Executive Summary: Dixon Bus Services, LLC (DBS), which provides transportation services for school bus routes and group transportation, has requested financing for seven new buses that will be used to replace existing units. Assumptions: - DBS was a previous customer of your bank before moving their relationship to a credit union in the area. You have maintained contact with the owners since that time, and they are looking to re-establish a relationship with your bank through this request. - Dixon Bus is an LLC formed in North Dakota in 2001. - DBS is based in Grand Forks, ND with a location in Fargo as well. The company provides school bus service in both cities, making up 60% of its revenue, with the other 40% of its income resulting from single-event or recurring work with businesses, schools and other groups. Contracts with various school districts renew every 3-5 years, but the companys overall number of routes and students served has remained relatively stable for the past 10 years or longer. - The company is owned by Larry Dixon (age 57). Larry is involved actively in the day-to-day operation of the company, while his wife and two grown children are not involved in the business. - Dixon Bus employs 40 drivers (part- and full-time) as well as an office staff of 6 and two dispatchers. Each location also has an operations manager to oversee the companys activity in that market. - The company earns a greater margin on its shuttle services for businesses, school trips and other special events, but the more steady revenue stream from its contracts with local school districts. They have also generated additional revenue in both markets by partnering with bars and restaurants to bring spectators for concerts, games and other events to and from the host site. - Dixon operates out of a rented shop in Grand Forks, while Mr. Dixon owns the shop in Fargo through Dixon Properties, LLC. This entity also owns two rental homes in Fargo. Request Details: Dixon Bus has requested financing for seven new buses, including four school buses at $100,000 each and three charter buses at $150,000 each. The buses typically run for 12-15 years. The buses to be purchased meet all current emissions standards, and each will replace an existing unit with minimal remaining market value due to the age and condition of the units. Larry Dixon acknowledges that revenues were down significantly in 2020 due to the impact of COVID for much of the year. With many schools in the area being back in person for a majority of the 2020-21 school year, revenues should improve in 2021, including a return to corporate shuttle and event work as the year goes on. Larry estimates that 2021 will be 5%-10% better than 2018 in terms of profitability and cash flow. Key Historical Business Financial Information Dixon Bus: (in 000s) 12/31/18 12/31/19 12/31/20 Cash 345 288 306 Inventory 0 0 0 Accounts Receivable 630 645 319 Current Liabilities 244 281 213 Total Assets 4,270 4,396 4,112 Total Liabilities 1,465 1,518 1,366 Total Revenues 4,115 4,305 3,615 * Operating Expenses 3,578 3,644 3,223 Interest Expense 72 78 70 Depreciation Expense 262 238 278 Total Expenses 3,912 3,960 3,571 Net Income 203 345 44 (-) Distributions 100 230 50 (+) Contributions 0 0 0 Total revenues for 2020 include a PPP loan for $800,000 that has been forgiven and is able to be treated as income. Operating expenses include wages, fuel, maintenance, etc. The companys existing debt includes several term loans against other buses with other lenders, as well as a line of credit with a limit of $200,000. Detail may be found in the payment schedule below. Business Debt Schedule (DBS): Lender Purpose Balance Monthly Payment Interest Rate Not Your Bank Equipment loan $780,000 $14,900 (P&I) 5.50% Not Your Bank Operating line of credit $200,000 limit $125,000 balance Interest-only WSJP + 0.50% Floor 4.50% Vertigo Finance Equipment term loan $460,000 $8,800 (P&I) 6.25% Owner Financial Information: Larry Dixons personal credit score as of 12/31/20 was 748, with no history of late payments. Larry reports the following key figures on his 12/31/20 PFS (numbers in 000s): Cash $318 Credit Cards $15 Marketable Securities $466 Revolving Debt $80 CVLI $61 Term Debt (vehicle/etc) $40 Retirement $840 Personal Mortgage(s) $225 Non-Marketable Sec $3,600 Other Mortgage(s) $0 Personal Residence $415 Other Real Estate $0 Contingent Liabilities $2,950 Other Assets $125 2018 2019 2020 AGI 403 565 247 Wages 110 125 105 Interest Income 25 30 33 Federal Taxes Paid 81 104 37 Non-marketable securities include Larrys estimate of the equity in DBS and Dixon Properties. The shop building owned by Dixon Properties is estimated at a value of $1,700,000, with corresponding debt of $1,100,000. Dixon Properties reported a net income of $65,000 during each of the past three years, with depreciation totaling $110,000 and interest of ~ $75,000 each year. The monthly payments on this debt total $114,000 per year. Larrys monthly personal debt payments total $4,500 on all debts. Based on your knowledge of Larry, your estimate of his annual living expenses is $60,000/year. Other Comments: Please refer to the loan policy guidelines and RMA industry information provided with the case information for additional support. For calculating adjusted DSCR after distributions, deduct distributions from EBITDA to arrive at a net cash flow figure, then compare with debt service requirements to calculate an adjusted DSCR