Deerfield Beach, FL, January 12, 2007--In a Wednesday filing with the Securities and Exchange Commission, Q.E.P. Co. said it became aware a few days before it was in violation of a financial covenant in its credit facility, according to the South Florida Business Journal.
The Boca Raton-based specialty tools and flooring related products maker, marketer and distributor said it found out about the problems while preparing its quarterly report for the fiscal 2007 third quarter.
Q.E.P. Co. said it determined, on January 4, it was in violation of the credit facility financial covenant requiring it to maintain a certain senior debt-to-trailing earnings before interest, taxes depreciation and amortization (EBITDA) ratio.
"A violation of this financial covenant would, unless waived by the lenders, constitute an event of default under the credit facility, giving the lenders the right to prohibit additional borrowing under the credit facility, accelerate the company's indebtedness thereunder, and take other actions as provided for in the credit facility," Q.E.P. said.
As of January 4, Q.E.P. said it had $24.58 million in outstanding borrowings under the credit facility, including reserves and outstanding letter of credit.
The company said it is in discussions with its lenders about the violation with a view toward getting a waiver for its non-compliance.
If it can't get a waiver under acceptable terms, Q.E.P. acknowledged the result could have a material adverse effect on its financial position.
However, the company has gotten such waivers in the past.
In March, Q.E.P. got a waiver for being out of compliance with requirements to maintain a certain senior debt to trailing EBITDA and ratio and a certain fixed charge coverage ratio for what was then $26.4 million of borrowings under a credit facility.
Q.E.P. has had other financial troubles, though.
In October, it reported a second quarter loss widened by nearly 18 times, to a $6.7 million loss from a $375,000 loss. At the same time, it restated results from its fiscal years 2006, 2005, 2004, 2003 and 2002.
