RE: SyQuest Line of Credit
Reading through SyQuest's most recent 10-K, I was absolutely shocked (okay, maybe it didn't surprise me too much...) to find the following:
On January 17, 1997, a domestic line of credit was negotiated with a financial institution, continuing the existing terms and extending the line through March 31, 1998. The credit line provides for a limit on borrowings of $30.0 million based on a combination of 80 percent of eligible accounts receivable balances and 40 percent of eligible finished goods inventory balances. Borrowings under the agreement bear interest based on the highest "LIBOR" (London Interbank Offered Rate) rate during the month plus 4.825 percent and are subject to the higher of a minimum interest rate of 8% per annum or $10,000 per month, regardless of borrowings. The interest rate as of September 30, 1997 was 10.75 percent. The agreement also places limitations on additional borrowings, payment of dividends and is secured by substantially all the Company's assets. The balance borrowed at September 30, 1997 under the domestic line of credit was $17.6 million as compared to $14.7 million at the end of fiscal 1996. Management believes its relations with the financial institution are good, The Company has received indication from its Banks that they intend to renew the line of credit upon expiration of the existing credit agreement. The terms and financial covenants of the renewed line of credit remain to be determined and negotiated. Management believes it will be successful in renewing the line of credit. Failure to renew the line of credit will have a material adverse effect on the Company's liquidity.
The extremely unreasonable terms of this loan should underscore the extreme risk that is involved with SyQuest. It sounds like it will be renewed next month when the terms expire.
Compare that to Iomega's soon-to-be-announced (which was mentioned in their analyst conference call) three year $200 million unsecured line of credit with very low interest rates and fees, and you'll see which company the financial community believes in.
- Michael Coley
- wwol.com |
