Johannesburg — CRIPPLING debt has not buried Super Group yet, but it has sunk Larry Lipschitz, who formally stepped down yesterday as CEO after 22 years at the helm.

Warwick Lucas, senior investment analyst at Imara SP Reid, says the resignation, announced on Friday afternoon, may have been a condition for Super Group receiving funding.

Lucas says Lipschitz borrowed too much and continued making acquisitions in a bid to build Super Group. "There was always going to be a problem somewhere," he says.

In a statement on Friday, Super Group said Lipschitz had announced his decision to resign after a proposed recapitalisation and debt restructuring. Super Group has yet to find a new CE.

Super Group is due to raise R1bn through a rights issue to pay down short-term debt as the transport and logistics group seeks to restructure its R3bn debt and recapitalise.

The recapitalisation takes the form of a rights offer at 45c a share and will be underwritten by Allan Gray -- which is a shareholder -- and a number of lenders.

Banks have also agreed to restructure their debt facilities to allow Super Group to continue operations without any liquidity constraints, which were heightened after the ratings agency Fitch downgraded the company several notches. In December, Fitch said it was worried about Super Group's liquidity and the heightened probability of default, adding banks could legally demand repayment of debt.

Roelof Steenekamp, an analyst at Fitch, says banks have thrown Super Group a lifeline, partly lifting concerns over liquidity.

While liquidity concerns may have eased, Steenekamp says Super Group's leverage is high. The ratings agency, he says, is concerned with high leverage levels, implying that Super Group still has too much debt.

Steenekamp says Fitch's adjusted leverage ratio is very high.

He says this ratio, which increased from a historic 2,5 to 2,9 times, to five times last year, will remain much higher than the historical trend this year.

Debt is increasing, while earnings before interest, depreciation and amortisation were decreasing at the same time, due to tough trading conditions. "We will see what happens in the next 12 months," he says, referring to leverage.

Steenekamp says the company would keep monitoring whether lack of management controls, which resulted in the restatement of financial results twice, would be addressed.

Lucas says Super Group has to simplify the company both for business and financial reasons.

Super Group said Lipschitz would remain a significant shareholder and would be a nonexecutive director. "He will also act as an adviser to the new CEO over a transition period," it said, noting that the process to appoint new CEO began last year and was nearing completion. It said management was driving a restructuring and refinancing process that would put the group on a firm financial footing and enable it to continue operating profitably in challenging local and international conditions.

Fitch has revised the rating watch on Super Group's national long-term BB(zaf) rating to "evolving" from "negative".

In reaction to the restructuring and refinancing process, Fitch says these rating actions followed the company's announcement of discussions with their bankers and shareholders for a R1bn fully underwritten rights offer and debt restructuring. It says the R1bn inflow of new capital would positively affect Super Group's liquidity position and was also expected to improve net leverage.

But it warns if Super Group was unable to complete the proposed funding arrangements, it would still face material refinance risks.