SRZ: Refinancing has been allowed but with caveat

The new Financial agreement (8k filing) with the Lenders does allow refinancing but with a caveat.

Quote: Section 4.6. Indebtedness. For the period commencing on the Effective Date and ending on April 1, 2009, the following subsection (c) shall be added to Section 8.3 (Indebtedness) of the Credit Agreement:
“(c) Notwithstanding subsections (a) and (b) above and notwithstanding any other provision of this Credit Agreement to the contrary, the Company and its Subsidiaries shall not incur any additional Indebtedness for borrowed monies except: (A) Indebtedness existing as of December 30, 2008 may have its maturities extended or such existing Indebtedness may be refinanced if any such refinancing does not materially increase the principal amount of such existing Indebtedness; (B) unsecured Indebtedness for borrowed monies that is (i) subordinated in right of payment to the repayment of the Obligations in accordance with written agreements acceptable to the Administrative Agent, and (ii) does not exceed Five Million Dollars ($5,000,000.00) in aggregate amount; and (C) the Contemplated Financings, as scheduled on Exhibit 8.1(f) . Neither the Company nor any of its Subsidiaries shall enter into any guarantys after the Effective Date other than guarantys provided solely in connection with the financing of the Burlingame transaction (as scheduled as a Contemplated Financing on Exhibit 8.1(f)) . Unquote
Existing debt (as of Dec 30,2008) can be refinanced but the refinancing should not increase the "Principal" amount of existing indebtness..

what generally happens in a refinance is..
property has higher cash flows as occupancy rates go up and if the interest rates are down the cash flow discount methond of calculation.. will allow the company to now get more money ..

for eg: initial financing was done for 10 million .. now with current cash flow the asset is valued at a higher level and you can get 15 million loan.

SRZ would show 5 million as gains from this refinancing deal in profits but the no on units is still the same so each unit has now got 50% more loans..(Principal amount of loan has increased)

As per my understanding the lenders are not allowing SRZ to take on more principal debt, they have given the freedom to refinance the debt but the principal should not increase.. so the additional cash flows can be used to repay the loans and build equity in the business or increase cash flows to the parent as profits to repay other loans (like the 95 million due to the lenders)
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Unsecured debt which is subordinate to the existing loans of the company can be issued but not more than 5 million

Basically the lenders are preserving their rights by ensuring additional debt is subordinate and unsecured.. for SRZ this means a higher interest rate for the 5 million loan (negative for SRZ)
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Financial guarantees can be given by SRZ but to an already scheduled transaction called " Burlingame transaction "
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Conclusion: Basically this is going back to the basics since financial leverage and exotic instruments are going to be less forthcoming the lenders are looking at deleveraging the company & its subsidiaries and build basic building blocks for future financing.. [This is positive for shareholders as the value of the company will increase]

PN: Colour coding is for easy reference.