What fixed charge coverage ratio must Management Recruiters comply with under the agreement?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
| Three months ended | ||||
|---|---|---|---|---|
| December 31, 2022 | December 31, 2021 | |||
| Franchise royalties | $ | 7,671 | $ 6,067 | |
| Service revenue | 378 | 471 | ||
| Total revenue | 8,049 | 6,538 | ||
| Selling, general and administrative expenses | 4,723 | 4,401 | ||
| Depreciation and amortization | 544 | 486 | ||
| Income from operations | 2,782 | 1,651 | ||
| Other miscellaneous (expense) income | (26) | 724 | ||
| Interest income | 49 | 127 | ||
| Interest and other financing expense | (112) | (90) | ||
| Net income before income taxes | 2,693 | 2,412 | ||
| Provision for income taxes | 49 | 227 | ||
| Net income from continuing operations | 2,644 | 2,185 | ||
| Income from discontinued operations, net of tax | 74 | 9 | ||
| Net income | $ | 2,718 | $ 2,194 | |
| Basic earnings per share | ||||
| Continuing operations | $ | 0.19 | $ 0.16 | |
| Discontinued operations | 0.01 | - | ||
| Total | $ | 0.20 | $ 0.16 | |
| Diluted earnings per share | ||||
| Continuing operations | $ | 0.19 | $ 0.16 | |
| Discontinued operations | 0.01 | - | ||
| Total | $ | 0.20 | $ 0.16 | |
| Weighted average shares outstanding | ||||
| Basic | 13,676 | 13,514 | ||
| Diluted | 61 | 13,741 | 13,635 | #### Note 16 - Subsequent Events |
On February 28, 2023 HireQuest, Inc. (the "Company") and all of its subsidiaries as borrowers (collectively with the Company, the "Borrowers") entered into a Revolving Credit and Term Loan Agreement with Bank of America, N.A. (the "Bank") for a $50 million revolving facility (the "Senior Credit Facility"), which includes a $20 million sublimit for the issuance of standby letters of credit (each a "Letter of Credit"). The Borrowers also have a one-time right, upon at least ten Business Days' prior written notice to the Bank to increase the maximum amount of the Senior Credit Facility to $60 million. The Senior Credit Facility replaces the Company's prior $60 million credit agreement with Truist Bank. The Senior Credit Facility provides for certain financial covenants including an Asset Coverage Ratio of at least 1.0:1.0 at all times; maintaining a Total Funded Debt to Adjusted EBITDA Ratio not exceeding 3.0:1.0; and maintaining, on a consolidated basis, a Fixed Charge Coverage Ratio of at least 1.25:1.0. Interest will accrue on the outstanding balance of the Line of Credit at a variable rate equal to (a) the BSBY Daily Floating Rate plus a mar
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, the company entered into a Revolving Credit and Term Loan Agreement with Bank of America, N.A. on February 28, 2023. This agreement includes a $50 million revolving facility. As part of the Senior Credit Facility, Management Recruiters must adhere to certain financial covenants.
Specifically, Management Recruiters is required to maintain a Fixed Charge Coverage Ratio of at least 1.25:1.0 on a consolidated basis. This ratio is a measure of the company's ability to cover its fixed charges, such as debt payments, and is a common metric used by lenders to assess financial health and risk.
Compliance with this fixed charge coverage ratio is tested monthly on a rolling twelve-month basis. Failure to maintain this ratio could result in a default under the loan agreement, potentially leading to acceleration of the debt and other adverse consequences for Management Recruiters. Prospective franchisees should be aware of these financial obligations of the parent company, as they could indirectly impact the franchisor's ability to support its franchisees.