Business Context and Reporting Period
This Form 8-K Current Report was filed by Hudson Global, Inc. (not Star Equity Holdings, Inc.) on August 1, 2014. The filing discloses the entry into two material definitive agreements: a receivables finance agreement in the United Kingdom and a loan and security agreement in the United States.
Key Financial Metrics and Debt Facilities
The filing details two new credit facilities established on August 1, 2014:
- U.K. Facility (Lloyds Agreement):
- Total Capacity: Up to £15.0 million.
- Structure: Three tranches based on eligible receivables and work-in-progress.
- Tranche A (Temporary Contracting): £10.0 million (90% of eligible billed receivables).
- Tranche B (Permanent Recruitment): £2.0 million (60% of eligible billed receivables).
- Tranche C (Unbilled Work-in-Progress): £3.0 million (75% temporary, 25% permanent).
- Interest Rate: Bank of England base rate plus 1.75%.
- Term: Initial two-year term with three-month renewal periods.
- Collateral: Substantially all assets of the U.K. Borrower.
- U.S. Facility (Siena Agreement):
- Total Capacity: Up to $10.0 million (including up to $1.0 million for letters of credit).
- Contingency: Capacity reduces to $5.0 million if the Company's eDiscovery business is sold.
- Interest Rate: Base rate (floor 3.25%) plus 1.75%; Letters of credit at 4.5%.
- Term: Three years, expiring August 1, 2017.
- Collateral: Substantially all assets of the U.S. Borrower.
The filing does not provide current revenue, profit, cash flow, or margin figures.
Material Changes and Covenants
The primary material change is the establishment of new debt facilities. Key covenants and restrictions include:
- U.K. Covenants:
- True credit note dilution must not exceed 5% (three-month rolling basis).
- Debt turn must not exceed 55 days (three-month rolling period).
- Dividends restricted to post-tax profits.
- Minimum excess availability of £2.0 million required at month-end.
- U.S. Covenants:
- Fixed Charge Coverage Ratio must be ≥ 1.1x (effective after the later of notification of compliance or January 31, 2015).
- Restrictions on dividends, additional debt, acquisitions, mergers, investments, and asset dispositions.
- Availability block of $2.0 million (reduces to $1.0 million upon eDiscovery sale; eliminated upon meeting coverage ratio).
Outlook, Risks, and Contingencies
The filing outlines customary events of default for both agreements, under which lenders may declare obligations immediately due and payable. A specific contingency exists for the U.S. facility: the borrowing limit and availability block are contingent on the potential sale of the Company's eDiscovery business. The filing does not provide management commentary on future revenue guidance or general market outlook.
Investor Verification Checklist
- Verify the current status of the eDiscovery business to determine if the U.S. borrowing limit is $10.0 million or reduced to $5.0 million.
- Confirm the U.K. Borrower's ability to maintain the required £2.0 million minimum excess availability.
- Monitor the U.S. Borrower's Fixed Charge Coverage Ratio to ensure compliance with the 1.1x threshold required to remove the availability block.
- Review the full text of the Lloyds Agreement (Exhibit 4.1) and Siena Agreement (Exhibit 4.2) for complete covenant details.
- Check subsequent filings for any events of default or amendments to these credit facilities.