TT-Line could have faced insolvency without emergency borrowing arrangements approved during the election caretaker period, Tasmania’s lending authority has revealed.
TASCORP chair Gary Swain told a parliamentary committee the ferry operator’s financial position was “not sustainable” when it requested an extra $410 million in borrowing capacity in April.
The Tasmanian Public Finance Corporation approved a temporary increase to TT-Line’s borrowing limit from $1.035 billion to $1.445 billion in June, but only until October 2026.
TT-Line has already used $988 million of the original amount.
“The board was concerned that the assumptions in the base case were somewhat optimistic and that if some stress events occurred, the business would be very challenged,” Swain said.
When pressed on whether this meant potential insolvency, he confirmed: “Potentially to the level of a solvency challenge, yes.”
TASCORP CEO Heath Baker revealed TT-Line is currently breaching its interest coverage ratio and is forecast to breach three more financial covenants within 12 months.
“They are forecast to go above the current financial leverage ratio in potentially 26-27,” he said.
The company’s financial ratios are below investment grade and are forecast to remain there until at least 2029.
Baker said the covenants act as an early warning system.
“It’s a mechanism for us to know and then for us to inform our shareholder that there is a deviation, the risk is increasing in this business,” he said,
The temporary borrowing increase was approved on June 24, during the state election caretaker period.
However, it only became active when then-Treasurer Guy Barnett provided a government guarantee on July 26, the day after receiving updated advice.
TASCORP has formally advised the government that TT-Line’s borrowing levels are unsustainable and that an equity injection should be considered.
The temporary increase was designed to give the government “sufficient time to assess and implement any necessary equity injection”, Swain said.
The exact amount needed remains unclear and depends on final costs for the Devonport berth project, currently budgeted at $493 million including a $45 million contingency.
TT-Line has not yet drawn down on the additional borrowing capacity.
TASCORP identified several concerns with TT-Line’s financial projections, including passenger forecasts that appeared overly optimistic.
The company is projecting revenue growth of 5.7% annually over the next decade through a combination of volume and price increases.
“We had some evidence from historical data that those assumptions were subject to volatility based on external shocks,” Swain said.
Stress testing showed financial metrics would “further deteriorate” under at least two of the three negative scenarios examined.
TT-Line is conducting a capital structure review and updating its long-term financial forecasts, with results expected “in the coming months”, Baker said.
TASCORP is also waiting for clarity on the timing of new vessel commissioning, the sale of existing ferries and final costs for berth infrastructure.
The government has three options, Swain said: provide no support, include an equity injection in the November interim budget or spread support across multiple budgets.
TT-Line continues to meet its interest payment obligations to TASCORP.
