Business Context and Reporting Period
Company: Universal Technical Institute, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 26, 2004 (Event Date)
Reporting Period: The filing reports on the entry into a new credit agreement signed on October 26, 2004, with an effective date of November 1, 2004.
Key Financial Metrics and Obligations
This filing details the creation of a direct financial obligation rather than reporting operational financial results (revenue, profit, or cash flow) for a specific period.
- New Credit Facility: $30 million unsecured revolving credit agreement with Wells Fargo Bank.
- Term: Available for borrowing until October 27, 2007.
- Letters of Credit: Up to $30 million available; issuance of additional Standby Letters of Credit up to $20 million (with $14.4 million currently outstanding).
- Interest Rates: LIBOR + 0.625% or Prime - 0.50%.
- Fees: 0.125% unused commitment fee; 0.625% letter of credit fee; 0.375% standby letter of credit fee.
- Expected Savings: Approximately $400,000 annually compared to the prior facility.
Material Changes Versus Prior Period
The Company replaced its prior $30 million credit facility with Heller Financial, Inc. The new agreement with Wells Fargo Bank is expected to generate annual cost savings of approximately $400,000. The prior facility was terminated on September 30, 2004, in anticipation of this new agreement.
Guidance, Covenants, and Risks
The Credit Agreement includes strict financial covenants that the Company must maintain for any fiscal quarter:
- Net Income: Not less than $3,500,000 after taxes.
- Debt-to-Tangible Net Worth Ratio:
- 3.50 to 1.00 (Dec 31, 2004 - June 30, 2005)
- 2.00 to 1.00 (Sept 30, 2005 - June 30, 2006)
- 1.50 to 1.00 (Sept 30, 2006 and thereafter)
- Current Ratio:
- 0.40 to 1.00 (Dec 31, 2004 - June 30, 2005)
- 0.50 to 1.00 (Sept 30, 2005 - June 30, 2006)
- 0.60 to 1.00 (Sept 30, 2006 and thereafter)
- Tangible Net Worth: Not less than $33 million or the amount as of September 30, 2004.
Risks and Contingencies: An event of default includes failure to comply with financial covenants or failure to maintain eligibility for Title IV Programs (federal student aid). Borrowings are unsecured but guaranteed by wholly owned subsidiaries. Standby Letters of Credit require a cash collateral account equal to the outstanding face amount.
Investor Verification Checklist
- Verify the Company's current Net Income after taxes to ensure compliance with the $3.5 million quarterly covenant.
- Confirm the Company's Tangible Net Worth is at least $33 million.
- Review the Company's Current Ratio and Total Liabilities to Tangible Net Worth ratio against the specific thresholds for the current quarter.
- Confirm the Company's continued eligibility for Title IV Programs, as loss of eligibility triggers an event of default.
- Verify the status of the $14.4 million outstanding Standby Letter of Credit and the associated cash collateral account.