Long-Term Debt | 9 Months Ended |
Sep. 28, 2013 |
Debt Disclosure [Abstract] | ' |
Long-Term Debt | ' |
Long-Term Debt |
The following table presents the components of long-term debt: |
| | | | | |
| | | | | | | | | | | | | |
(in thousands) | | September 28, | | December 31, | | | | | |
2013 | 2012 | | | | | |
| | | | | | | | | |
Revolving credit facility, net of discount of $3,336 at September 28, 2013 | | $ | 61,164 | | | $ | 26,892 | | | | | | |
| | | | |
Term loan facility, net of discounts of $12,665 and $3,401 | | 128,380 | | | 129,572 | | | | | | |
| | | | |
Other long-term debt | | 6,043 | | | — | | | | | | |
| | | | |
Total long-term debt | | 195,587 | | | 156,464 | | | | | | |
| | | | |
Current portion of long-term debt | | 7,393 | | | 3,450 | | | | | | |
| | | | |
Long-term debt, net of current portion | | $ | 188,194 | | | $ | 153,014 | | | | | | |
| | | | |
Revolving Credit Facility |
The Company has entered into a Revolving Credit and Security Agreement and an Amended and Restated Fee Letter, both dated July 10, 2013 and amended on July 25, 2013, with Apollo Investment Corporation (the “New Revolving Loan”). Prior to the refinancing of the Company’s debt in July 2013, the Company had entered into a Revolving Credit and Security Agreement by and among the Company and PNC Bank (the “Prior Revolving Loan”). Additional details are included in the section of this footnote entitled “July 2013 Refinancing.” |
The New Revolving Loan is a $75.0 million facility with up to $35.0 million available for issuance of letters of credit. The New Revolving Loan may be used for general business purposes, and amounts may be drawn or repaid in unlimited repetition up to the maximum allowed amount so long as no event of default has occurred and is continuing. Interest is payable in cash at a rate equal to either (i) LIBOR (with a floor of 1.00%) plus a margin of 9.25%; or (ii) an alternate base rate (equal to the greatest of three other variable rates, as defined) plus a margin of 8.25%. The interest rate on the New Revolving Loan was 10.25% at September 28, 2013. The New Revolving Loan is subject to a commitment fee of 2.00% on the unused portion of the facility. Letters of credit may be issued up to the maximum amount at an annual interest rate equal to 9.00%. The New Revolving Loan matures on April 15, 2016. |
There was $10.5 million of availability under the New Revolving Loan at September 28, 2013. Availability was calculated based upon (i) $75.0 million, which was determined as the lesser of (a) the $75.0 million amount of the facility and (b) a borrowing base of $52.5 million, calculated as a percentage of eligible receivables, plus an additional amount that decreases over time (the “Additional Borrowing Base Amount”); less (ii) outstanding letters of credit under the New Revolving Loan, of which there were none; less (iii) outstanding borrowings under the New Revolving Loan of $64.5 million. The Additional Borrowing Base Amount is defined as (i) from July 10, 2013 through October 31, 2013, an amount equal to $30.0 million; (ii) from November 1, 2013 through and including November 30, 2013, an amount equal to $25.0 million; and (iii) thereafter, an amount equal to $20.0 million. |
In connection with the refinancing, proceeds from the New Revolving Loan were used to repay the Prior Revolving Loan. Refinancing costs of $1.2 million and $3.6 million were deferred as a component of other assets, net and as a discount to the New Revolving Loan, respectively. Such deferred costs are being amortized to interest expense over the life of the New Revolving Loan. Letters of credit of $24.0 million remain outstanding with the prior lenders as discussed further in the section of this footnote entitled “July 2013 Refinancing.” |
Term Loan Facility |
The term loan facility is a Credit Agreement with several banks and other financial institutions (the “Term Loan”). In connection with the refinancing of the Company’s debt in July 2013, the Company amended the Term Loan effective July 25, 2013 by entering into a Second Amendment and Limited Waiver to Credit Agreement (together with the Term Loan, the “Amended Term Loan”). Additional details are included in the section of this footnote entitled “July 2013 Refinancing.” |
