Favorable $19 million financing represents a milestone
By Steven Ralston, CFA
University General Health System
announced that on September 28
the company closed a $15.0 million line of credit and a $4.0
million term note with MidCap Financial, LLC, a Delaware limited
liability company. University General accessed the entire $4
million term note and $12.3 million of the $15.0 million line of
credit, significantly reducing interest expense and strengthening
the company's balance sheet.
The proceeds were utilized to repay $9.0 million of 6.5%
borrowings from Amegy Bank, $2.125 million for the equipment lease
with Regions Bank and $1.0 million of the 18% note purchase
agreement from Sigma Opportunity Fund, LLC. With the line of
credit's rate being only 2.0% above LIBOR and the term note's rate
being 2.5% above LIBOR, University General is expected to save
approximately $800,000 in interest expense annually. Also, $3.61
million was paid to the IRS curtailing the incurrence of additional
interest and penalties and eliminating all of University General's
remaining payroll tax delinquencies.
By attaining this financing on such quite favorable terms
attests to the favorable acceptance of management's strategic plan
of building, owning and operating regional health care networks in
multiple, major metropolitan areas. The financing also provides the
company with additional liquidity that will enable the accelerated
execution of management's aggressive acquisition strategy. As a
result, University General is expected to expand its revenue base
and level of profitability.
Not only do we reaffirm our Outperform rating and price target
of $0.58, which is based the company attaining first quartile
valuation metrics of price-to-sales and enterprise value-to-EBITDA,
but also we confirm that this financing milestone increases our
confidence level that University General Health System is a company
that merits first quartile valuation.
UNIVTY GEN HLTH (UGHS): Free Stock Analysis
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