Indebtedness | 9 Months Ended |
Oct. 31, 2014 |
Debt Disclosure [Abstract] | ' |
Indebtedness | ' |
3. Indebtedness |
Debt outstanding as of October 31, 2014, and January 31, 2014, was as follows: |
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| | October 31, | | | January 31, | |
(in thousands) | | 2014 | | | 2014 | |
Convertible Notes, net | | $ | 109,210 | | | $ | 106,782 | |
Asset-based revolving credit facility | | | 21,994 | | | | — | |
Capital lease obligations | | | 339 | | | | 480 | |
Less amounts representing interest | | | (17 | ) | | | (16 | ) |
Notes payable | | | — | | | | — | |
Total debt | | | 131,526 | | | | 107,246 | |
Less current maturities of long-term debt | | | (194 | ) | | | (128 | ) |
Total long-term debt | | $ | 131,332 | | | $ | 107,118 | |
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Asset-based Revolving Credit Facility |
On April 15, 2014, Layne entered into a five-year $135.0 million (the “Maximum Credit”) senior secured asset-based revolving credit facility (“ABL facility”), of which up to an aggregate principal amount of $75.0 million is available in the form of letters of credit and up to an aggregate principal amount of $15.0 million is available for short-term swingline borrowings. |
The ABL facility was amended on July 29, 2014 (the “First Amendment”) to permit the disposition of Layne’s Costa Fortuna business within the Geoconstruction segment and to change certain administrative provisions of the ABL facility. |
On September 15, 2014 Layne amended the ABL facility (“the Second Amendment”) to provide additional security interests in certain assets to a surety provider and to establish an additional reserve based on the value of the assets subject to such security interests (which is listed as the “equipment reserve” in definition of borrowing base below). The Second Amendment fixed the applicable margin at 3.25% for LIBOR rate loans and 2.25% for alternate base rate loans until the fixed charge coverage ratio (measured on a trailing four fiscal quarter period) is at least 1.0 to 1.0 for two consecutive fiscal quarters, at which time the applicable margin will revert to being determined based on usage of the ABL facility. The Second Amendment also formalized certain additional monthly reporting requirements. |
The ABL facility was amended on October 28, 2014 (the “Third Amendment”) to (1) permit the disposition of Tecniwell, a business within the Geoconstruction segment, (2) restrict prepayment of indebtedness subordinate to the ABL facility to certain permitted refinancings of such indebtedness and (3) change the thresholds and any applicable grace period for when a Covenant Compliance Period will commence, as described below. |
Availability under the ABL facility will be the lesser of (i) $135.0 million and (ii) the borrowing base. The borrowing base is generally defined as: |
— | 85% of book value of eligible customer receivables, plus | | | | | | | |
— | 60% of eligible unbilled contract receivables, plus | | | | | | | |
— | Up to 60% of the appraised fair value of certain real property, plus | | | | | | | |
— | the lesser of net book value or 85% of the net orderly liquidation value of certain equipment, minus | | | | | | | |
— | a supplemental reserve, minus | | | | | | | |
— | an equipment reserve, minus | | | | | | | |
— | any additional reserves established from time to time by the co-collateral agents. | | | | | | | |
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As of October 31, 2014, the borrowing base was $123.8 million with $22.0 million borrowed under the ABL facility and $29.3 million of outstanding letters of credit, leaving Excess Availability (described below) of $72.5 million. |
The balance sheet classification of the borrowings under the ABL facility has been determined in accordance with ASC Topic 470-10-45, “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lock-Box Arrangement”. Accordingly, the borrowings have been classified as a long-term liability in the accompanying balance sheet. |
Layne has the right to request the lenders to further increase the Maximum Credit up to an additional $65.0 million if it is not in default under the agreement; however, there are no commitments from the lenders for any such increase. |
The ABL facility is guaranteed by Layne’s direct and indirect wholly owned domestic subsidiaries, subject to certain exceptions described in the ABL facility. The obligations under the ABL facility are secured by a lien on substantially all of the assets of Layne and the subsidiary guarantors, subject to certain exceptions described in the ABL facility, including a pledge of up to 65% of the equity interests of Layne’s first tier foreign subsidiaries. |
Advances under the ABL facility are subject to certain conditions precedent, including the accuracy of certain representations and warranties and the absence of any default or event of default. Future advances may be used for general corporate and working capital purposes, and to pay fees and expenses associated with the ABL facility. |
Pursuant to the ABL facility agreement, the revolving loans will bear interest at our option, at either: |
— | the alternate base rate plus the applicable margin. The alternate base rate is equal to the highest of (a) the base rate, (b) the sum of the Federal Funds Open rate plus 0.5%, and (c) the sum of the Daily LIBOR rate plus 1%, or | | | | | | | |
— | the LIBOR rate (as defined in the ABL facility agreement) for the interest period in effect for such borrowing plus the applicable margin. | | | | | | | |
Swingline loans will bear interest at the alternate base rate plus the applicable margin. In connection with letters of credit issued under the ABL facility, Layne will pay (i) a participation fee to the lenders equal to the applicable margin from time to time used to determine the interest rate on Eurodollar Loans (as defined in the ABL facility agreement) on the average daily amount of such lender’s letter of credit exposure, as well as the issuing bank’s customary fees and charges. |
