Business Context and Reporting Period
Company: Optical Cable Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: September 25, 2006
Event: Entry into new material definitive credit agreements with Valley Bank and termination of the prior credit facility with Wachovia Bank.
Key Financial Metrics and Debt Structure
The filing details a restructuring of the Company's debt facilities. No revenue, profit, or cash flow data is provided in this specific report.
| Facility Type | Lender | Maximum Availability | Interest Rate | Outstanding Balance (9/25/06) |
|---|---|---|---|---|
| Working Capital Facility | Valley Bank | $5.0 million | LIBOR + 2.15% | $852,176 |
| Machinery & Equipment Facility | Valley Bank | $2.0 million | LIBOR + 2.15% | $0 |
| Real Estate Loan | Valley Bank | $6.5 million | 7.50% (Fixed for 5 years) | $0 |
| Total New Aggregate Credit | Valley Bank | $13.5 million | - | $852,176 |
| Terminated Facility | Wachovia | $25.0 million | - | $0 (Transferred) |
Material Changes Versus Prior Period
- Lender Change: Replaced Wachovia Bank with Valley Bank as the primary lender.
- Capacity Reduction: Maximum available credit decreased from $25.0 million (Wachovia) to $13.5 million (Valley Bank).
- Cost Reduction: Management states the new facilities offer lower costs, including administration fees and interest rates, compared to the Wachovia facility.
- Collateral Release: Wachovia released all interests in the Company's tangible and intangible assets upon termination.
- Debt Transfer: The outstanding balance of $852,176 was transferred from Wachovia to the new Valley Bank Working Capital Facility.
Outlook, Management Commentary, and Risks
Management Commentary: The Company terminated the Wachovia facility to secure more favorable terms compatible with long-term objectives. The new facilities are deemed sufficient to execute currently contemplated strategies.
Terms and Conditions:
- Working Capital & Equipment Facilities: Secured by accounts receivable, inventory, furniture, fixtures, and equipment. Payable on demand with 60 days' notice (if not in default). Expiration date is February 28, 2008.
- Real Estate Loan: Secured by a first deed of trust on Company real property. Interest-only payments from November 1, 2006, to October 1, 2007. Principal and interest amortized over 25 years thereafter, with a balloon due date of October 1, 2011.
- Prepayment Penalties: None associated with the termination of the Wachovia facility.
Risks/Contingencies: The filing does not disclose specific risks beyond standard loan covenants and the reduction in total credit availability.
Key Facts for Investor Verification
- Verify the impact of reduced total credit availability ($25M to $13.5M) on the Company's working capital and expansion plans.
- Confirm the actual interest rate spread (LIBOR + 2.15%) against current market rates for similar small-cap borrowers.
- Monitor the utilization of the $6.5 million Real Estate Loan, as advances are expected within one year of closing.
- Review the Company's ability to maintain the specified depository balance limits with Valley Bank to qualify for lower interest rate options.