Business Context and Reporting Period
Company: Atlantic American Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: December 22, 2006
Event: Entry into a Material Definitive Agreement (Credit Agreement) with Wachovia Bank, National Association.
Key Financial Metrics and Debt Structure
This filing details a new financing arrangement rather than reporting period-end financial performance metrics (revenue, profit, cash flow). Key debt terms include:
- Facility Type: Revolving Credit Facility (Revolver).
- Commitment Amount: $15.0 million.
- Interest Rate: Base Rate or LIBOR (1 to 6-month periods) plus an Applicable Margin ranging from 1.75% to 2.50%, based on the leverage ratio.
- Collateral: Pledge of 100% of the capital stock of four operating subsidiaries (American Southern Insurance Company, Association Casualty Insurance Company, Georgia Casualty & Surety Company, and Bankers Fidelity Life Insurance Company).
- Amortization Schedule:
- 2007 & 2008: $0.5 million principal repayment on June 30 and December 31.
- 2009: $1.0 million (June 30) and $1.5 million (December 31).
- 2010: $10.5 million (June 30).
- Termination Date: June 30, 2010.
Material Changes Versus Prior Period
The Company terminated its prior credit facilities with Wachovia upon the closing of this new agreement. The new agreement refinances amounts outstanding under the previous facilities and provides funds for general corporate purposes. The Commitment Amount is subject to incremental reduction every six months beginning July 1, 2007.
Covenants, Risks, and Contingencies
Covenants: The agreement requires compliance with financial ratios (funded debt to total capitalization and EBITDA), maintenance of minimum tangible net worth, and minimum risk-based capital levels. It also restricts capital expenditures, additional debt, equity repurchases, and certain investments.
Events of Default: Include failure to pay obligations, covenant breaches, cross-defaults, bankruptcy, failure to maintain credit ratings for operating subsidiaries, changes in ownership or board composition, and objection by the Georgia insurance commissioner to the stock pledge.
Consequences of Default: Wachovia may terminate the commitment and declare all outstanding amounts due and payable immediately.
Investor Verification Checklist
- Verify the current leverage ratio to determine the applicable interest margin (1.75% vs. 2.50%).
- Confirm the Company's compliance with minimum risk-based capital levels for its insurance subsidiaries.
- Review the status of the Georgia insurance commissioner's approval regarding the pledge of subsidiary stock.
- Monitor the incremental reduction of the $15.0 million commitment starting July 1, 2007.
- Assess the Company's ability to meet the specific principal repayment schedule culminating in the $10.5 million payment in June 2010.