On Jan. 9, Sports Chalet Inc. amended its credit agreement with lenders led by Bank of America to loosen its terms, according to a filing with the Securities & Exchange Commission. The filing noted that as of Dec. 31 an event of default had occurred under the Loan Agreement due to the failure of the company to maintain a “Fixed Charge Coverage Ratio.”
Under the Amendment, “(i), the bank has agreed to forbear from exercising its rights in respect of the Event of Default described below under the Amended and Restated Loan and Security Agreement, as amended, dated as of June 20, 2008, among the company, Sport Chalet Value Services, LLC (“SCVS”), and the Bank (the “Loan Agreement”), (ii) the company may not select a LIBOR-based interest rate under the Loan Agreement, and (iii) the Bank has agreed to permit an overadvance in the amount of $1.5 million until January 13, 2009.”
As of Dec. 31, 2008, an event of default had occurred under the Loan Agreement due to the failure of the company to maintain a “Fixed Charge Coverage Ratio” (as defined in the Loan Agreement) of not less than 1.00 to 1.00 (the “Event of Default”). On Dec. 28, 2008, availability under the Loan Agreement was less than $10.5 million, thereby requiring the testing of the Fixed Charge Coverage Ratio, according to the filing. The forbearance period will end on the earlier to occur of any further default under the Loan Agreement or Jan. 31, 2009. The company and SCVS acknowledged, among other things, that they had no defenses, claims or set-offs to the obligations under the Loan Agreement and provided the Bank a general release of claims.
Concurrently with entering into the Amendment, the company and SCVS entered into a letter agreement with the Bank under which the company has agreed to engage, for a minimum of 90 days, a consultant acceptable to the Bank to prepare cash flow and operating budgets to be presented periodically to the Board of Directors of the company and to the Bank. On Jan. 9, 2009, the company retained FTI Consulting.