Of particular importance will be the financing situation. ASCA is on track to bust the senior leverage covenant by Q2 2009 unless the removal of the Missouri loss limit provides a big boost to EBITDA. Hopefully, the company will provide color on their refinancing strategy. Options include re-pricing the bank facility in exchange for more flexibility on the covenants. This is unlikely given that most of the company’s debt is generated through the facility and the rate would likely increase 400-500 bps. That would result in a massive increase in interest expense. More likely would be a subordinated debt offering to provide comfort under the senior leverage covenant. The rate on a sub debt bond offering could be in the mid-teens.
The company expressed a pretty cautious tone last quarter and business probably deteriorated further, particularly in September. October should be incrementally better than September, however, but still difficult. Commentary regarding Missouri should be positive, given the much faster implementation of the loss limit removal.
To limit downside on the stock in the face of estimates coming down, ASCA needs to show progress on cost reductions, limiting Capex, and put forth a reasonable refinancing strategy.