The face amount of the Amended Term Loan is $135.0 million. The Amended Term Loan requires quarterly repayments totaling 1.00% per annum of the face amount until maturity. Interest is payable (i) in cash, at a rate equal to either (a) LIBOR (with a floor of 1.50%) plus a margin of 9.50% or (b) an alternate base rate (equal to the greatest of three other variable rates, as defined) plus a margin of 8.50%; and (ii) in an amount added to the principal amount of the Amended Term Loan at an annual rate equal to 4.00% of the outstanding balance. The interest rate on the Amended Term Loan was 15.00% at September 28, 2013. The Amended Term Loan matures on April 15, 2018. |
In connection with the amendment of the Term Loan, the Company issued $13.1 million of warrants to the lenders, which were deferred as a discount to the Amended Term Loan. Additionally, refinancing costs of $1.7 million were deferred as a component of other assets, net. The discount and the deferred financing costs are being amortized to interest expense over the remaining life of the Amended Term Loan. |
Other Long-Term Debt |
In September 2012, the Company purchased substantially all of the assets of Skylink, LTD. (“Skylink”). In accordance with the purchase agreement for the acquisition, an earn-out payment of $6.0 million accrued as of May 31, 2013. However, the Company has not made this payment because certain contractual conditions have not yet been met, including compliance with debt covenants (which occurred on July 25, 2013) and minimum levels of liquidity after giving effect to such payments (which has not yet been satisfied). The obligation accrues interest at an amount equal to 10% per annum commencing on May 31, 2013 and contains an optional equity conversion right permitting the sellers to convert unpaid amounts into a maximum of 3,715,915 shares of the Company’s common stock, which amount is equal to 19.9% of the number of shares outstanding as of September 13, 2012, the date of the purchase agreement for the acquisition of Skylink. The conversion price would be calculated based on the 20-day trailing volume-weighted average of the closing prices of the common stock as of the date of the conversion. Any unpaid amounts not so converted would remain payable in cash. |
Security Provisions and Covenants |
The New Revolving Loan and the Amended Term Loan require the Company to make customary representations and warranties and contain provisions for repayment, guarantees and other security. The New Revolving Loan provides the lenders a first lien security interest in the Company’s accounts receivable and inventory, and the Amended Term Loan provides a second lien interest in the accounts receivable and inventory and a first lien interest in all other assets of the Company. The New Revolving Loan and the Amended Term Loan also provide for customary events of default (which are in some cases subject to certain exceptions, thresholds and grace periods) including, but not limited to, nonpayment of principal and interest, failure to perform or observe covenants, breaches of representations and warranties and certain bankruptcy-related events. |
The New Revolving Loan and the Amended Term Loan require the Company to comply with customary affirmative and negative covenants, and the Amended Term Loan further requires the Company to maintain the following financial condition covenants: (i) a Consolidated Leverage Ratio no greater than specified amounts, representing the Company’s long-term debt divided by adjusted earnings; and (ii) a Fixed Charge Coverage Ratio no less than specified amounts, representing the Company’s adjusted earnings divided by fixed charges. |
The following table presents the specified amounts of the Consolidated Leverage Ratio and the Fixed Charge Coverage Ratio: |
| | | | | | | |
| | | | | | | | | | | | | |
| | Consolidated Leverage Ratio | | Fixed Charge Coverage Ratio | | | | | | | |
Twelve months ending: | | | | | | | | | | | |
30-Sep-13 | | 5.65 | :1.00 | | 1.29 | :1.00 | | | | | | | |
31-Dec-13 | | 4.9 | :1.00 | | 1.32 | :1.00 | | | | | | | |
31-Mar-14 | | 4.87 | :1.00 | | 1.25 | :1.00 | | | | | | | |
30-Jun-14 | | 4.26 | :1.00 | | 1.31 | :1.00 | | | | | | | |
30-Sep-14 | | 4.11 | :1.00 | | 1.32 | :1.00 | | | | | | | |
Thereafter, changing over time to | | 1.65 | :1.00 | | 2.82 | :1.00 | | | | | | | |
