TechPrecision Gets a Favour from its Lender

Posted on December 22, 2020 by Florian Buschek

TechPrecision TPCS (disclosure: long), our favourite metal bender, precision manufacturer and supplier to the defense industry for nuclear submarines, disclosed on Monday after hours that they had renegotiated their credit facilities with Berkshire Bank:

Under the Modification, Ranor and Berkshire agreed to revise the minimum interest rate payable on the Revolver Loan. Under the Line of Credit Note, the Company can elect to pay interest at an adjusted LIBOR-based rate or an “Adjusted Prime Rate.” Under the Modification, the minimum adjusted LIBOR-based rate is 2.75% and the “Adjusted Prime Rate” is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Loan Agreement and Line of Credit Note were unchanged

The bottom line is that the maturity got extend by one year and – at least as important – the interest rate got cut from 5.21% (see image below) to about 2.75%.

That is great news! They asked for it and Berkshire said “sure, why not“.

C. Borrower has requested that Lender extend the maturity of the Line of Credit, and Lender has agreed on the condition that the Loan Agreement be modified as set forth herein.

The interest cut alone should boost the stock immediately. Not only will the savings be around $70k per year. TPCS is not exactly a tripple A borrower, so the fact that their lender, who presumably exactly knows what is on the books and in the backlog, cuts the rate almost by half shows the lowered risk/default premium. It doesn’t affect the WACC terribly strongly because TPCS is not that levered, but it is tough to argue that he equity risk premium should just stay the same.

Beyond the interest rate, the maturity extension of one more year and the availability of more than $3M will give the company easy access to cheap, non-dilutive capital for quite some time. The acquisition of STADCO is also still pending. Access to capital is extremely beneficial for at least for two reasons: First, the (potential) acquisition price needs to be paid somehow. Second, there will be plenty need for working capital, both for the (potential) future STADCO subsidiary and the coming contracts for the Columbia and Virginia Class submarines. There is some indication that these contracts are flowing down from the prime contractors to their suppliers and the fact that Berkshire has so much confidence in TPCS confirms it as well.

2021 is most certainly going to be very exciting for TPCS and its shareholders.

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