MRU needs to raise equity capital, secure further covenant default waiver to avoid bankruptcy

By Caroline Salls

Pittsburgh, Nov. 12 - MRU Holdings, Inc. said it could be forced to file bankruptcy if it is unable to raise additional equity capital and secure a default waiver from the holders of its 12% senior secured notes, according to a 10-Q filed with the Securities and Exchange Commission.

Unless the company is able to raise additional equity capital, MRU said it will not be in compliance with amended covenants on the notes after Nov. 10, as the amount of cash needed to reduce payables would trigger a violation of the minimum unrestricted cash covenant.

According to an 8-K filed Wednesday with the SEC, the noteholders agreed to extend the covenant compliance waiver to Nov. 12 from Nov. 10.

As a result, MRU would be in default on the notes after Nov. 12 unless it is able to secure a further waiver and amendment from the noteholders. If the noteholders subsequently chose to accelerate their debt, the company would be forced to file for bankruptcy.

In addition, MRU said acceleration of the senior secured notes would trigger cross defaults under its $19 million principal amount of bridge notes.

MRU said it has $13 million of borrowing capacity on its DZ Bank line of credit, but will not be able to access it until additional equity capital is raised.

The company said it is in talks with several potential lenders to obtain new warehouse facilities, but it does not yet have a commitment.

According to the 10-Q, any new warehouse facility would require the company to raise additional equity capital, and MRU would not be able to originate new loans until it raises the additional equity capital.

The company said it requires additional equity capital in the near term to maintain its current operations, and its independent registered public accounting firm has issued an opinion indicating that there is substantial doubt that the company can continue as a going concern.

To the extent that equity, convertible debt or other financing is not available, the company said it would have to curtail or completely cease its operations.

MRU is a New York-based provider of student loans.

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