LAKE FOREST, Ill. – Marine industry giant Brunswick Corp. (NYSE: BC) and a group of financial institutions have completed amending the company’s revolving credit facility, the company reported in a statement earlier this week. In light of the current economic and credit climates, Brunswick had sought various changes to the credit facility to ensure access to this short-term funding source.
“The completion of the amendment is an important step for Brunswick, providing us with liquidity and financial flexibility going forward,” explained Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “We believe the amount available under this facility, combined with the cash on our balance sheet as well as recent and future cost savings efforts, should provide us the necessary liquidity to manage effectively through these difficult market and economic conditions.”
As part of this amendment, the facility was converted into a secured asset-based facility, and its size was established at $400 million, according to the company. Borrowings under the facility are subject to the value of the borrowing base, consisting of certain receivables, inventory, and machinery and equipment of the company’s domestic subsidiaries, it stated. The facility contains a minimum fixed-charges coverage covenant, which is effective when borrowings are within $60 million of the total borrowing capacity available under the facility. There are presently no borrowings under the facility; however, there are previously issued letters of credit, which total approximately $88 million, Brunswick reported. The amendment to the facility, which remains in place through May 2012, was led by J.P. Morgan Securities Inc.
“This facility is consistent with our current business needs in terms of size and structure,” McCoy said. “It provides access to an important source of liquidity, should we need to supplement our own vigorous cash management efforts, to fund anticipated working capital needs going forward.”
In addition to this amended credit facility, Brunswick Financial Services has also entered into an agreement with GE Capital Solutions (NYSE: GE) to amend the terms of its joint venture agreement, which provides wholesale floor plan financing for qualifying Brunswick marine dealers. The amendment is necessitated by the new terms of the revolving credit facility, and will synchronize the key financial covenant in each agreement, according to Brunswick. The joint venture, Brunswick Acceptance Company (BAC), began operations in 2003, with the current agreement in place through 2014.
Accounting error to result in amended financials
Brunswick also reported that, in preparing for its year-end 2008 financial statements, it found it had incorrectly determined the valuation allowance against deferred tax assets when it prepared the September 27 financials and, accordingly, will need to increase its deferred tax valuation allowance as prescribed by the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” This special tax item is a non-cash charge and did not affect the company's operating loss or operating cash flows for the three months and nine months ended Sept. 27, 2008.
The company anticipates that this error will result in an additional non-cash income tax charge related to the valuation allowance of approximately $110 million to $135 million. Brunswick said it intends to file amended financial statements for the three and nine month periods ended Sept. 27, 2008 and Sept. 29, 2007 no later than Jan. 30, 2009.
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