| Long-term Debt | 4. Long-term Debt A summary of long-term debt is as follows (in thousands, except percentages):
June 30,
2019
June 30,
September 30,
Interest Rate
2019
2018
ABE South Dakota:
Senior debt principal - fixed
6.32%
$
9,000
$
-
Senior debt principal - variable
5.95%
13,379
20,000
Deferred financing costs
N/A
(219
)
(262
)
Total outstanding
$
22,160
$
19,738
The estimated maturities of debt are as follows (in thousands):
Senior Debt
Deferred
Due By June 30:
Principal
Financing
Total
2020
$
22,379
$
(219
)
$
22,160
Total debt
$
22,379
$
(219
)
$
22,160
2015 Senior Credit Agreement for the South Dakota Plants On December 29, 2015, ABE South Dakota entered into a Master Credit Agreement (“2015 Credit Agreement”) with AgCountry Farm Credit Services, PCA as lender, (“AgCountry”) to refinance its existing 2010 Senior Credit Agreement. On December 29, 2015, the Company also entered into (i) a First Supplement to the 2015 Credit Agreement covering a $10.0 million Revolving Term Facility and (ii) a Second Supplement covering a $20.0 million Term Loan. The transaction funded on December 30, 2015. The $20.0 million Term Loan has a fixed interest rate (“Fixed Rate”) at June 30, 2019. On October 26, 2018, the Company elected to lock in a fixed rate of 6.4%, rather than a variable rate, on the remaining balance of the Term Loan. On January 2, 2019, the Company entered into an Interest Rate Conversation Agreement with AgCountry, under which the Fixed Rate of 6.4% was reduced to 6.32% for the remainder of the loan term. The Company may elect one or more fixed or adjustable interest rates, rather than a variable rate, based on AgCountry’s cost of funds at the time of the election, plus the margin of 350 basis points. Any election must apply to $1.0 million, plus accrued interest, on the Term Loan. The Term Loan was originally scheduled to be fully amortized over five years with the final payment on January 1, 2021. As described below, the payments originally due in January, April and July 2019 have been deferred and are now due at the end of the term, or January 1, 2021. At June 30, 2019, the balance of the Term Loan was $9.0 million. The $10.0 million Revolving Term Facility has a variable rate (“Variable Rate”) equal to the one-month LIBOR rate plus an initial Margin of 350 basis points. At June 30, 2019, the Variable Rate was equal to the one-month LIBOR rate of 2.45% plus a Margin of 350 basis points. Borrowings under the Revolving Term Facility may be advanced, repaid and re-borrowed during the term. The Company is required to make quarterly interest payments on the Revolving Term Facility, with the full principal amount outstanding due on January 1, 2021. Under the Revolving Term Facility, the Company is required to pay unused commitment fees of 50 basis points. At June 30, 2019, the balance of the Revolving Term Facility was $10.0 million. The Margin will (i) decrease to 3.25% when the aggregate principal balance of all outstanding loans and the unfunded commitment level is $20.0 million or less, and (ii) decrease to 3.00% when this amount is $15.0 million or less. At June 30, 2019, the principal balance of all outstanding loans was $22.2 million, and the unfunded commitment level was $1.6 million. ABE South Dakota also entered into a Security Agreement with AgCountry under which borrowings under the 2015 Credit Agreement are secured by substantially all of ABE South Dakota’s assets. AgCountry holds a first priority security interest and mortgage in all inventory, accounts receivable, intangibles, equipment, fixtures, buildings, and a first mortgage in land owned or leased by ABE South Dakota. The 2015 Credit Agreement also includes customary financial and non-financial covenants that limit capital expenditures, distributions and debt and require minimum working capital, current ratio, debt to EBITDA, and fixed charge coverage ratios. 2018 Construction and Term Loan On March 13, 2018, ABE South Dakota entered into the Fourth Supplement to the 2015 Credit Agreement (“2018 Term Loan”) with AgCountry to finance a grain storage and receiving facility at the Aberdeen plant. The agreement provides for a $5.0 million multiple advance credit facility. The loan has a variable interest rate equal to the one-month LIBOR rate plus a “Margin” of 350 basis points. During the construction period, the Company will make quarterly interest payments in arrears on the first day of each quarter. Upon completion of construction, the Company will be required to make quarterly principal payments in the amount of $250,000 per quarter, plus accrued interest. The 2018 Term Loan will be fully amortized over five years, with the final payment due on July 1, 2024. At June 30, 2019, $3.4 million had been drawn on the 2018 Term Loan, and $47,000 in loan fees and closing costs had been incurred, which have been classified as deferred financing costs. These deferred financing costs will be amortized as interest expense over the term of the 2018 Term Loan. 2019 Short-Term Revolving Credit Loan On August 7, 2019, ABE South Dakota entered into the Fifth Supplement to the Master Credit Agreement (“2019 Revolving Loan”), with AgCountry to provide for a $6.5 million short-term revolving credit loan. The 2019 Revolving Loan will be used to finance working capital needs through the closing of the sale of the ABE South Dakota assets pursuant to the Asset Purchase Agreement as described in Part II, Item 5 of this Form 10-Q and in Item 1.01 of the August 7, 2019 Current Report on Form 