Business Context and Reporting Period
Company: Lincoln Educational Services Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: April 28, 2017
Event: Entry into a Material Definitive Agreement (Secured Credit Agreement)
Key Financial Metrics and Transaction Details
- Loan Amount: $8,000,000 principal.
- Lender: Sterling National Bank.
- Interest Rate: The greater of (x) Bank's prime rate plus 2.50% or (y) 6.00% per annum.
- Repayment Terms: Interest-only payments until maturity.
- Maturity Date: The earlier of October 1, 2017, or the date of the sale of the West Palm Beach Property.
- Collateral: Mortgage lien on the West Palm Beach Property (real property, improvements, and personal property).
- Transaction Costs: $40,000 origination fee plus customary fees and reimbursements.
- Use of Proceeds: Working capital and general corporate purposes.
Material Changes and Related Transactions
The filing discloses a new short-term debt obligation secured by specific real estate assets. This transaction is directly linked to a previously reported contract to sell the collateral property (West Palm Beach Property) to Tambone Companies, LLC for a cash purchase price of $16,250,000. The loan is structured to mature upon the sale of this property, which the Company expects to complete in the second or third quarter of 2017.
Outlook, Risks, and Management Commentary
- Outlook: Management expects the sale of the West Palm Beach Property to close in Q2 or Q3 2017, which will trigger the repayment of the loan.
- Risks: The loan contains customary affirmative and negative covenants and events of default. Failure to sell the property by the maturity date or breach of covenants could result in default.
- Unusual Items: The filing does not disclose unusual items beyond the specific financing arrangement tied to the asset sale.
Investor Verification Checklist
- Verify the status of the pending sale of the West Palm Beach Property to Tambone Companies, LLC.
- Confirm the current Bank prime rate to calculate the exact interest expense on the $8 million loan.
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific negative covenants that may restrict future operations.
- Monitor the Company's liquidity position to ensure interest-only payments can be met if the property sale is delayed beyond October 1, 2017.