Note 6 (Exhibit 9.7) of Le Chteaus 2017 financial statements discusses the companys line of credit. EXHIBIT

Note 6 (Exhibit 9.7) of Le Château’s 2017 financial statements discusses the company’s line of credit.

EXHIBIT 9.7 Excerpt from Le Château Inc.’s 2017 Financial Statements

6. Credit Facilities

The Company’s asset based credit facility, with a limit of $80.0 million and subject to the availability constraints of the borrowing base, matures on June 5, 2017 and is collateralized by the Company’s cash, credit card balances in transit and inventories, as defined in the agreement. The facility consists of revolving credit loans, which include both a swing line loan facility limited to $15.0 million and a letter of credit facility limited to $15.0 million. The borrowings bear interest at a rate based on the Canadian prime rate, plus an applicable margin ranging from 0.50% to 1.00%, or a banker’s acceptance rate, plus an applicable margin ranging from 1.75% to 2.25%. The Company is required to pay a standby fee ranging from 0.25% to 0.375% on the unused portion of the revolving credit. As at January 28, 2017, the eff ective interest rate on the outstanding balance was 3.3% [2016 – 3.1%]. The credit facility requires the Company to comply with certain non-financial covenants, including restrictions with respect to the payment of dividends and the purchase of the Company’s shares under certain circumstances. As at January 28, 2017, the Company had drawn $54.7 million [2016 – $45.3 million] under this credit facility and had outstanding standby letters of credit totaling $1.2 million [2016 – $2.5 million] which reduced the availability under this credit facility. The full amount drawn under this facility is presented as a current liability as the revolving credit facility matures in June 2017 [see note 2]. Financing costs related to obtaining the above facility have been deferred and netted against the amounts drawn under the facility, and are being amortized over the term of the facility.

Required

a. What does it mean that the company has an operating line of credit of $80 million available? What kind of institution is the line of credit likely with?

b. The information regarding the interest rate on Le Château’s line of credit refers to the Canadian prime rate. What does this term mean? Is this a fi xed interest rate?

c. Le Château is required to pay a standby fee ranging from 0.250% to 0.375% on unused portions of the revolving credit. What does this mean and why would an institution charge this type of fee?

d. Is Le Château’s operating line of credit secured or unsecured? Explain what this means and why a company might prefer to have its debt secured.