Business Context and Reporting Period
Company: Lincoln Educational Services Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: February 23, 2018
Event: Entry into a Material Definitive Agreement (Second Amendment to Credit Agreement) with Sterling National Bank.
Key Financial Metrics and Debt Structure
- Total Credit Availability: $65 million aggregate revolving credit facility.
- Facility Structure:
- Facility 1: $25 million revolving loan (Tranche A) following the 2017 repayment of the $5 million non-revolving Tranche B.
- Facility 2: $25 million revolving loan (includes $10 million letter of credit sublimit).
- Facility 3: $15 million revolving loan.
- Interest Rate Modification (Tranche A): Adjusted to the greater of (x) Bank's prime rate plus 2.85% or (y) 6.00% per annum.
- Transaction Cost: $50,000 modification fee paid to the Bank.
Material Changes Versus Prior Period
- Covenant Modifications:
- Modified minimum adjusted EBITDA requirement.
- Eliminated the minimum tangible net worth requirement.
- Retained prohibition on net loss but delayed testing commencement until December 31, 2019.
- Added a requirement to maintain a minimum funded debt to adjusted EBITDA ratio.
- Asset Sale Provisions: The amendment permits the sale of specific real estate assets (four mortgaged parcels in CT, CO, TN, TX and one non-mortgaged parcel in FL). Proceeds must be used to pay down Facility 1 principal, permanently reducing availability.
- Florida Property Condition: Borrowers must actively pursue the sale of the Florida Property. If not under contract within six months, the Bank will receive a first mortgage lien on the property.
Guidance, Outlook, and Risks
Management Commentary: The filing focuses on restructuring debt terms to allow for asset sales and adjusting financial covenants to align with current operational realities. No specific revenue or earnings guidance is provided in this filing.
Risks and Contingencies:
- Liquidity Risk: Proceeds from asset sales will reduce total credit availability under Facility 1.
- Collateral Risk: Failure to sell the Florida Property within six months triggers a new first mortgage lien in favor of the Bank.
- Interest Rate Risk: The floor on the interest rate for Tranche A is set at 6.00%.
Investor Verification Checklist
- Verify the current outstanding principal balance on Facility 1 to assess the impact of mandatory paydowns from asset sales.
- Confirm the status of the Florida Property sale negotiations to evaluate the risk of the new mortgage lien.
- Review the full text of the Second Amendment (Exhibit 10.1) for specific definitions of "adjusted EBITDA" and the new funded debt ratio thresholds.
- Monitor future filings for the actual execution of real estate sales and the resulting reduction in credit availability.