The banks' covenants are based on underlying EBITDA so one off...

The banks' covenants are based on underlying EBITDA so one off restructuring hits will be forgiven. As per 1H18 results release, RFG has two covenants which will force them to raise equity (as a first port of call) if EBITDA goes to sub c.$80m:

1) 3x net debt to underlying EBITDA covenant. They have $260m net debt now so sub c. $85m underlying EBITDA will trigger this.

2) $90m budgeted underlying EBITDA required for FY19, and they can't underperform that by more than 20% on a quarterly basis (ie sub $72m underlying EBITDA would trigger this).

If they keep underlying EBITDA high enough to avoid breaching covenants (very unlikely) and avoid raising equity, it goes without saying that equity returns on today's $1.15 would be very attractive. If EBITDA dips to sub $50m, the existing equity is near worthless as the dilution on the recap (if they can successfully do one) will be awful.

For recap purposes, the sustainable earnings capacity (to the extent it can be accurately deduced for a business as distressed as RFG) is the right way to think about the level of dilution that will occur as that's how new equity will be thinking, ie: "what's the rough sustainable earnings power of this business, what's a fair multiple of these earnings, and how much of the post recap pie do I need to own to back solve for that?". If RFG produce a trough underlying EBITDA of say $40m, they'll have a very hard time convincing new equity to sign up based on sustainable EBITDA projections of say $80m - that's what you might call a "credibility gap".