Okay, I ran across this:
“ATM maker Diebold Inc. said Friday it struck an agreement with certain unspecified banks for a $400 million and 75 million euro ($112.5 million) credit facility.[1]”
Now, I Googled the crap out of “credit facility” but it seems to keep coming back to either “Primary Dealer Credit Facility,” which is a Fed Reserve kinda’ bank thing, or just saying that a credit facility is some kind of loan.
If their old line of credit was about to come due, the company only had four options: 1) cough up the cash to pay off the debt,
2) sell a ton of stock to raise the extra cash,
3) go bankrupt or
4) refinance the debt.
The news article is confirming that they’ve been able to do #4 (refinance), which is good news for investors, who would not particularly like the other three options. The fact that the debt maintains existing covenants is also good news because covenants often restrict a company’s ability to pay dividends to shareholders and take on new debt. The fact that the debt is unsecured is good news to the company’s other creditors, since secured creditors get first priority in being paid off during bankruptcy.
It’s also important news in terms of how it affect financial statements. A line of credit due in April 2010 has to be listed as a “current liability” on the balance sheet unless you know that you’ll be refinancing it, in which case it can remain a “long term liability.” Several of the ratios both investors and lenders use to assess company health looks at current debt differently from long-term debt. (Which is something we all understand from a personal side. $200,000 in mortgage debt or student loans (long-term liability) is no big deal; $200,000 in credit card debt (current liability) looks terrible).
Are there message boards out there that discuss this kind of thing? I know I can go do investopedia or my corp finance books to read about the definitions, but real-life discussions kind of make the concepts stick more for me.