Publisher THQ announced it was in "certain defaults" with lender Wells Fargo in a filing with the Securities and Exchange Commission last week when it notified the commission of a late filing of its quarterly report. Today, THQ details the nature of those defaults in its 10-Q filing, writing that it was "over-advanced" under its credit agreement with the bank, which then led to the triggering of a technical default.
THQ writes in its SEC filing that its borrowings under the credit facility were $21 million at the end of its most recent fiscal quarter ending Sept. 30. After detailing the publisher's current accounts and inventories to the bank, which Wells Fargo used to calculate the amount THQ could borrow from the credit facility, the bank determined THQ was "over-advanced."
That then led to certain financial conditions being met by THQ, including the reduction of the total amount of its borrowings from the credit facility. THQ paid Wells Fargo $5.6 million one day after being informed of its credit facility status in an effort to regain compliance with the bank's terms.
The credit facility payment put THQ's borrowings at $15.4 million with Wells Fargo as of Oct. 17. As previously reported, Wells Fargo continued to fund THQ's requests after that, allowing the publisher to borrow an additional $1 million on Nov. 2.
Because of the loan availability and THQ's failure to comply with the fixed charge coverage ratio — related to the company's earnings, fixed charges (like building leases) and interest on loans — the publisher went into technical default.
THQ reiterates that the company is in discussions with Wells Fargo regarding the default, writing it believes it will reach an agreement with the bank on its default.
Update: THQ president Jason Rubin released the following statement after the submission of the publisher's 10-Q which adds a bit more color to the company's financial situation:
"As indicated in our quarterly report (10-Q) filed today, THQ is in discussions with Wells Fargo to resolve an issue with regard to our credit agreement. We believe we will reach an agreement on this matter with Wells Fargo. The issue stems from a relatively small amount borrowed against the credit facility in mid-October 2012, which was subsequently repaid in full. THQ currently has $16.4 million outstanding on its facility, which is unchanged since we released second quarter earnings."