NEW YORK—In a filing with the Securities and Exchange Commission on June 26, Sotheby’s said it had amended the terms of a credit agreement with Bank of America. At the end of the first quarter, Sotheby’s had disclosed that because of the “continued downturn in the global economy and the international art market, it was likely that Sotheby’s would not meet certain financial covenants in the BofA Credit agreement as of June 30.”
Under the amended terms, instead of meeting separate minimum leverage and interest-coverage ratios, Sotheby’s will be required to meet a minimum ratio of the debt to their earnings (before interest, taxes, depreciation and amortization), which means they will need to have EBITDA of “no less than $47million” for the quarter ending June 30, as well as EBITDA for the third and fourth quarters of $36million and $85million, respectively.
Sotheby’s will also pay a higher interest rate on its outstanding debt—the London Inter-Bank Offer Rate plus 5.5 percent. Previously it paid LIBOR plus a margin between 3.25 percent and 4.25 percent, depending on its leverage ratio. Sotheby’s total credit line has also been reduced, to $150million from $250million. As a result of the amended terms, Sotheby’s said it incurred up-front fees of approximately $1.5million, which will be amortized to interest expenses over the rest of the term of the loan agreement, which ends in September 2010.
Sotheby’s stock has been rising for most of the last month, trading around $11 per share at the start of June and rising to above $14 at the end of June. In March, the stock had been trading under $6.50. In an SEC filing on June 18, hedge fund Atticus Capital reported it acquired 3.6million shares, or a 5.4 percent stake, in Sotheby’s. As of March 31, hedge fund SAC Capital, managed by collector Steven A. Cohen, owns a 6.2 percent stake. As ARTnewsletter went to press, Sotheby’s was trading at $14.07 on the New York Stock Exchange.