Item 1.01 Entry into a Material Definitive Agreement.
As previously disclosed, on February 11, 2022, Universal Technical Institute, Inc. (the “Company”) completed the acquisition of 2611 Corporate West Drive Venture LLC, an entity that is the owner of the real property that serves as the Company’s Lisle, Illinois campus (the “Lisle Campus”). At the time of the acquisition, 2611 Corporate West Drive Venture LLC was a party to a loan agreement with a third-party bank secured by a mortgage on the Lisle Campus (the “Previous Mortgage Debt”).
On April 14, 2022, 2611 Corporate West Drive Venture LLC, as borrower (the “Borrower”), entered into a Loan Agreement (“Loan Agreement”) with Valley National Bank, a national banking association (the “Lender”), to fund the acquisition and retire the Previous Mortgage Debt, via a term loan in the original principal amount of $38,000,000 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 a rate of one-month SOFR plus 2.0%. In connection with the Term Loan, the Borrower 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 4.69% for the entire loan term. The Term Loan is secured by a mortgage on the Lisle Campus.
Concurrent with, and as a condition to, the Term Loan, the Company executed a Guaranty for the benefit of the Lender (the “Guaranty”), pursuant to which it guaranteed the payment obligations of Borrower under the Loan Agreement. As guarantor, the Company is subject to certain customary affirmative and negative covenants under the Loan Agreement, including, without limitation, reporting and notice obligations and certain financial maintenance covenants. The Company’s fixed charge coverage ratio is required to be not less than 1.25 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis) and is defined as the ratio of (a) the sum of consolidated net income (loss) for the year, before interest expense, income taxes, depreciation and amortization, and other extraordinary non-recurring items (“Adjusted EBITDA”) plus rent paid to Borrower and less cash taxes paid, distributions, and unfinanced capex to (b) principal and interest expenses plus rent paid to Borrower. The ratio of total indebtedness to Adjusted EBITDA is required to be no greater than 3.50 to 1.00 (which commences on the date the Company shall submit its initial compliance certificate in accordance with the Loan Agreement and may be tested no more than annually thereafter on a trailing 12-month basis). Events of default under the Credit Agreement include, among others, the failure to make payments when due, breach of covenants (including the financial maintenance covenants) and breach of representations or warranties. In addition, the Borrower’s debt service coverage ratio is required to equal or exceed 1.20 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis).
The foregoing description of the Term Loan and Guaranty does not purport to be complete and is qualified in its entirety by references to the Term Loan and Guaranty, copies of which, if required, will be timely filed as an exhibit to an upcoming periodic report in accordance with applicable rules and regulations of the Securities and Exchange Commission.