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LIIBV advanced to it. LII's directors, including Ferrill,
approved the intercompany financing to buy GSX because the rates
and terms were more favorable to LII than those from commercial
lenders. On July 7, 1987, LII and LWSI signed a new loan
agreement with LIIBV. It included balances from previous
advances and kept the 10.5 percent interest rate.
LTL repaid its loan from TDB relating to the GSX acquisition
primarily with money that LTL raised in equity markets.
2. Result of the GSX Purchase
The GSX purchase made LII the third largest solid waste
services business in the United States and the second or third
largest provider of hazardous waste disposal services in the
United States.
LII's credit lines from commercial lenders limited LII's
debt to equity ratio to no more than 2 to 1. As a result, LII's
debt under these lines of credit could not exceed $247.8 million.
LII's debt after the GSX acquisition was $491.1 million. If
LII's debt to equity ratio exceeded 2 to 1, it would be required
to renegotiate its commercial loans. The debt from the GSX
acquisition made it harder for LII to meet the financial ratio
requirements established by credit agreements with its commercial
lenders. Before acquiring GSX, LII's debt to equity ratio (based
on book value) was less than 1 to 1; after the acquisition, it
was almost 3.1 to 1. LII's primary competitors in the U.S. solid
waste services industry had debt to equity ratios below 2 to 1.
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