, the Board is confident that, following Completion of the Proposed Transaction, the Continuing Group will be in a stronger position from which to negotiate the Proposed Refinancing than would be the case either prior to the Proposed Transaction.”
They are looking to conclude discussions on refinancing in the next nine months.  But that is a tight timetable given the cliff edge of 31 January – if there is no new debt facility there might not be a business.
The directors are confident: “Longer term, the Board believes that as and when restrictions ease, the operational and market resilience of Smiths News mean it will be well placed to swiftly return to previous levels of service and profitability.”
And if they don’t get a good banking deal?
Then they’ll go for a combination of measures:

1. Cost reductions
2. Disposing on assets (but I don’t know of anything they can sell)
3. Alternative finance such as invoice financing
4. Approaching shareholders for money by way of equity issuance
5. A sale of the company to another firm

If these actions are still insufficient “then a working capital shortfall is expected to arise from 31 January 2021 and the Company…cannot continue as a going concern, it would likely enter administration or another insolvency process.”
Will shareholders save the day if bankers will not?
In normal times Smiths News should be able to borrow the £83m it needs because it has a very stable, if declining, cash flow founded on five-year contracts with publishers most of which now stretch to 2024/5.
But we are not in normal times and bankers may be in such cautious frames of mind that they will not advance the company £83m on good terms.
Connect Group’s history of cash flow (including the deduction of Tuffnells losses in 2018 of £5m and in 2019 of £14m)
£m Interest paid Free cash flow (after paying for capex, WC changes, finance lease payments, taxation – but not interest or dividends) Dividends
2019 5.1 13.4 0
2018 5.8 26.0 7.6
2017 4.4 33.1 24.0
2016 4.9 41.1 23.2
2015 7.3 45.6 21.4
2014 5.5 43.3 17.7
2013 6.5 39.1 16.0
2012 3.7 30.9 14.9An idea: If the bankers are still reluctant to supply the full £83m then Smiths News could perhaps borrow £60m. This would mean the ratio of company debt to cash flow will be in the region of one and a half -  surely an acceptable level to the bankers?
The other £23m could come from shareholders.  For this to work out we need to understand the character of the main shareholders and whether they would blanch at putting money into a risky company.
Aberforth Partners
Aberforth holds 17.13% of the shares. They are committed value investors and therefore used to dealing with small companies going through a time of troubles. Their website states:
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