| Debt | 9. Debt
Revolving line of credit and term debt
On June 28, 2013, the Company entered into a credit agreement
with Wells Fargo Bank, National Association (the “Wells
Credit Agreement”), which replaced its prior credit
agreement. The Wells Credit Agreement enabled the Company to borrow
under a revolving line of credit secured by substantially all of
the Company’s tangible and intangible assets (other than real
property). The Wells Credit Agreement (a) provided an initial
maximum $75.0 million revolving line of credit to the Company,
which, at the Company’s request and subject to the terms of
the Wells Credit Agreement, could have been increased up to $100.0
million during the term of the Wells Credit Agreement;
(b) bore interest at the Wells Fargo Bank’s prime rate
plus an applicable margin ranging from 0% to 0.50%; or at the
Company’s option, all or a portion of the revolving line of
credit could have been designated to bear interest at LIBOR plus an
applicable margin ranging from 1.50% to 2.00%; (c) had an
unused line fee of 0.25% and (d) required the Company to
report its fixed charge coverage ratio, when its Availability (as
defined in the Wells Credit Agreement) was less than the Threshold
Amount (as defined in the Wells Credit Agreement) and to continue
to report its fixed charge coverage ratio until the date that
Availability for a period of 60 consecutive days, was greater than
or equal to the Threshold Amount. The Company was required to meet
a minimum monthly fixed charge coverage ratio of not less than 1.0
to 1.0, the testing of which commenced on the last day of the month
prior to the date on which its Availability was less than the
Threshold Amount. The Threshold Amount was defined in the Wells
Credit Agreement as the greater of (i) $9,375,000 or
(ii) 12.5% of the maximum revolver amount of $75.0 million or
as it may have been increased during the term of the Wells Credit
Agreement up to $100.0 million.
On April 1, 2014, the Wells Credit Agreement was amended (the
“Amended Wells Credit Agreement”) to increase the
Company’s revolving line of credit from $75.0 million to
$90.0 million. The Amended Wells Credit Agreement (a) bears
interest at the Wells Fargo Bank’s prime rate plus an
applicable margin ranging from 0% to 0.5%; or at the
Company’s option, all or a portion of the revolving line of
credit can be designated to bear interest at LIBOR plus an
applicable margin ranging from 1.50% to 2.00%; (b) has an
unused line fee of 0.25%; (c) requires the Company to report
its fixed charge coverage ratio and leverage ratio as described
below; (d) included a $5.0 million term loan arrangement with
Wells Fargo Bank; and (e) includes a letter of credit
sub-facility of the revolving line of credit. The principal amount
of the $5.0 million term loan was payable in 36 equal monthly
installments with the first payment due on June 1, 2014, plus
interest at LIBOR plus 4.50%. Effective April 1, 2014 and
during the period in which the term loan was outstanding, the
Company was subject to a fixed charge coverage ratio covenant and a
debt leverage ratio covenant. The Company was required to maintain
a fixed charge coverage ratio of at least 1.20 to 1.00 and the
Company’s debt leverage ratio could not exceed 4.0 to 1.0
during the period in which the term loan was outstanding. At the
time, the Company used borrowings under this expanded revolving
line of credit as well as the proceeds from the term loan to
finance the acquisition of Professional Power Products, Inc., which
was consummated on April 1, 2014. The term loan was
subsequently paid in full on April 29, 2015. In connection
with the repayment of the term loan on April 29, 2015, the
Company’s minimum monthly fixed charge coverage ratio
reverted back to 1.0 to 1.0, the testing of which commences on the
last day of the month prior to the date on which the
Company’s Availability is less than the Threshold Amount.
On September 30, 2014 and again on February 11, 2015, the
Company further amended its credit facility with Wells Fargo Bank,
National Association, to increase its revolving line of credit
facility to $100.0 million and $125.0 million, respectively
(collectively with the Amended Wells Credit Agreement, the
“Amended Wells Credit Agreement II”). The Amended Wells
Credit Agreement II was scheduled to mature on June 28,
2018.
