Business Context and Reporting Period
Company: Lincoln Educational Services Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: July 9, 2018
Reporting Period: Events occurring on July 9, 2018, and July 11, 2018.
This filing reports the entry into a material definitive agreement regarding the sale of real property and a subsequent amendment to the Company's credit agreement.
Key Financial Metrics and Agreements
- Asset Sale: Subsidiary New England Institute of Technology at Palm Beach, Inc. (NEIT) agreed to sell the "Florida Property" (1126 53rd Court North, Mangonia Park, FL) for a cash purchase price of $2,550,000.
- Transaction Costs: NEIT will pay a 5% real estate brokerage fee and customary closing costs.
- Expected Closing Date: August 23, 2018.
- Debt Structure: Net cash proceeds from the sale will be deposited into a non-interest bearing cash collateral account held by Sterling National Bank to serve as additional security for existing loans, rather than being used to permanently reduce the principal balance of revolving loans.
Material Changes and Credit Agreement Amendment
On July 11, 2018, the Company and its subsidiaries entered into a Third Amendment to their Credit Agreement with Sterling National Bank. This amendment alters the treatment of proceeds from the Florida Property sale:
- Prior Terms: Net proceeds were required to be applied to repay outstanding principal, permanently reducing available revolving loan capacity.
- New Terms: Net proceeds must be deposited into a cash collateral account. The Bank retains the right to apply these funds to repay outstanding principal if necessary.
- Contingency: If the sale is not completed by August 23, 2018, NEIT is required to grant the Bank a first mortgage lien on the Florida Property.
Guidance, Outlook, and Risks
Management Commentary: The filing indicates the Company expects to close the property sale on August 23, 2018. The proceeds are intended to bolster collateral for existing financial accommodations rather than provide immediate liquidity for operations.
Risks and Contingencies:
- Closing Risk: Failure to close the sale by the August 23, 2018 deadline triggers a requirement to grant a first mortgage lien on the property to the lender.
- Liquidity Impact: Proceeds are restricted to a collateral account and do not immediately increase free cash flow.
Financial Metrics: The filing text does not provide clear values for revenue, profit, cash flow, margins, or total debt outstanding.
Investor Verification Checklist
- Verify the final closing date of the Florida Property sale against the expected date of August 23, 2018.
- Confirm whether the net proceeds were deposited into the cash collateral account as stipulated in the Third Amendment.
- Review the full text of the Third Amendment (Exhibit 10.1) for any additional covenants or restrictions on the use of the collateral account.
- Monitor future filings for any indication that the Bank has exercised its right to apply collateral funds to loan repayment.