In the event of noncompliance with these financial condition covenants or other defined events of default, the lenders are entitled to certain remedies, including accelerated repayment of amounts outstanding. |
The New Revolving Loan contains a subjective acceleration clause that can be triggered if the lenders determine that the Company has experienced a material adverse change. If triggered by the lenders, this clause would create events of default with respect to both the New Revolving Loan and the Amended Term Loan, which in turn would permit the lenders to accelerate repayment of those obligations. |
Events Leading to the July 2013 Refinancing |
Prior to the July 2013 refinancing, the Term Loan and the Prior Revolving Loan required the Company to be in compliance with specified financial covenants, as defined in each respective agreement, including (i) a Consolidated Leverage Ratio of less than a range of 4.75 – 3.25:1.00 (such ratio declining over time); (ii) a Fixed Charge Coverage Ratio of not less than 1.20:1.00 for every fiscal quarter ended after the end of fiscal year 2011; and (iii) certain other covenants related to the operation of the Company’s business in the ordinary course. In the event of noncompliance with the covenants, the lenders were entitled to certain remedies, including accelerated repayment of amounts outstanding. |
The restatement of the Company’s consolidated financial statements for periods in 2011 and 2012, delays in filing its consolidated financial statements on a timely basis with the SEC and certain misrepresentations by former members of management created events of default and covenant compliance violations under the Term Loan and the Prior Revolving Loan. As a result of the events of default, the Company incurred $0.7 million, $0.6 million and $0.6 million of penalty interest for the three months ended December 31, 2012, March 30, 2013 and June 29, 2013, respectively. The penalty interest incurred for the three months ended June 29, 2013 was paid in cash, and the remaining $1.3 million of penalty interest was applied to the principal amount of the Term Loan as shown in the table below. |
In the second and third quarters of 2013, the Company entered into a series of forbearance agreements with the lenders under the Term Loan and the Prior Revolving Loan which provided that the lenders would not exercise their rights in response to the covenant compliance violations and events of default. Pursuant to those agreements, the Company incurred forbearance fees of 0.50% and 2.50% of the principal amount of the Term Loan, or $0.7 million and $3.3 million, respectively, both of which were added to the principal amount of the Term Loan. The Company also incurred forbearance fees of $0.2 million related to the Prior Revolving Loan. All of these fees were recorded as interest expense for the three months ended June 29, 2013. |
The following table presents the rollforward of outstanding borrowings under the Term Loan from December 31, 2012 through the effective date of the amendment: |
| | | | | | | | | |
| | | | | | | | | | | | | |
(in thousands) | | Term Loan Facility | | | | | | | | | |
| | | | | | | | | | | |
Outstanding at December 31, 2012 | | $ | 132,973 | | | | | | | | | | |
| | | | | | | | |
Forbearance fees (0.50% and 2.50%) | | 4,030 | | | | | | | | | | |
| | | | | | | | |
Non-cash penalty interest added to Term Loan | | 1,339 | | | | | | | | | | |
| | | | | | | | |
Principal payments | | (622 | ) | | | | | | | | | |
Outstanding at July 25, 2013 | | $ | 137,720 | | | | | | | | | | |
| | | | | | | | |
July 2013 Refinancing |
In July 2013, the Company refinanced its long-term debt by (i) entering into the New Revolving Loan, proceeds from which were used to repay the Prior Revolving Loan; and (ii) amending the Term Loan. |
The following table presents changes to the balances of long-term debt as a result of the refinancing: |
| | | | | | |
| | | | | | | | | | | | | |
(in thousands) | Revolving Credit Facility | | Term Loan Facility | | | | | | |
| | | | | | | | | |
Long-term debt, prior to refinancing | $ | 24,822 | | | $ | 137,720 | | | | | | | |
| | | | | |
Collateralization of letters of credit | 24,716 | | | — | | | | | | | |
| | | | | |
Payment of accrued interest and fees | 261 | | | — | | | | | | | |
