Is Solo "Missing" A Material SEC Risk Factor?

Here is what Solo itself last told the SEC, as a material "risk factor" -- if Solo were to run into covenant (coverage ratio) trouble, in its debt facilities (see the top of page 8 of the most recent SEC Form 10-K):

. . .if our available capacity under the asset-based revolving credit facility falls below a specified level (the greater of (a) $15,000,000 or (b) 15% of the lesser of our borrowing base or the aggregate amount of commitments under the facility), we will be required to maintain a Fixed Charge Coverage Ratio (as defined in the facility) of 1.1 to 1 for a trailing twelve-month period.

A breach of any of these covenants would result in a default under the loan agreements governing our asset-based revolving and Canadian credit facilities and under the indentures governing our senior secured and senior subordinated notes. If an event of default under the loan agreement governing our asset-based revolving or Canadian credit facility, the indenture governing our senior secured or senior subordinated notes or our other debt agreements, all amounts outstanding under those agreements could be declared immediately due and payable, together with accrued interest. If all or a portion of our debt were accelerated, we cannot assure you that we would have access to sufficient funds or other assets to pay amounts due.

Failure to maintain our credit ratings could limit our access to the capital markets, adversely affect the cost and terms upon which we are able to obtain additional financing and negatively impact our business.

Although we believe existing cash, funds generated by operations and amounts available under our asset-based revolving credit facility will collectively provide adequate resources to fund our ongoing operating requirements, we may be required to seek additional financing to compete effectively. In light of difficulties in the financial markets, there can be no assurance that we will be able to maintain our credit ratings. We have experienced downgrades in the past and may experience further downgrades. Failure to maintain these credit ratings could, among other things, limit our access to the capital markets and adversely affect the cost and terms upon which we are able to obtain additional financing, including any financing from our suppliers, which could negatively affect our business. . . .

What the above doesn't say -- and in fact, the 10-K is entirely silent on this risk -- is that failing to sell previously-idled material facilities, at acceptably high prices, could lead to covenant defaults, as well -- through a GAAP-mandated write-down of the carrying value of those real property assets (assets like those held at the Deerfield Road, Highland Park facility, or the one in Belen, New Mexico, or Owings Mills, or the like). And that, it seems, may be what Solo is now facing.

Now we wait for a post-March 6, 2012 announcement regarding the outcome of the Highland Park facility auction.