Business Context and Reporting Period
TechPrecision Corporation (the "Company") filed this Form 8-K on December 21, 2016, reporting material definitive agreements entered into by its wholly-owned subsidiary, Ranor, Inc. The filing details a new loan facility with Commerce Bank & Trust Company, the termination of a prior agreement with Revere High Yield Fund, LP, and an executive compensation grant.
Key Financial Metrics and Agreements
- New Debt Facility: Ranor secured a $2,850,000 term loan and a $1,000,000 revolving line of credit from Commerce Bank & Trust Company.
- Term Loan Terms: Fixed interest rate of 5.21% per annum; 60 monthly installments of $19,260.46 beginning January 20, 2017.
- Revolving Loan Terms: Variable rate of one-month LIBOR plus 275 basis points; matures December 21, 2018; borrowing base limited to 80% of eligible receivables and up to 25% of eligible raw material inventory (capped at $250,000).
- Debt Refinancing: $2,394,875 of term loan proceeds were used to pay off indebtedness to Revere High Yield Fund, LP in full.
- Executive Compensation: CEO Alexander Shen was granted a non-qualified stock option to purchase 1,000,000 shares at an exercise price of $0.50 per share.
Material Changes and Covenants
The Company replaced its prior financing arrangement with Revere High Yield Fund, LP, terminating the Term Loan and Security Agreement dated December 22, 2014, and associated notes. The new Commerce Loan Agreement imposes strict financial covenants on Ranor:
- Debt Service Coverage Ratio (DSCR): Must maintain a minimum ratio of 1.2 to 1.0, tested quarterly.
- Balance Sheet Leverage: Must be less than or equal to 3.50 to 1.00 for the fiscal year ending March 31, 2017, decreasing to 3.00 to 1.00 by March 31, 2018, and 2.50 to 1.00 by March 31, 2019.
- Capital Expenditures: Capped at $1,000,000 for the fiscal year ending March 31, 2017, increasing to $2,500,000 for 2018 and 2019, then $1,500,000 thereafter.
- Loan to Value Ratio: Must not exceed 0.75 to 1.00, measured by appraisal annually.
Outlook, Risks, and Contingencies
The filing outlines several "Events of Default" that could trigger acceleration of the debt, including failure to make payments, breach of covenants, failure to pay other indebtedness over $100,000, or a change in ownership or key management (CEO/CFO) without lender consent. The Company also amended its agreement with People's Capital and Leasing Corp. to recognize the new liens held by Commerce Bank. The filing does not provide specific revenue, profit, or cash flow figures for the reporting period.
Investor Verification Checklist
- Verify the Company's ability to meet the 1.2 to 1.0 DSCR covenant in the upcoming fiscal quarters.
- Confirm the status of the $426,466.55 retained from the term loan for general corporate purposes.
- Monitor compliance with the declining leverage ratio targets (3.50 to 2.50) over the next three fiscal years.
- Assess the impact of the 1,000,000 share option grant on potential dilution.
- Review the full text of the Commerce Loan Agreement (Exhibit 10.1) for additional restrictive covenants not summarized in the 8-K.