Res-Care $80 million revolver at Libor + 250 basis points, commitment fee 50 basis points

New York, Nov. 20 - Res-Care, Inc. said the new $80 million revolving credit facility it obtained alongside its issue of $150 million of 10 5/8% senior notes due 2008 carries an initial interest rate of Libor plus 250 basis points and an initial commitment fee of 50 basis points.

Those rates apply through June 30, 2002, according to a filing with the Securities and Exchange Commission Tuesday by the Louisville, Ky.-based provider of services to people with mental retardation and developmental disabilities and youth with special needs.

Res-Care obtained the credit facility from a syndicate of banks with National City Bank of Kentucky as agent, Bank One, Kentucky, NA as syndicate agent and US Bank, NA as documentation agent.

The senior notes were priced via joint bookrunners UBS Warburg and Lehman Brothers on Nov. 9.

The company said it used some of the note proceeds to repay borrowings on its previous bank facility and to repurchase $16.0 million face value of its 6.0% and 5.9% convertible subordinated notes. The remainder of the proceeds will be used for general corporate purposes, including financing internal growth opportunities, completing potential acquisitions and possibly repurchasing additional convertible subordinated notes, Res-Care said.

The new revolver is for working capital.

After the initial 50 basis points through June 30, 2002, the commitment fee on the new revolver will be set according to Res-Care's leverage ratio. If the leverage ratio is 2:1 or greater, the fee will be 50 basis points. If it is less, the fee will be 37.5 basis points, according to the SEC filing.

During the initial period through June 30, 2002, loans are either at Libor plus 250 basis points or the base rate plus 150 basis points.

After the initial period, the margin will also depend on the leverage ratio, using a pricing grid as follows: (rates in basis points)

Leverage Ratio Libor rate Base rate

Greater than or equal to 3.00 to 1.00 250 150

Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00 225 125

Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 200 100

Less than 2.00 to 1.00 175 75

The revolver runs through Sept. 30, 2004.

Financial covenants set required levels for EBITDA (earnings before interest, taxation, depreciation and amortization), net worth, EBITDA to consolidated interest expense and leverage ratio.

For minimum EBITDA, the required level is calculated is for the most recent quarter and the three previous quarters. Required levels are $53 million from closing through Sept. 30, 2002, $60 million through Sept. 30, 2003 and $70 million after that.

Consolidated net worth must be at least $157 million, with that figure increased on the last day of each quarter by 75% of consolidated net earnings, with no deduction for losses.

EBITDA to consolidated interest expense must be maintained at a minimum of 2.5:1 from closing through March 31, 2003, 2.75:1 through Sept. 30, 2003, and 3:1 after that.

The leverage ratio is not permitted to exceed 5:1 through Dec. 31, 2001, 4.75:1 through March 31, 2003, 4.5:1 through Sept. 30, 2003 and 4.25:1 after that.

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