Natwest loan cut floors EMH
European Micro Holdings, the broker of top brand computer hardware, borrows money from Natwest to buy its stock.
But last week the bank reduced its exposure to the distie: in future it will lend only 25 per cent of the value of the inventory bought by EMH, unlike the past where it lent the entire amount.
On Friday, August 3, EMH issued a press release in which it said the Natwest loan restructure would materially impair the firm's "ability to finance its operations and to purchase inventory".
Furthermore, the loan restructure means the company could fail to meet certain financial obligations, including its obligations to the former shareholders of American Micro Computer Center".
European Micro Holdings bought AMCC and former shareholders could be entitled to their stock back. John Gallagher, co-chairman of EMH. is one of the AMCC shareholders.
The financial viability of EMH is coming under increasing question In July, CW360.com reported that EMH faced the threat of legal action from South Trust Bank for the repayment a loan. The distie had failed to comply with covenants attached to the loan, the site said. The deadline for the repayment is August 15. The company saiys that, if all else fails, Gallagher and co-chairman Harry Shields will personally repay the loan.
Headquartered in Miami, European Micro Holdings operates in Europe only. The company hoovers up surplus inventory and also tries to exploit arbitrage opportunities i.e. it buys stock where it is cheap and sells it in a country where it is more expensive.
EMH sells through resellers, at cheaper prices than they could buy through official distribution. And the company claims better margins than traditional disties.
This is all well and good, if you have the money to buy the stock in the first place. Disties, at least, can buy stock on tick from their vendors. ®