Monday, diversified growth company Headwaters Inc. (HW) declined 7.22% despite the broader market advance after it said that it has obtained an amendment to its senior secured credit facility and also announced a cut in its earnings forecast for 2009, largely due to increased interest expense as a result of the amendment.
The South Jordan, Utah headquartered company said that it has obtained an amendment to its senior secured credit facility under which it currently has $227.5 million in outstanding loans, consisting of a first lien term loan in the amount of $197.5 million and $30.0 million of borrowings under a revolving credit arrangement.
The company said that the amendment provides a cushion to its total indebtedness covenant and allows the establishment of a new asset based revolver to replace its current revolving credit facility that matures in September 2009. The amended debt agreement includes a waiver of the total leverage covenant for the quarter ending June 30.
In addition, the amended debt agreement include an immediate increase in the interest rate on the term loan to LIBOR plus 6.75%, with an additional increase to LIBOR plus 7.75% after the asset based revolver facility is closed, both with a minimum LIBOR floor of 3.0%
Beginning January 1, 2010, there is likely to be a 0.25% quarterly increase in the term loan interest rate until it has made principal repayments on the first lien term loan of at least $50.0 million, the company noted.
In addition, the company will also have to make repayment of $25.0 million of the term loan on or prior to December 31, 2009, if the asset based revolver facility has been closed
As a result of the expected higher interest expenses, the company lowered its 2009 earnings before interest, tax, depreciation and amortization or EBITDA forecast to a range of $110 million to $120 million, down from $135 million to $145 million announced earlier. The prior forecast included possibilities of convertible note exchanges in the June and September quarter, which the company thinks is no longer necessary.
Headwaters also slashed its earnings forecast for 2009 to a range of $0.00 to $0.20 per share. Earlier, on May 5, the company cut is earnings projection to a range of $0.25 to $0.45 per share, excluding items, from its prior estimate of $0.35 to $0.70 per share. Currently, four analysts polled by Thomson Reuters expect the company to earn $0.25 per share for 2009.
Consistent with this earnings estimate, Headwaters expects a reversal of a portion of the tax expense that was recognized in the first half of the year in the second half, positively impacting its earnings per share.
HW declined $0.27 or 7.22% and closed Monday's regular trading at $3.47 on volume of 1.28 million shares. After hours, HW advanced $0.13 or 3.63% and traded at $3.60.
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