| Item 1.01 | Entry into a Material Definitive Agreement. |
On May 12, 2021, Universal Technical Institute, Inc. (the “Company”) and its wholly-owned subsidiary, Universal Technical Institute of Arizona, LLC, entered into a Credit Agreement (“Credit Agreement”) with Fifth Third Bank, National Association (the “Lender”) to finance the Avondale, Arizona property that it purchased in December 2020, via a term loan in the maximum principal amount of $31,150,000 with a maturity of seven years (the “Term Loan”). As of the date of this Current Report on Form 8-K, the Term Loan bears interest at the rate of LIBOR plus 2.0%. In connection with the Term Loan, the Company entered into an interest rate swap agreement with the Lender that effectively fixes the interest rate on 50% of the principal amount of the Term Loan at 3.5% for the entire loan term. The Term Loan is secured by a first priority lien on the Company’s Avondale, Arizona property, including all land and improvements.
The Company is subject to customary affirmative and negative covenants under the Credit Agreement for facilities of this type, including, without limitation, certain reporting obligations and certain limitations on restricted payments; and limitations on liens, encumbrances and indebtedness. The Term Loan is also subject to certain financial maintenance covenants. The debt service coverage ratio is required to be less than 1.25 to 1.00 and is defined as the ratio of the sum of consolidated income (loss) for the year, before interest (income) expense, income tax (benefit) expense, and depreciation and amortization (“EBITDA”) (less dividends payable on the Company’s Series A Preferred Stock) and other extraordinary items to the current portion of long-term debt and interest paid during the period being measured (which commences on September 30, 2021 and is tested annually thereafter on a trailing 12-month basis). The funded debt to EBITDA ratio is required to be no greater than 3.50 to 1.00 (which commences on June 30, 2021 and is tested quarterly thereafter on a trailing 12-month basis). Additionally, commencing on May 12, 2024, the Lender may require a maximum loan-to-value of 70% based on new appraisals at the Company’s cost. Events of default under the Credit Agreement include, among others, the failure to make payments when due, breach of covenants (including certain financial maintenance covenants) and breach of representations or warranties. If the Company fails to meet the minimum debt service coverage ratio, loan-to-value or debt yield and fails to cure such non-compliance within a time period acceptable to the Lender, the Company will be in default.
The foregoing description of the Term Loan does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, the Promissory Note and the Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, which are filed as Exhibits 10.1, 10.2 and 10.3, respectively, hereto and are incorporated herein by reference.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| | |
Exhibit
No. | | Description |
| |
| 10.1* | | Credit Agreement, dated May 12, 2021, by and among the Company, Universal Technical Institute of Arizona, LLC and Fifth Third Bank, National Association |
| |
| 10.2 | | Term Promissory Note, issued by the Company, dated May 12, 2021 |
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| 10.3* | | Deed of Trust, Security Agreement and Fixture Filing dated May 12, 2021 |
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| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request. |
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