Business Context and Reporting Period
Covenant Transport, Inc. (filing as Covenant Logistics Group, Inc.) filed this Form 8-K on December 21, 2006, to report the entry into a material definitive agreement. The registrant is a Nevada corporation headquartered in Chattanooga, Tennessee.
Key Financial Metrics and Debt Structure
The filing details a new Second Amended and Restated Credit Agreement with a syndicate of lenders led by Bank of America, N.A. Key terms include:
- Maximum Borrowing Limit: The lesser of $200.0 million or 90% of the net book value of eligible revenue equipment less specified unsecured indebtedness.
- Maturity Date: December 20, 2011.
- Letters of Credit: Limited to an aggregate commitment of $100.0 million.
- Swing Line Facility: Limited to $10.0 million.
- Interest Rates:
- Base Rate Loans: Higher of Federal Funds Rate + 0.5% or Prime Rate, plus a margin of 0.00% to 0.375% based on cash flow coverage.
- Eurodollar Rate Loans: LIBOR plus a margin of 0.625% to 1.625% based on cash flow coverage.
- Commitment Fee: 0.125% to 0.350% per annum on the daily unused portion, adjusted quarterly.
Material Changes Versus Prior Period
This agreement replaces the First Amended and Restated Credit Agreement originally entered into on December 16, 2004, which was scheduled to mature on December 16, 2009. The new agreement extends the maturity date by approximately two years to December 20, 2011. The agreement allows for an increase in the maximum principal amount of commitments by up to $75 million in the aggregate without lender approval, provided sublimits are not increased.
Guidance, Risks, and Covenants
The Credit Agreement includes standard events of default and specific financial covenants restricting:
- Dividends
- Tangible net worth
- Cash flow
- Acquisitions and dispositions
- Total indebtedness
The agreement is guaranteed by the Parent and all wholly-owned domestic subsidiaries (excluding the Borrower and CVTI Receivables Corp.) and is secured by a pledge of all such subsidiaries' stock. Upon an event of default, lenders may accelerate payment and terminate commitments.
Investor Verification Checklist
- Verify the current net book value of eligible revenue equipment to determine the actual borrowing capacity under the 90% limit.
- Review the full text of the Credit Agreement filed in the Form 10-K for the fiscal year ending December 31, 2006, for complete covenant details.
- Monitor the company's cash flow coverage ratios, as these directly impact interest rate margins and commitment fees.
- Confirm the status of the $75 million expansion option and whether it has been utilized.