Jackson Hewitt Tax Service Inc. (JTX), Monday said its lenders agreed to amend the credit agreement, which would enable it to fund planned off-season operations. As part of restructuring operations, the company also reduced its workforce by 15%. Following the amendment of the credit agreement, JTX shares surged more than 29% on the New York Stock Exchange.
Commenting on the new development, Harry Buckley, Jackson Hewitt's president and chief executive officer said, "We believe this agreement will help ensure that our off-season operating plans are fully funded as we continue our intensive efforts to identify a resolution of the RAL funding issue that resulted in financial and operational challenges this past tax season."
Previously, the company in a filing with the regulators said it does not expect to have a contractual commitment covering more than approximately 50% of its refund anticipation loans or RAL program for the 2010 tax season, as compared to its RAL program for the prior tax season.
As per the amendment, the leverage ratio and the interest coverage ratio covenants in the credit agreement have been waived and replaced by a maximum net expenditure covenant based on Jackson Hewitt's off-season operating plan as well as a minimum earnings before interest, taxes, depreciation and amortization covenant.
The company's $175 million revolving credit facility has been amended so that $105 million will continue to be a revolving credit facility and $70 million will no longer be available for re-borrowing.
In addition, the spread on Jackson Hewitt's London interbank offered rate or LIBOR-based and base rate borrowings will be increased by 650 basis points, making the maximum under the two forms of borrowing LIBOR plus 11% or base rate plus 10%.
According to the new credit structure, Jackson Hewitt now has a total credit facility of $375 million, which includes $200 million amortizing term loan, $70 million non-revolving credit commitment and $105 million revolving credit commitment.
As a result of the amendment, Jackson Hewitt expects to incur an incremental increase in pre-tax interest expense for the fiscal year 2011 in the range of $20 million to $22 million, including the amortization of the PIK interest obligation and the amortization of cash fees in connection with completion of the amendment.
In connection with cost cutting measures, Jackson Hewitt reduced its overall consolidated workforce by approximately 15%. As a result, Jackson Hewitt will record a 2010 fourth quarter pre-tax severance charge of about $1 million.
As a result of the restructuring, Jackson Hewitt would reduce its 2011 fiscal year pre-tax expenses by approximately $5 million.
JTX is currently trading at $2.18, up $0.50 or 29.76%, on a volume of 8.32 million shares on the NYSE.
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