Business Context and Reporting Period
This Form 8-K was filed by Energy Services of America Corporation on November 29, 2012, reporting events occurring on November 28, 2012. The company, incorporated in Delaware, operates through subsidiaries including C.J. Hughes Construction Company, Contractors Rental Corporation, Nitro Electric Company, and S.T. Pipeline, Inc.
Key Financial Metrics and Debt Status
The filing details a material default on two credit facilities with United Bank, Inc. As of November 20, 2012, the outstanding balances were:
- Revolving Line of Credit: $18,081,100 (Facility limit: $18.0 million)
- Term Loan: $8,744,152 (Facility limit: $11.3 million)
The default resulted from the failure to maintain the debt-to-tangible net worth covenant and the current ratio covenant. Under the new forbearance terms, interest on outstanding balances is fixed at 6.5% per annum. The company is prohibited from taking further advances on the line of credit during the forbearance period.
Material Changes and Restructuring Actions
The primary material change is the entry into a Forbearance Agreement with United Bank, Inc. Key provisions include:
- Default Acknowledgement: The company formally acknowledged default on loan covenants.
- Restructuring Officer: The company engaged Centrus Group, Inc. to provide Chief Restructuring Officer services.
- Asset Sale Plan: The restructuring plan must provide for the sale of the S.T. Pipeline subsidiary.
- Operational Review: Recommendations are required for the ongoing operations of Nitro Electric, C.J. Hughes Construction, and Contractors Rental.
- Reporting: The company must provide ongoing reports on business operations and cash flow to the bank.
Outlook, Risks, and Contingencies
The Forbearance Agreement is set to terminate on May 31, 2013, or earlier upon certain events. The company faces significant liquidity constraints as it cannot access further credit under the revolving line. The primary risk is the failure to execute the restructuring plan or meet the terms of the forbearance, which could lead to the bank exercising default remedies. The filing does not provide specific revenue, profit, or cash flow figures for the period.
Investor Verification Checklist
- Verify the specific terms and conditions of the Forbearance Agreement (Exhibit 10.1).
- Confirm the engagement scope and fees associated with Centrus Group, Inc. (Exhibit 10.2).
- Monitor the progress of the planned sale of S.T. Pipeline, Inc.
- Review subsequent filings for updates on covenant compliance and the May 31, 2013, termination date.
- Assess the impact of the 6.5% fixed interest rate on future cash flow obligations.