SRZ: 8K Report: Credit Agreement: Jan 21,2009(updated)

8K report has been filed by SRZ on Jan 21,2009.(I have made some updates)

Salient points (My interpretation)
1. Credit Agreement with Lenders (Bank of America is the principal and administrative agent)

2. SRZ is not in compliance with certain financial covenants, lenders have waived the compliance till March 30,2009 but additional loans will not be provided.The ammendment modifies certain negative covenants to limit Sunrise’s ability, among other things, to (i) pledge certain Company or Subsidiary assets or grant consensual Liens on such Company or Subsidiary assets; (ii) incur additional Indebtedness for borrowed money; and (iii) Dispose of real estate, improvements or material assets.

3. SRZ has to pay principal repayment of 400,000 (when signing the agreement) and principal repayment of additional 1.1million (by Jan 23,2009) and additional 400,000 dollars as ammendment modification fee's. (in total 1.9 million to the lenders 1.5 million will directly reduce the principal amount due to the lenders)

4. Interest rates on borrowing have been increased (Euro: LIBOR + 4.75%) & (USD: BoA Base Rate + 3.25%)the current 120 million will have a higher interest rate of about 6.5 to 7.0% (LIBOR: 1.89 + 4.75 = 6.64% Base Rate: 3.25 + 3.25 = 6.5% dated: Jan 24,2009)
Company has outstanding borrowings of 95 million and Letters of credit of 24.5 million : Total 120 million (Total line of credit is 160 million from this facility it does not have access to the remaining amount 40 million)The interest rate on these loans is going to be 6.5 to 7.0% (as per new interest rate calculations)(Negative: As the interest rates have been increased.. but I dont see 6.5 to 7% as very high rates.. Govt is lending to banks and Auto industry at higher rates)

5. SRZ can refinance already existing debt which are up for renewal after Dec 31,2008 but the principal amount of the debt cannot be increased. (Big positive development as refinancing can be done but with a caveat that pricipal amount cannot be increased ie the refinance can be done only for refinancing and not to show additional cash profits)

6. SRZ can issue unsecured subordinate debt upto 5 million with agreements acceptable to administrative agent (Bank of America) (Big Positive development as per new financial agreement)

7. No new guarantees can be given other than to "Already contemplated financing of Burlingame transaction" (Positive: Lenders have give some leeway for planned projects)

8. No sales except for already contemplated Sale transaction which can net at the max 20 million (Positive:Gives us insight into the future (Q1 2009) this means SRZ already has plans for sales which will net 20 million this quarter (Jan to march 2009) and has been shared with the lenders and the lenders have given their go ahead)

9. "Contemplated Land/Shut Down Communities" sales realization amount of 8 million from (Positive: Gives us insight to the future (Q1 2009) SRZ will be selling land and will get 8 million from that transaction)

10. Cross default will not be triggered for default over non north american assets (read germany) unless the applicable creditor commences exercising its default remedies (Positive: Ammendment to the financial agreement to prevent trigger of default in US case on non US assets are in default - keeping german communities in mind)

11. The company also stated that it is not in default for any other covenant (wonder what happened to the NATIXIS payment?? - german communities)

Conclusion:
- The ammendment to the credit agreement allows SRZ to refinance debt obligations (I think around 200+ million)
- SRZ can sell some assets and net 28 million for Q1 2009
- SRZ can take on additional debt as unsecured subordinate debt (5 million) for Q1 2009
- There are some restrictions like what can be sold, what is the type of refinancing and how the debt is structured to prevent the erosion of the lenders stake in the assets. Its a good thing as the company cannot put too much at risk and concentrate on getting positive cash flows from operations and not just refinancing which will make the company healthy.

There has been an upgrade to "Market Perform" by Avondale after the release of the updated credit agreement.

Please note these are my interpretations and can be incorrect. Here is a link to the actual document