Midas’ Bank Group Grants Waiver, Modifies Loan Convenants to Accommodate Payment of Award in European Arbitration
March 16 2011 - 5:11PM
Business Wire
Midas, Inc. (NYSE: MDS) has been granted a waiver by its
bank group for violating certain financial covenants in its
existing revolving credit facility, as a result of a recent ruling
in the arbitration between the company and its European licensee
MESA S.p.A. and Mobivia Groupe S.A.
As a result of the arbitration ruling, Midas must pay an
approximate $25.5 million award (including interest) to MESA and
Mobivia that has been accrued in the company’s fourth quarter 2010
operating results. The company’s December 2009 revolving credit
facility’s covenants required a maximum three-to-one ratio of total
debt, including bank debt, letters of credit and the balance of
capital leases, to the company’s consolidated adjusted EBITDA. As
part of the waiver, the bank group has amended the credit agreement
to exclude the $25.5 million expense from the adjusted EBITDA
calculations for 2010 and 2011.
The amendment also increased the maximum allowable
debt-to-EBITDA ratio to 3.5-to-one for the fiscal year-end 2010 and
for the first two quarters of 2011. The ratio will reduce to
3.25-to-one for the third and fourth quarters of 2011, then will
return to three-to-one for the remaining term of the credit
facility. The current credit facility agreement expires in October
2013.
Interest rates were not affected by the modifications. The
interest on Jan. 1, 2011, was priced at LIBOR plus three
percent.
The revolving credit facility is unsecured and provides for
borrowings and letters of credit of up to $125 million. The company
had $62.7 million of outstanding borrowings at the end of 2010
prior to payment of the arbitration award.
“The bank group’s willingness to work with Midas to ensure the
company’s liquidity for 2011 and future years confirms their
confidence in the on-going progress we are making in our
initiatives to grow our business,” said William M. Guzik, Midas’
executive vice president and chief financial officer. “We
appreciate their unanimous support.”
The bank group is led by JP Morgan Chase Bank and also includes
PNC Bank, Bank of America, BB&T and Northern Trust.
MESA filed a request for arbitration in June 2009, seeking
damages of up to € 256 million from Midas, claiming breach of a
1998 agreement of strategic alliance and requesting termination of
the license agreement under which license fees are paid to
Midas.
In the arbitration ruling announced March 3, 2011, Midas
prevailed in defending the vast majority of claims by MESA and
Mobivia that Midas had an obligation to invest in Midas Europe.
Under the ruling, the license agreement between Midas and MESA
continues in full force and the license fee stream is to continue
uninterrupted.
However, the arbitral tribunal awarded MESA € 17.45 million (US
$23.4 million) plus interest of five percent from June 12, 2009
through the award date of approximately $2.1 million, in connection
with MESA’s claim that Midas failed to cooperate in the improvement
of information technology in the European operations.
Midas accrued the damage award as a charge to fiscal 2010
results. Therefore, the ruling had a negative impact on full-year
operating income of $25.5 million and a negative impact on net
income of $16.0 million—or $1.15 per diluted share.
Because the company prevailed in the majority of the claims, the
arbitral tribunal ordered MESA to reimburse Midas for approximately
$2.5 million in legal and other arbitration-related expenses. This
fee recovery was also reflected in the fourth quarter operating
results. With the impact of the arbitration award, Midas reported
an operating loss of $9.0 million for 2010.
Midas is one of the world’s largest providers of automotive
service, offering brake, maintenance, tires, exhaust, steering and
suspension services at more than 2,300 franchised, licensed and
company-owned Midas shops in 15 countries, including more than
1,500 in the United States and Canada. Midas also owns the SpeeDee
Oil Change business, with 171 auto service centers in the United
States and Mexico.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This news release contains certain forward-looking statements
that are based on management’s beliefs as well as assumptions made
by and information currently available to management. Such
statements are subject to risks and uncertainties, both known and
unknown, that could cause actual results, performance or
achievement to vary materially from those expressed or implied in
the forward-looking statements. The company may experience
significant fluctuations in future results, performance or
achievements due to a number of economic, competitive,
governmental, technological or other factors. Additional
information with respect to these and other factors, which could
materially affect the company and its operations, is included in
the company’s filings with the Securities and Exchange Commission,
including the company’s 2009 annual report on Form 10-K and
subsequent filings.
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