Chile’s SMU to Raise $500 Million Capital After Covenant Breach

SMU SA, the Chilean retailer controlled by the billionaire Alvaro Saieh, plans to increase its capital by $500 million after an accounting review revealed higher losses and a breach of debt covenants.

The company said in a regulatory filing that its financial statements for the first quarter showed that the company had been undervaluing its store-lease obligations by 38 billion pesos ($75 million), which led to an increase of its total liabilities and a 4.4 percent cut in its earnings before interest, tax, depreciation and amortization for the 12 months through March 31.

As a result, SMU’s debt-coverage ratio, defined by Ebitda divided by net financial expenses, fell to 1.4 times, below the threshold of 1.5 times defined in the terms for its bonds, according to the filing.

“This situation doesn’t constitute an immediate cause for an acceleration of payments,” Chief Executive Officer Marcelo Galvez said in the filing.

The yield on SMU’s dollar bonds due in 2020 rose 1.5 percentage points today to 13.8 percent, according to Trace, the bond-pricing reporting system of the Financial Industry Regulatory Authority.

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