Updated: Corrected text in brackets
Barrett Business Services (Nasdaq: BBSI) says that it has reached an agreement in principle with its primary lender Wells Fargo to increase its borrowing capacity. The deal includes a $40 million two year loan that Barrett says will be used along with its cash on hand for its previously announced reserve charge. Barrett previously reported that the $80 million reserve charge [
for accident years 2012 and earlier which includes $61.3 million for prior accident years] will cost it $47.9 million after taxes.
The agreement also continues Barrett’s $14 million revolving credit line and allows for an increase in its cash-secured letters of credit from $20.9 million to $117.9 million. Barrett uses the letters of credit to satisfy the collateral requirements for the surety bonds it has to post to secure its self-insured workers’ comp liabilities. It’s expected that most of this increase will go toward meeting its enhanced California security deposit requirements.
Here is the full text of Barrett’s release:
Barrett Business Services, Inc. (BBSI) (NASDAQ: BBSI), a leading provider of business management solutions, has reached an agreement in principle on a new credit facility with Wells Fargo, its principal bank.
Under the terms of the agreement, the credit facility will include a $40.0 million two-year term loan maturing January 1, 2017, as well as a $14.0 million revolving credit line, with a $5.0 million sublimit for previously unsecured standby letters of credit, maturing October 1, 2017. The term loan bears interest at LIBOR plus 4%, while the interest rate on advances under the revolving credit line is LIBOR plus 2%.
The Company intends to use a combination of cash on hand and proceeds from the term loan to address the Company’s workers’ compensation reserve funding requirements by no later than December 31, 2014.
“The increase in our borrowing capacity with Wells Fargo speaks to the confidence our long time commercial banking partner has in BBSI and our business model,” said Michael Elich, president and CEO of BBSI. “We requested this additional capacity to address the increase in our workers’ compensation liability and claims expense accrual for the 2014 third quarter. This addresses our short-term liquidity needs at a favorable interest rate and allows BBSI to focus on running the business while supporting and growing our client base.”
The agreement in principle also provides for an increase of up to a total of $117.9 million in cash-secured letters of credit to satisfy collateral requirements associated with various surety deposits for workers’ compensation purposes. At September 30, 2014, the secured letters of credit with Wells Fargo totaled $20.9 million. Upon final execution of the agreement, the Company will file a current report on Form 8-K with the Securities and Exchange Commission.