Richardson Electronics has negotiated a $102 million credit with leverage and coverage ratio covenants more relaxed than those in its previous $108 million line. Previous covenants did not allow leverage to exceed 3.5 times for the LaFox, Ill.-based company, explained Dario Sacomani, v.p. and cfo. That cap has been removed in response to the uncertain economy and instead the company will pay up on a leverage-based grid. "It's new because of the incremental operating flexibility in respect to the new covenants," Sacomani stated, also explaining that the line is an extension of the previous revolver. The credit maturity has been extended 15 months to September 2005.
Pricing on the revolver is LIBOR plus 13/ 4% if leverage multiples fall at or below 2.5 times, Sacomani explained. For multiples between 2.5-3 times, pricing is LIBOR plus 2%, while for leverage between 3-3.5 times, pricing is at LIBOR plus 21/ 4%. Leverage ratios above 3.5 times bump pricing to LIBOR plus 21/ 2%. The credit is principally secured by the company's trade receivables and inventory. The agreement also included a 25 basis point up-front fee and a $50,000 arrangement fee, he noted.
Richardson decided to execute the credit now in order to give the facility more flexiblity and to replace its previous revolver that was set to expire in June '04. "So in order to keep the facility characterized as long-term debt, we would have had to renegotiate before June '03," he said, explaining that the company did not want its debt to be deemed a current liability by waiting too long to pursue a new credit agreement. American National Bank & Trust leads the line, with LaSalle Bank,Harris Trust and Savings Bank, and National City Bank signed on as well.