Other than the above-mentioned amendments, the terms and conditions
of the Amended Wells Credit Agreement and Amended Wells Credit
Agreement II are substantially similar to the Wells Credit
Agreement. Under the Amended Wells Credit Agreement and Amended
Wells Credit Agreement II, the amount that the Company may borrow
is limited to the lesser of (i) the maximum available amount
and (ii) borrowing base. The borrowing base is calculated as a
percentage of the Company’s eligible accounts receivable and
eligible inventory, plus a defined amount based upon certain of the
Company’s fixed assets (all as defined in the Amended Wells
Credit Agreement and Amended Wells Credit Agreement II). The
Amended Wells Credit Agreement and Amended Wells Credit Agreement
II also contain customary covenants and restrictions applicable to
the Company, including agreements to provide financial information,
comply with laws, pay taxes and maintain insurance, restrictions on
the incurrence of certain indebtedness, guarantees and liens,
restrictions on mergers, acquisitions and certain dispositions of
assets, and restrictions on the payment of dividends and
distributions. The revolving line of credit is secured by
substantially all of the Company’s tangible and intangible
assets (other than real property).
On April 29, 2015, the Company entered into an amended credit
facility (“Amended Wells Credit Agreement III”) for the
purpose of facilitating the issuance of Senior Notes as described
below, and this amendment provided for the earlier maturity of the
Amended Wells Credit Agreement III to insure that the Amended Wells
Credit Agreement III will come due before the Senior Notes are
payable as described below. While the Senior Notes are outstanding,
the Amended Wells Credit Agreement III would have become due 75
days prior to the earliest date that a Special Mandatory Offer to
Purchase might occur or 90 days prior to the final maturity date of
the Senior Notes, all as described in the Indenture agreement
below. Accordingly, under the above terms, the Amended Wells Credit
Agreement III would have become due no earlier than March 15,
2017, but no later than January 31, 2018. However, the Special
Mandatory Purchase Date was eliminated, effective April 1,
2016 as described below.
As of March 31, 2016, $80.0 million of the Company’s
outstanding borrowings under its revolving line of credit bore
interest at the LIBOR rate, plus an applicable margin. The weighted
average interest rate on these borrowings was 1.93% as of
March 31, 2016. The remaining outstanding balance of $568,000
as of March 31, 2016 had been designated to bear interest at
the prime rate, plus an applicable margin, which equaled 3.50% with
the applicable margin included. The unused and available revolving
line of credit balance was $21.1 million at March 31,
2016.
As of December 31, 2015, $97.0 million of the Company’s
outstanding borrowings under its revolving line of credit bore
interest at the LIBOR rate, plus an applicable margin. The weighted
average interest rate on these borrowings was 1.84% as of
December 31, 2015. The remaining outstanding balance of
$299,000 as of December 31, 2015 had been designated to bear
interest at the prime rate, plus an applicable margin, which
equaled 3.50% with the applicable margin included. The unused and
available revolving line of credit balance was $27.1 million at
December 31, 2015.
Senior Notes
On April 24, 2015, the Company entered into a purchase
agreement with certain institutional investors for a private sale
of an aggregate amount of $55.0 million of unsecured Senior Notes
with a stated interest rate of 5.50%. The sale closed on
April 29, 2015. In connection with the issuance of the Senior
Notes, the Company entered into an indenture agreement
(“Indenture”) dated April 29, 2015, by and among
the Company, The Bank of New York Mellon, as Trustee, and the
Company’s subsidiaries as guarantors. The Company received
net proceeds of $53,483,000 after financing costs of $1,517,000.
The Company presented issuance costs associated with the Senior
Notes as a direct deduction from the carrying value of the
obligation on the Company’s unaudited condensed consolidated
balance sheets. The balance outstanding on the Senior Notes, net of
unamortized financing fees was $53,946,000 and $53,820,000 as of
March 31, 2016 and December 31, 2015, respectively.
The Senior Notes are unsecured debt of the Company and are
effectively subordinated to the Company’s existing and future
secured debt including the debt in connection with the Amended
Wells Credit Agreement III.
