Business Context and Reporting Period
Company: AVIAT NETWORKS, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: October 1, 2010
Event Date: September 30, 2010 (Effective date of new facility)
Context: The Company entered into a new material definitive agreement to refinance its existing credit facility and secure working capital.
Key Financial Metrics and Obligations
- New Credit Facility: $40 million revolving credit line with Silicon Valley Bank.
- Sublimit: $10 million sublimit for borrowings by Aviat Singapore.
- Maturity Date: September 30, 2011.
- Interest Rates: Prime rate or LIBOR plus a margin ranging from 2% to 2.75% based on debt leverage.
- Fees: 1% per annum on letters of credit; commitment fee on unused portion ranges from 0.25% to 0.5%.
- Collateral: Secured by a pledge of substantially all assets of the Borrowers.
- Previous Facility Repayment: $5 million outstanding principal balance of the prior facility was repaid.
Material Changes Versus Prior Period
- Termination of Prior Agreement: The $70 million aggregate commitment Credit Agreement dated June 30, 2008 (with Bank of America and others) was terminated effective September 30, 2010.
- Lender Change: Primary administrative agent and lender shifted from Bank of America to Silicon Valley Bank.
- Facility Size Reduction: The new facility commitment ($40 million) is lower than the terminated facility's aggregate commitment ($70 million), though the outstanding balance was only $5 million.
Guidance, Covenants, and Restrictions
Financial Covenants
- Liquidity Ratio: Must maintain a ratio of unrestricted domestic cash/securities to total obligations of 2.5:1 or above, measured quarterly.
- Minimum Quarterly Consolidated EBITDA Requirements:
- Fiscal 2011 Q1: Negative $18 million
- Fiscal 2011 Q2: Negative $10.5 million
- Fiscal 2011 Q3: Negative $7 million
- Fiscal 2011 Q4: Negative $2.5 million
- Thereafter: Positive $1 million
Operational Restrictions
The agreement includes standard restrictions on additional indebtedness, payment of dividends, redemptions of capital stock, liens, certain investments, guarantees, mergers, and asset dispositions. It also includes a negative pledge on intellectual property assets.
Management Commentary
Although not required by the agreement, the Company expects to invest $25 million in a cash management account managed by an affiliate of Silicon Valley Bank.
Key Facts for Investor Verification
- Verify the Company's ability to meet the strict 2.5:1 liquidity ratio covenant given the reduction in facility size.
- Monitor the Company's progress toward the positive EBITDA target of $1 million required after Q4 2011.
- Confirm the status of outstanding standby letters of credit from the prior facility, which remain obligations secured by the new facility.
- Assess the impact of the $25 million expected investment in the affiliate-managed cash account on overall liquidity.