Champion Enterprises secures amendment to Fifth Third credit agreement

By Caroline Salls

Pittsburgh, April 6 - Champion Industries, Inc. has entered into a second amendment to its September 2007 credit agreement with Fifth Third Bank, according to an 8-K filed Tuesday with the Securities and Exchange Commission.

The amendment waives any default arising from Champion's violations of credit agreement provisions.

The covered provisions include:

• Outstanding borrowings under a $17 million revolving credit facility cannot exceed the sum of up to 85% of eligible receivables plus up to the lesser of $6 million or 50% of eligible inventory;

• At Champions option, interest can accrue at a Libor rate as long as no default exists;

• A 2% post-default increase in interest rate;

• A requirement that the fixed-charge coverage ratio be 1.0 to 1.0 through Jan. 31, 2011; 1.1 to 1.0 through Jan. 31, 2012; and 1.20 to 1.00 thereafter;

• A requirement that the leverage ratio cannot be greater than 6.5 to 1.00 at April 30, with 0.5 to 1.00 stepdowns quarterly through April 30, 2011 and 0.25 to 1.00 quarterly stepdowns through April 30, 2012;

• $2.7 million of minimum EBITDA under a quarterly build up starting with the three months ended April 30, as well as $5.4 million for the six months ended July 31, $8.9 million for the nine months ended Oct. 31 and $11.8 million for the 12 months ended Jan. 31, 2011, with varying quarterly step-ups thereafter culminating in 12-months trailing EBITDA of $14.3 million at Oct. 31, 2012;

• Maximum capital expenditures are limited to $2 million per fiscal year for the years ended Oct. 31, 2010 and 2011 and $2.5 million thereafter;

• Enhanced reporting by Champion to Fifth Third, including monthly reports and conference calls, quarterly reports by Champion's independent auditors of restructuring charges and organizational expense reductions; and

• Application of Champion's income tax refunds applied to reduce credit agreement debt.

Contribution agreement

As required under the amendment, Champion said it entered into a contribution agreement and cash collateral security agreement with Fifth Third and Marshall T. Reynolds under which Reynolds deposited $2.5 million as cash collateral, which the bank can withdraw in the event of a credit agreement default, failure by Champion to maintain a fixed-charge coverage ratio greater than or equal to 1.0 to 1.0 as of the last day of each fiscal quarter or Champion's failure to deliver quarterly compliance certificates.

In addition, Reynolds has granted Fifth Third a first-priority security interest in the cash collateral.

Amounts drawn down by the bank will be applied to repayment of Champion's obligations under the credit agreement.

The contribution agreement will expire upon the earliest of full drawdown of the $2.5 million deposited, repayment in full of all credit agreement obligations and termination of all commitments and the bank's determination that Champion has achieved a fixed-charge coverage ratio of at least 1.2 to 1.0 as of the last day of two consecutive fiscal quarters.

In connection with the contribution agreement, Champion has delivered a $2.5 million subordinated promissory note to Reynolds. The company said principal and interest on the note cannot be paid before Jan. 31, 2011, and after that can be paid only with the bank's consent.

The unsecured promissory note will bear interest at the Prime rate, currently 3.25%, and matures on Sept. 14, 2014.

Champion has paid a $100,000 arrangement fee and a $250,000 upfront fee in connection with the amendment.

Champion, a Troy, Mich.-based producer of manufactured and modular homes, as well as modular buildings for government and commercial applications, filed for bankruptcy on Nov. 15 in the U.S. Bankruptcy Court for the District of Delaware. The Chapter 11 case number is 09-14019.

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