Updated: Corrected text in brackets
Barrett Business Services (NYSE: BBSI) had to borrow money in order to cover its known reserve deficiencies. BBSI reached an agreement on a new lending deal with its principle banker Wells Fargo earlier last month and officially closed on the agreement on December 29. Now new details are emerging about what Barrett is having to pay and secure to get the deal done and the restrictions that it will be operating under going forward.
Key provisions of the agreement provide a $14 million revolving line of credit, a two-year $40 million loan to fund its [
pre-2012] workers’ compensation insurance reserves, the continuance of a $5 million term loan, and an increase in its cash-secured letters of credit to $114 million. Barrett is using the latter item to obtain surety bonds to cover its workers’ comp deposit obligations in California.
Barrett needed to increase its cash-secured letters of credit after the California Office of Self Insurance Plans increased its security deposit demand by $85.9 in the wake of Barrett’s earlier revelations that its workers’ comp program was under reserved. Last fall Barrett announced an $80 million charge to boost its self-insured workers’ comp reserves. It is unknown if this was the last of the reserve boosts. The bulk of Barrett’s business has been and continues to be in California.
Barrett’s California security deposit is now valued at $190.6 million, according to the company. Unlike insurance carriers who must post 100% of their reserves, Barrett has put up just 60% of the value of the surety bonds while the issuers of the bonds are on the hook for the rest in the event of a default. Barrett’s California certificate to self-insure was terminated by an act of the legislature in the wake of the Mainstay PEO debacle, which resulted in lawsuits against employers who thought they were covered by the PEO.
The largest bond, $140.6 million, is issued by Westchester Fire Insurance Company, while Argonaut Insurance Company and Atlantic Specialty Insurance Company issued a $25 million bond. Westchester is a member of the Ace Limited Group, which is currently providing Barrett with its high-deductible workers’ comp policy.
Barrett’s line of credit and the $40 million loan are being secured by its accounts receivables, as well as its property, inventory, and equipment. The loan bears interest of 4% over the LIBOR rate and is fixed monthly. Barrett has to begin repaying the loan this spring with a $3 million installment due in June and then a $7 million installment due in September. Another $15 million is due by the end of the year with the remainder paid off in 2016 in two installments – $5 million on June 30, 2016 and whatever is left over has to be paid off by the end of the 2016.