shares of app have been in a tailspin the past two days, following the filing of a waiver to a credit agreement the company has with lasalle bank. the simple fact is that the risk profile has increased dramatically for this name. shares were recently trading at $5.86.
according to its 8-k filing with the sec, app filed a waiver to a credit agreement it has with lasalle bank, part of bac. in short, the filing means that app has failed to meet some portion of its covenant with the bank -- likely stemming from some financial metric. according to the waiver, the company has until 6/20 to negotiate an amendment to the existing credit agreement, or else the $75 million in long-term debt would be reclassified as short-term debt. as a result, app will have to find another bank to finance the debt.
investment bank lazard released a note today defending app, noting that lasalle is willing to work with the company to renegotiate the financing. in addition, the report points to numerous other banks that app has relationships with or connections to, seeing them as potential financiers if talks with lasalle fail. however, i believe this thinking is overly optimistic and somewhat flawed. investors are well aware that the credit environment has become increasingly tight and banks are currently going through some of the most difficult times in years. meanwhile, app's most recent quarter showed significant weakness in gross margins and illustrated management's inability to produce solid earnings in spite of strong sales numbers.
given the tight credit environment and app's less-than-stellar results, a potential loss of financing is not acceptable. although it has more than $70 million in cash on hand, a company like this needs to have access to capital in order to follow through on its growth plans.