Item 1A. Risk Factors
Item 1A. Risk Factors
Other than the additional risk factor below, there have not been any material changes from the risk factors previously disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, which could materially affect our business, financial condition or future results.
Our Amended Credit Agreement imposes new restrictions on our liquidity, requires us to maintain significant levels of unrestricted cash and requires us to generate certain increasing levels of EBITDA over the next three quarters.
During a “Covenant Relief Period” commencing May 4, 2021 and ending on the date on which the Company provides a compliance certificate for the quarter ending March 31, 2022:
• No revolving loans will be made under the credit facility.
• If any new letters of credit are issued during the Covenant Relief Period, the Company will be required to provide cash collateral equal to 50% of the face value of the letter of credit (or 105% of the face value of the letter of credit if the aggregate amount of letters of credit outstanding exceed $100 million).
• At all times prior to July 1, 2021, the Company will be required to maintain at least $50.0 million of unrestricted cash. Beginning July 1, 2021, and during the remainder of the Covenant Relief Period, the Company will be required to maintain at least $60.0 million of unrestricted cash at all times. The requirement to maintain unrestricted cash is in addition to any cash collateral which would be required for any new letters of credit.
In addition to these provisions, the Amended Credit Agreement requires the Company to generate Covenant EBITDA of at least:
• $2.5 million for the fiscal quarter ending June 30, 2021;
• $8.0 million for the six months ending September 30, 2021; and
• $16.5 million for the nine months ending December 31, 2021.
Cash and cash equivalents on hand at March 31, 2021 totaled $73.8 million. Management believes it has sufficient cash on hand and will generate sufficient cash from operations to fund the business. However, there is risk that it will be unable to maintain the required levels of unrestricted cash and generate the required levels of Covenant EBITDA under the Amended Credit Agreement or obtain additional covenant relief under the Amended Credit Agreement. In addition, there is risk that the Company will be unable to comply with the Leverage Ratio and FCCR financial covenants in the Credit Agreement upon expiration of the Covenant Relief Period.
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