Medical Action Industries entered into a new five-year credit agreement for $65 million with Wells Fargo, N.A., part of Wells Fargo & Company (NYSE:WFC), effective May 17, 2013. The new credit facility refinances and replaces the previous agreement which had been scheduled to expire in June 2014 and which had approximately $54.6 million outstanding as of May 17, 2013. The new agreement includes a revolving line of credit, a term loan A and, upon our election, a term loan B as well as the ability to increase the size of the loan in certain circumstances, such as acquisitions. This new financing provides improved pricing, tenor and operating flexibility, and positions the company to further execute on its strategic plans.

Under the new credit agreement, applicable interest rates are determined based upon average excess availability and, at the Company's election, either a prime rate or LIBOR-based rate. Based on current estimates, these lower interest rates should translate into an after-tax savings of approximately $0.5 million over prior year, or approximately $0.03 per share.

Under this asset-based loan, the advance rates applied to collateral represent key levers in determining the total amount of borrowing capacity for the Company. These advance rates have been increased under the new credit agreement allowing for greater borrowing capacity on the Company's collateral. If at certain times throughout the term of this new agreement, the excess availability in the revolving line of credit based on the collateral falls below certain thresholds, certain financial and non-financial covenants would become applicable. As of May 20, 2013, the Company had excess availability of approximately $10.0 million.

John Sheffield, Executive Vice President and Chief Financial Officer, said, "We are very happy to continue and deepen our relationship with Wells Fargo, who was a member of our previous bank group. The benefits achieved through this agreement support and reinforce our strategic plans to position Medical Action for continued growth and to reduce our operating costs. With this new facility, we have removed many of the restrictive covenants and other obligations inherent in the previous agreement. We will experience lower interest rates, substantially reduced principal payments on the term loan component, improved working capital and will no longer be required to engage the outside consultant mandated by the previous agreement, which alone represents a nearly $2.0 million savings annually."

In conjunction with the closing of the transaction, the Company will record a one-time non-cash after-tax charge of approximately $0.4 million, or $0.02 per share, in the quarter ended June 30, 2013 (first quarter of fiscal year 2014). This one-time charge is related to the accelerated amortization of the deferred financing fees associated with the previous credit agreement.

Medical Action is a diversified manufacturer and distributor of disposable medical devices and a leader in many of the categories in which it competes. Its products are marketed primarily to acute care facilities in domestic and certain international markets. The Company has expanded its target market to include physician, dental and veterinary offices, out-patient surgery centers, long-term care facilities and laboratories.