Rural/Metro Corporation has amended and extended its unsecured $152 million term loan in order to bring the company into full compliance with its covenants. After a series of six extensions to a March 2000 waiver, the company and its lenders, led by Wachovia Bank, established an amendment setting more manageable provisions, said John Banas, senior v.p. and general counsel.
Banas explained that the original covenants were based on the growth and acquisitive nature of the Scottsdale, Ariz., company in the mid-90s. However, in January 2000, the ambulance service provider had to address problems in its business process, including slow and costly healthcare reimbursements. A restructuring plan was implemented to improve several operations of the company, and the lenders approved the waivers during the planned recovery period, he noted. Once the plan was completed in June 2001, Rural/Metro and its lenders began discussing more manageable covenants for the line because the company still was having trouble complying with net-worth and fixed-charge ratio covenants.
The amendment includes a nine-month maturity extension to Dec. 31, 2004, no required principal amortization until maturity and an interest rate of LIBOR plus 7%. The agreement further provides for the lenders to be given a 10% equity stake in the company through grants of preferred stock that are automatically convertible into common shares, with stockholder approval. "It makes the banks take on new interest in the company's financial improvement and strengthens the partnership," Banas said, adding that the stake initially was the banks' suggestion.