SPOKANE, WA – Key Tronic Corp (NASDAQ:KTCC), a provider of electronic manufacturing services, has entered into an amended loan agreement with Bank of America, the company disclosed in a recent SEC filing. The amendment, effective as of Wednesday, modifies the terms of the company's existing loan agreement to provide temporary relief from certain financial covenants and adjusts borrowing conditions.
According to the 8-K filing, Key Tronic and its domestic subsidiaries executed the Sixth Amendment to the Loan, Guaranty, and Security Agreement, initially dated August 14, 2020. This amendment waives previous defaults arising from non-compliance with fixed charge coverage ratios for the periods ending June 29, 2024, and July 27, 2024, as well as the delay in delivering audited financial statements within 90 days of the fiscal year-end.
Furthermore, the amendment results in an interest rate increase of 50 basis points starting Wednesday. As a consequence, the margin on base rate loans will be 3.50%, and term SOFR loans will be 4.50%. Additionally, the availability block, which constrains borrowing under the Loan Agreement, has been raised from $8 million to $10 million. This limit is scheduled to further increase to $11 million and $12 million on December 31, 2024, and March 31, 2025, respectively.
This financial maneuvering by Key Tronic indicates a strategic approach to managing its debt obligations while navigating current financial requirements. The company's decision to modify its loan agreement reflects its efforts to maintain operational flexibility amid financial covenant pressures.
Investors and market watchers often view such amendments as critical indicators of a company's financial health and its relationship with lenders. The full terms of the amendment are detailed in Exhibit 10.1 of the SEC filing, providing transparency to shareholders and the public.
Key Tronic, headquartered in Spokane Valley, Washington, specializes in the manufacturing of printed circuit boards and other electronic components. The company's recent filing with the SEC underscores its ongoing efforts to stabilize its financial structure in a dynamic economic environment.
In other recent news, Key Tronic Corp announced that it will restate its financial statements for the previous two fiscal years and the first three quarters of the current fiscal year due to identified accounting errors. Despite these corrections, the company anticipates no impact on its reported gross profit, net income, or earnings per share. In terms of earnings, Key Tronic reported a decrease in total revenue to $126.7 million in its fourth-quarter fiscal year 2024 results, largely due to a cybersecurity incident.
The company has also extended the maturity date of its loan agreement with Bank of America, N.A., potentially offering Key Tronic more financial flexibility. Furthermore, Key Tronic has outlined new compensation structures and performance goals for its executives for fiscal year 2025, and approved a salary increase for Executive Vice President of Customer Relations and Integration, Philip S. Hochberg. These are recent developments in the company's operations.
Looking ahead, Key Tronic expects to fulfill most of the delayed orders in fiscal year 2025 and projects revenue in the range of $140 million to $150 million for Q1 of FY2025. These projections are based on analyst notes and independent sources. As always, investors are advised to review these facts carefully and consult with their own financial advisors.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Key Tronic Corp's financial situation, providing context to the company's recent loan amendment. As of the last twelve months ending Q4 2024, Key Tronic reported revenue of $559.4 million, with a revenue growth decline of 4.89%. This decline in revenue aligns with the company's need for financial flexibility, as evidenced by the amended loan agreement.
InvestingPro Tips highlight that Key Tronic is currently trading at a low Price / Book multiple of 0.48, which could be attractive to value investors. However, it's important to note that the company suffers from weak gross profit margins, reported at 7.51% for the same period. This low margin may explain the need for the loan amendment to provide temporary relief from certain financial covenants.
Another relevant InvestingPro Tip indicates that Key Tronic's liquid assets exceed short-term obligations, which could provide some reassurance to investors concerned about the company's financial stability in light of the recent loan amendment.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Key Tronic Corp, providing a deeper understanding of the company's financial position and market performance.
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