| | | | | |
Second amendment waiver and amendment fee (2.00%) | — | | | 2,765 | | | | | | | |
| | | | | |
Additional borrowings for general business purposes | 15,201 | | | — | | | | | | | |
| | | | | |
Long-term debt, subsequent to refinancing | $ | 65,000 | | | $ | 140,485 | | | | | | | |
| | | | | |
In connection with the repayment of the Prior Revolving Loan, the Company was required to deposit $24.7 million of cash with its former lenders consisting of (i) collateral for $24.0 million of letters of credit issued and still outstanding under the Prior Revolving Loan; and (ii) $0.7 million against which fees may be applied. The deposit, which is repayable to the Company upon transfer by the holders of the letters of credit to the issuing bank pursuant to the terms of the New Revolving Loan, is presented as restricted cash in the condensed consolidated balance sheet. In connection with the amendment, the lenders also received a waiver and amendment fee equal to 2.00% of the outstanding loan balance, or $2.8 million, which was added to the principal amount of the Amended Term Loan. |
In connection with entering into the Amended Term Loan, the Company issued warrants exercisable at $0.01 per share for 3.8 million shares of the Company’s common stock, an amount equal to 19.99% of the shares outstanding prior to the effective date of the Amended Term Loan. See Note 8 for further information. |
The refinancing of the revolving credit facility was accounted for as an extinguishment and issuance of new debt as a result of the change in the lenders. The carrying value of unamortized deferred financing costs related to the Prior Revolving Loan and refinancing costs paid to the prior lenders were included in the loss on extinguishment of debt. Refinancing costs paid to the new lenders were recorded as a discount to the New Revolving Loan, and costs paid to third parties were recorded as deferred financing costs, which will be amortized to interest expense over the life of the New Revolving Loan. |
The amendment of the Term Loan was accounted for as an extinguishment and issuance of new debt because the terms of the amended debt were substantially different from the terms of the original debt. The carrying value of the unamortized deferred financing costs and debt discount related to the Term Loan and refinancing costs paid to the lenders were included in the loss on extinguishment of debt. Costs paid to third parties were recorded as deferred financing costs and are being amortized to interest expense over the remaining life of the Amended Term Loan. A portion of the assumed proceeds from the Amended Term Loan were allocated to the warrants based on the relative fair values of the Amended Term Loan and the warrants, resulting in $13.1 million recorded as additional paid-in capital and discount on long-term debt. The discount will be amortized to interest expense over the remaining life of the Amended Term Loan. |
The following table presents the components of refinancing costs recognized currently in the Company’s results of operations. Such costs are presented as loss on extinguishment of debt in the condensed consolidated statements of comprehensive income or loss: |
| | |
| | | | | | | | | | | | | |
(in thousands) | Revolving Credit Facility | | Term Loan Facility | | Total | | |
Unamortized costs of prior debt: | | | | | | | |
Deferred financing costs | $ | 465 | | | $ | 2,693 | | | $ | 3,158 | | | |
| |
Discount on long-term debt | — | | | 3,025 | | | 3,025 | | | |
| |
Refinancing costs paid to lenders | 65 | | | 2,999 | | | 3,064 | | | |
| |
Loss on extinguishment of debt | $ | 530 | | | $ | 8,717 | | | $ | 9,247 | | | |
| |
The following table presents the components of refinancing costs that have been deferred to future periods: |
|
| | | | | | | | | | | | | |
(in thousands) | Balance sheet location | | Revolving Credit Facility | | Term Loan Facility | | Total |
| | | | | | | |
Deferred financing costs | Other assets, net | | $ | 1,195 | | | $ | 1,720 | | | $ | 2,915 | |
|
Discount on long-term debt | Long-term debt, net of current portion | | 3,551 | | | 13,100 | | | 16,651 | |
|
Refinancing costs deferred to future periods | | | $ | 4,746 | | | $ | 14,820 | | | $ | 19,566 | |
|
| | | | | | | | | | | | | | |