Business Context and Reporting Period
Company: Covenant Transportation Group, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 25, 2010
Reporting Period: Event date February 25, 2010; amendments retroactive to January 1, 2010.
The Company entered into a Second Amendment to its Third Amended and Restated Credit Agreement with Bank of America, N.A. (Agent), JPMorgan Chase Bank, N.A., and Textron Financial Corporation.
Key Financial Metrics and Obligations
Transaction Fee: Approximately $106,000 (0.125% of total lender commitments).
Fixed Charge Coverage Ratio Covenant (Amended): The amendment adjusted the required ratio levels retroactively to January 1, 2010, to prevent a default for January 2010. The required ratios are as follows:
| Period Ending | Required Ratio |
|---|---|
| January 31, 2010 | 0.80 to 1.00 |
| February 28, 2010 | 0.65 to 1.00 |
| March 31, 2010 | 0.72 to 1.00 |
| April 30, 2010 | 0.80 to 1.00 |
| May 31, 2010 | 0.85 to 1.00 |
| June 30, 2010 | 0.90 to 1.00 |
| July 31, 2010 through December 31, 2010 | 1.00 to 1.00 |
| Each rolling twelve-month period thereafter | 1.00 to 1.00 |
Other Financial Data: The filing text does not provide specific values for revenue, profit, cash flow, total debt, or liquidity positions.
Material Changes Versus Prior Period
- Covenant Restructuring: The fixed charge coverage ratio covenant was amended retroactively to January 1, 2010, specifically to prevent a default that would have occurred for January 2010 under the previous terms.
- Look-Back Period: The look-back requirements for the fixed coverage ratio covenant were restarted as of January 1, 2010.
- Collateral Appraisals: Borrowers are now required to order updated appraisals for certain real estate described in the Credit Agreement.
Guidance, Outlook, and Risks
Management Commentary: The amendment was executed to avoid a technical default on the fixed charge coverage ratio for January 2010.
Risks and Contingencies:
- Compliance Risk: The Company must meet the specific, graduated fixed charge coverage ratios outlined above through June 2010 and maintain a 1.00 ratio thereafter.
- Asset Valuation: The requirement for updated real estate appraisals introduces potential variability in collateral valuation.
Unusual Items: The payment of a $106,000 amendment fee to lenders.
Investor Verification Checklist
- Verify the Company's actual fixed charge coverage ratio for the month ended January 31, 2010, to confirm the amendment successfully prevented default.
- Review the upcoming Form 10-Q for the quarter ending March 31, 2010, for the full text of the Second Amendment.
- Monitor the Company's ability to meet the escalating coverage ratio requirements through June 30, 2010.
- Confirm the status and results of the required updated real estate appraisals.