Invacare 2012 Annual Report Download - page 63

company’s election, at (i) the London Inter-Bank Offer Rate (“LIBOR”) plus a margin; or (ii) a Base Rate Option
plus a margin. The applicable margin is currently 2.0% per annum for LIBOR loans and 1.0% for the Base Rate
Option loans based on the company’s leverage ratio. In addition to interest, the company is required to pay
commitment fees on the unused portion of the Credit Agreement. The commitment fee rate is currently
0.35% per annum. Like the interest rate spreads, the commitment fee is subject to adjustment based on the
company’s leverage ratio. The obligations of the borrowers under the Credit Agreement are secured by
substantially all of the company’s U.S. assets and are guaranteed by substantially all of the company’s material
domestic and foreign subsidiaries.
The Credit Agreement contains certain covenants that are customary for similar credit arrangements,
including covenants relating to, among other things, financial reporting and notification, compliance with laws,
preservation of existence, maintenance of books and records, use of proceeds, maintenance of properties and
insurance, and limitations on liens, dispositions, issuance of debt, investments, payment of dividends,
repurchases of capital stock, acquisitions, transactions with affiliates, and capital expenditures. There also are
financial covenants that require the company to maintain a maximum leverage ratio (consolidated funded
indebtedness to consolidated EBITDA, each as defined in the Credit Agreement) of no greater than 3.50 to 1, and
a minimum interest coverage ratio (consolidated EBITDA to consolidated interest charges, each as defined in the
Credit Agreement) of no less than 3.50 to 1. In calculating the ratios, the company can on exclude up to
$15,000,000 of cash restructuring charges from the calculation of EBITDA over the life of the agreement, and
the company reached the limitation in the fourth quarter of 2012. Thus, all additional cash restructuring charges
will count to reduce EBITDA thereunder. As of December 31, 2012, the company’s leverage ratio was 2.66 and
the company’s interest coverage ratio was 19.00 compared to a leverage ratio of 1.81 and an interest coverage
ratio of 23.80 as of December 31, 2011. As of December 31, 2012, the company was in compliance with all
covenant requirements and, under the most restrictive covenant of the company’s borrowing arrangements, the
company had the capacity to borrow up to an additional $76,841,000.
The company’s Credit Agreement, as well as cash flows from operations, has been a principal source of
financing for much of its liquidity needs. If the company were unsuccessful in meeting its leverage or interest
coverage ratio, or other, financial or operating covenants in its credit facility, it would result in a default, which
could trigger acceleration of, or the right to accelerate, the related debt. Because of cross-default provisions in the
agreements and instruments governing certain of the company’s indebtedness, a default under the credit facility
could result in a default under, and the acceleration of, certain other company indebtedness. In addition, the
company’s lenders would be entitled to proceed against the collateral securing the indebtedness.
Since December 31, 2012, the company has completed the sale of its ISG business for net proceeds of
approximately $146,600,000, which were used to repay amounts outstanding under the credit facility and other
current payables and thereby improve the company’s leverage ratio.
Based on the company’s current expectations, the company believes that its cash balances, cash generated
by operations and available borrowing capacity under its senior credit facility should be sufficient to meet
working capital needs, capital requirements, and commitments for at least the next twelve months. However, the
company’s ability to satisfy its liquidity needs will depend on many factors, including the operating performance
of the business, the company’s ability to successfully complete in a timely manner the third-party expert
certification audit and FDA inspection contemplated under the consent decree and receipt of the written
notification from the FDA permitting the company to resume full operations, as well as the company’s continued
compliance with the covenants under its credit facility. Notwithstanding the company’s expectations, if the
company’s operating results decline substantially more than it currently anticipates, or if the company is unable
to successfully complete the consent decree-related third-party expert certification audit and FDA inspection
within the currently estimated time frame (including as a result of any need to complete significant additional
remediation arising from the third-party expert certification audits of the FDA inspection), the company may be
unable to comply with the financial covenants, and its lenders could demand repayment of the amounts
outstanding under the company’s credit facility.
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