8-K, as well as the purchase of approximately 800,000 bushels of corn. The 2019 Revolving Loan has a variable interest rate equal to the one-month LIBOR rate plus a Margin of 400 basis points. Borrowings under the Revolving Loan may be advanced, repaid and re-borrowed during the term, except during an outstanding Event of Default. The Company is required to make monthly interest payments on the Revolving Loan beginning September 1, 2019, with the full principal amount outstanding due on the earlier of November 1, 2019 or the date on which the obligations have been declared or have automatically become due and payable, whether by acceleration or otherwise. Amendment and Waivers to 2015 Credit Agreement As a result of a depressed margin environment in the first nine months of fiscal 2019 and in fiscal 2018, ABE South Dakota requested waivers for certain specific Events of Default at June 30, 2019 and September 30, 2018, and requested covenant amendments for specific future covenants for which ABE South Dakota projected possible non-compliance. Although ABE South Dakota’s lender, AgCountry Farm Credit Services, PCA, granted the waivers and covenant amendments via two Limited Waiver Agreements and the Third and Fourth Amendments to the 2015 Credit Agreement, as discussed below, we cannot project with certainty that we will meet all covenant obligations, as amended, if depressed margins continue for an extended period of time. If ABE South Dakota is unable to comply with the amended covenants, we cannot ensure that our lender will grant us future waivers, which could result in a material adverse effect upon our business, results of operations and financial condition. On October 19, 2018, ABE South Dakota entered into a Limited Waiver and Third Amendment to the 2015 Credit Agreement (“Third Amendment”) to waive certain Events of Default related to covenant compliance as of September 30, 2018 and temporarily amend certain future covenants. The Third Amendment included the following covenant waiver and amendments: (i) the Fixed Charge Coverage Ratio was waived as of September 30, 2018, reduced to a ratio of 1.00:1.00 as of September 30, 2019, and reverts back to 1.15:1.00 at September 30, 2020, (ii) the Working Capital Covenant was reduced to $10 million at September 30, 2018 and December 31, 2018, $9 million at March 31, 2019 and June 30, 2019, then increased to $10 million at September 30, 2019 and $12 million at September 30, 2020 and all times thereafter, (iii) the Capital Expenditures covenant was increased to $8.0 million for the year ending September 30, 2019, and reverts back to $2.0 million for all subsequent years, and (iv) the outstanding Debt to EBITDA Ratio was waived at September 30, 2018 and will revert back to the requirement that it be less than 4:00:1:00 on the last day of each fiscal year end beginning September 30, 2019. On December 28, 2018, ABE South Dakota entered into a Limited Waiver and Deferral Agreement and Fourth Amendment to the 2015 Credit Agreement (“Fourth Amendment”) to defer three future principal payments and waive and temporarily amend certain future covenants. The Fourth Amendment included the following covenant waivers and amendments:
(i)
defer the next three principal payments due January 1, April 1, and July 1, 2019 until the Term Loan maturity date on January 1, 2021;
(ii)
waive the Fixed Charge Coverage Ratio at September 30, 2019,
(iii)
amend the Working Capital Covenant to $4 million at December 31, 2018 and subsequent months until increasing to $5 million at September 30, 2020, and increasing to $12 million at September 30, 2021,
(iv)
waive the September 30, 2019 Debt to EBITDA Ratio, and
(v)
add a Cash Sweep Covenant under which ABE South Dakota would be required to pay additional principal at the end of each fiscal year in the amount of 30 percent of Free Cash Flow. In order for a Cash Sweep payment to be made, ABE South Dakota must remain in compliance with all covenants before and after the payment. Free Cash Flow is defined as: fiscal year EBITDA less interest expense, scheduled principal payments, and non-financed maintenance capital expenditures. The Fourth Amendment would also restrict future dividend payments until all covenants revert back to originally set levels. On July 17, 2019, ABE South Dakota entered into a Limited Waiver Agreement to the 2015 Credit Agreement (“Limited Waiver”) to waive the Event of Default related to compliance with the Working Capital Covenant at May 31, 2019 and June 30, 2019. As a condition to AgCountry granting the Limited Waiver, ABE South Dakota’s parent company, Advanced BioEnergy, LLC was required to make a cash investment not less than $300,000 to be available for ABE South Dakota’s working capital needs. On August 7, 2019, ABE South Dakota entered into a Second Limited Waiver Agreement to the 2015 Credit Agreement (“Second Limited Waiver”) to waive outstanding and expected Events of Default related to compliance with the Working Capital Covenant at July 31, 2019 and August 31, 2019, and the Current Ratio Covenant at June 30, 2019, July 31, 2019 and August 31, 2019. In light of the difficult margin environment and the Waivers and Amendments described above, ABE South Dakota evaluated projected covenant compliance for the 12 month period following June 30, 2019. Based on this evaluation, ABE South Dakota determined compliance over the next 12 month period is not reasonably possible and, as a result, has recognized all debt as current on its financial statements. |