The Company may redeem the Senior Notes in whole or in part at any
time on or after May 1, 2016, at the option of the Company at
the following redemption prices (expressed as percentages of the
principal amount), together with accrued and unpaid interest to the
date of redemption:
Redemption date Redemption price
May 1, 2016 through October 31, 2016 101.0 %
November 1, 2016 and thereafter 100.0 %
At any time prior to May 1, 2016, the Company could have
redeemed up to 35% of the Senior Notes with the net cash proceeds
of certain equity offerings specified in the Indenture at a
redemption price of 105.5% of the principal amount of the Senior
Notes, together with accrued and unpaid interest to the date of
redemption, but only if at least 65% of the original aggregate
principal amount of the Senior Notes would have remained
outstanding following such redemption. In addition, prior to
May 1, 2016, the Company could have redeemed the Senior Notes
in whole or in part at a redemption price equal to 101.0% of the
principal amount plus (i) accrued and unpaid interest to the
redemption date and (ii) an Applicable Premium (as defined in
the Indenture) that was intended as a “make-whole” to
May 1, 2016. The Company did not redeem any of the Senior
Notes prior to May 1, 2016.
The Senior Notes have a final maturity date of May 1, 2018.
The Senior Notes originally had a Special Mandatory Offer to
Purchase as described in the Indenture and summarized as follows:
Upon the occurrence of the earlier of (I) March 15, 2017,
if the Trustee had not received on or within five days prior to
such date an officer’s certificate stating that (i) the
Company’s pro forma consolidated EBITDA (as defined in the
Indenture) was at least equal to or greater than $35.0 million for
the most recent four full fiscal quarters for which financial
statements were available as of such date and (ii) the
Company’s consolidated pro forma ratio of consolidated EBITDA
to fixed charges (as defined in the Indenture) was at least equal
to or greater than 3.25 to 1.0 for the most recent four full fiscal
quarters for which financial statements were available as of such
date or (II) the date on which the Company notified the Trustee in
writing (which date could have been at any time on or after
March 1, 2017 but on or prior to March 15, 2017) that the
Company could not or would not deliver such officers’
certificate, then, unless the Company had given on or prior to
March 15, 2017 a notice of redemption of all of the Senior
Notes, the Company would make a mandatory offer to purchase all of
the Senior Notes at a purchase price of 100.0% of the principal
amount plus accrued and unpaid interest, if any, to the date of
purchase in accordance with the procedures set forth in the
Indenture.
On April 1, 2016, the Company entered into a Second
Supplemental Indenture (“Second Supplemental
Indenture”) which, among other things, eliminated the Special
Mandatory Offer to Purchase in its entirety. The Second
Supplemental Indenture also increased the Company’s permitted
indebtedness to $145.0 million from $125.0 million until
February 1, 2017 when such permitted indebtedness shall be
reduced to $135.0 million. The Second Supplemental Indenture also
resulted in an increase in the interest rate on the Senior Notes to
6.50% effective April 1, 2016. The Company paid a consent fee
of $275,000 in connection with the execution of the Second
Supplemental Indenture.
The Indenture, as amended, contains covenants that, among other
things, limit or restrict the ability of the Company and its
subsidiaries to incur additional debt, prepay subordinated
indebtedness, pay dividends or make other distributions on capital
stock, redeem or repurchase capital stock, make investments and
restricted payments, enter into transactions with affiliates, sell
assets, create liens on assets to secure debt, or effect a
consolidation or merger or to sell all, or substantially all, of
the Company’s assets, in each case subject to certain
qualifications and exceptions set forth in the Indenture. The
Indenture also provides for customary events of default (subject in
certain cases to customary grace and cure periods), which include
nonpayment, breach of covenants in the Indenture, payment defaults
or acceleration of other indebtedness, and certain events of
bankruptcy and insolvency. Generally, if an event of default
occurs, the Trustee or holders of at least 25.0% in principal
amount of the then outstanding Senior Notes may declare the
principal of and accrued but unpaid interest on all Senior Notes to
be due and payable.
Interest on the Senior Notes is payable semi-annually in arrears on
May 1 and November 1 of each year. As of March 31,
2016 and December 31, 2015, the accrued, but unpaid interest
on the Senior Notes was $1,260,000 and $513,000, respectively. |
