Magnetek Makes Financial Progress
Magnetek, Inc. has amended its existing credit agreement with its domestic banks. The amendment reduces the banks’ lending commitment to $16 million from $40 million, increases certain bank fees and the interest rate on borrowings, and adjusts certain financial covenants through the company’s fiscal year end on June 30, 2003. Separately, Magnetek announced that it is discussing settlement of a lawsuit the company has filed against Band of America (BofA), a former agent bank.
A dispute arose between Magnetek and BofA, its agent bank under a credit agreement that ended in 2002, regarding BofA’s right to collect additional interest on an interest rate “swap” that was terminated in December 1999,through an extension clause that allegedly survived the unwound swap. Nevertheless, BofA has exercised a feature in the extension that provides for additional interest (the current value of which is about $3.5 million) to be remitted to the bank on demand.
As a result, this amount will be included as a loss on Magnetek’s fiscal 2003 third-quarter income statement. However, Magnetek has filed a lawsuit against BofA to recover the disputed amount, and settlement discussions with BofA are underway. Any future recoveries will be taken as income in the period in which the lawsuit is adjudicated or settled by the two parties.