Credit Agreement – The Company generated $218.8 million of cash from operating activities during the fourth quarter of 2008, and had approximately $484 million of cash and cash equivalents at December 31, 2008. Despite the positive generation of cash during the fourth quarter, continued deteriorating business conditions in certain of the Company’s operating segments and the impact of historical fixed charges incurred on a trailing twelve months basis (for example, interest expense, cash taxes, share repurchases and capital expenditures) may likely cause the Company to be in violation of the consolidated fixed charge coverage ratio covenant under its credit agreement as early as the end of the first quarter of 2009. As a result, the Company has initiated discussions with its lead banks seeking to obtain a consent and/or amendment to its credit agreement. The Company will endeavor to obtain the consent and/or amendment during the first quarter of 2009 in order to avoid any potential default under the credit agreement. Should the Company not be able to obtain such consent or amendment, there could be adverse consequences to the Company’s liquidity.
Basically the company is saying its fate, even though it has a lot of cash, and generates free cash flow, will soon be in the fate of its banks. The culprit is the Fixed Charge Coverage Ratio covenant, which, as defined in the original Credit Agreement dated July 14, 2006, prohibits the company's Fixed Charge Coverage (as defined) to drop below 1.25x. As the company does not have a significant debt load, at only $1.5 billion on $960 million of LTM EBITDA (although likely rapidly declining), it will be curious whether the banks play ball with Terex and give it some more time to turn the business around.
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