The ABL facility contains various restrictions and covenants, including restrictions on dispositions of certain assets, incurrence of indebtedness, investments, distributions, capital expenditures, acquisitions and prepayment of certain indebtedness. In general, provided that Layne maintains a certain level of Excess Availability, Layne will not be restricted from incurring additional unsecured indebtedness or making investments, distributions, capital expenditures or acquisitions. |
Excess Availability is generally defined as the amount by which the Total Availability exceeds outstanding loans and letters of credit under the ABL facility. “Total Availability” is equal to Layne’s borrowing base under the ABL facility (up to the amount of the maximum credit). |
Layne must maintain a cumulative minimum cash flow as defined in the agreement of not less than negative $45.0 million and during any twelve consecutive month period, a minimum cash flow of not less than negative $25.0 million, until: |
— | For a period of 30 consecutive days, Excess Availability is greater than the greater of 17.5% of the Total Availability or $25.0 million, and | | | | | | | |
— | For two consecutive fiscal quarters after April 15, 2014, for which the agent has received financial statements, the fixed charge coverage ratio (tested on a trailing four fiscal quarter basis) has been in excess of 1.0 to 1.0. | | | | | | | |
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Minimum cash flow is defined as consolidated EBITDA (as defined in the ABL facility) minus the sum of: |
· | capital expenditures, | | | | | | | |
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· | cash interest expense, | | | | | | | |
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· | any regularly scheduled amortized principal payments on indebtedness, | | | | | | | |
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· | cash taxes paid, and | | | | | | | |
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· | any amount in excess of $10.0 million paid with respect to the FCPA investigation. | | | | | | | |
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After giving effect to the Third Amendment, if Excess Availability is less than the greater of 17.5% of Total Availability or $25.0 million for more than one business day, then a “Covenant Compliance Period” (as defined in the ABL facility agreement) will exist until Excess Availability has been equal to or greater than the greater of 17.5% of the Total Availability or $25.0 million for a period of 30 consecutive days. Layne must maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 and a maximum first lien leverage ratio of not greater than 5.0 to 1.0 for the four fiscal quarters ended immediately preceding any Covenant Compliance Period and for any four fiscal quarter period ending during a Covenant Compliance Period. If Layne had been in a Covenant Compliance Period during the fiscal quarters ended April 30, 2014, July 31, 2014 and October 31, 2014 it would not have been in compliance with the minimum fixed charge coverage ratio. |
The ABL facility also contains a subjective acceleration clause that can be triggered if the lenders determine that Layne has experienced a material adverse change. If triggered by the lenders, this clause would create an Event of Default (as defined in the ABL facility), which in turn would permit the lenders to accelerate repayment of outstanding obligations. |
In general, during a Covenant Compliance Period or if an Event of Default has occurred and is continuing, all of Layne’s funds received on a daily basis will be applied to reduce amounts owing under the ABL facility. Based on current projections Layne does not anticipate being in a Covenant Compliance Period during the next twelve months. |
If an Event of Default occurs and is continuing, the interest rate under the ABL facility will increase by 2% per annum and the lenders may accelerate all amounts owing under the ABL facility. |
Defaults under the ABL facility, include (but are not limited to) the following: |
— | non-payment of principal, interest, fees and other amounts under the ABL facility, | | | | | | | |
— | failure to comply with any of the negative covenants, certain of the specified affirmative covenants or other covenants under the ABL facility, | | | | | | | |
— | failure to pay certain indebtedness when due, | | | | | | | |
— | specified events of bankruptcy and insolvency, | | | | | | | |
— | one or more judgments of $5.0 million not covered by insurance and not paid within a specified period, and | | | | | | | |
— | a change in control as defined in the ABL facility. | | | | | | | |
Because Excess Availability currently is, and is expected to be for the next twelve months, sufficient not to trigger a Covenant Compliance Period, Layne is and anticipates being in compliance with the applicable debt covenants associated with the ABL facility for the next twelve months. |
4.25% Convertible Senior Notes due 2018 |
In the fourth quarter of FY2014, Layne issued $125.0 million of 4.25% Convertible Notes due 2018 (“Convertible Notes”) pursuant to an indenture dated November 12, 2013 between Layne and U.S. Bank National Association, as trustee (the “Indenture”). The Convertible Notes are senior, unsecured obligations of Layne. The Convertible Notes will be convertible, at the option of the holders, into consideration consisting of, at Layne’s election, cash, shares of Layne’s common stock, or a combination of cash and shares of Layne’s common stock (and cash in lieu of fractional shares) until the close of business on the scheduled trading day immediately preceding May 15, 2018. However, before May 15, 2018, the Convertible Notes will not be convertible except in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2013 (and only during such calendar quarter), if the last reported sale price of Layne’s common stock for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on such trading day; (2) during the consecutive five business day period immediately after any five consecutive trading day period (the five consecutive trading day period being referred to as the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes, as determined following a request by a holder of the Convertible Notes in the manner required by the Indenture, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Layne’s common stock and the conversion rate on such trading day; (3) upon the occurrence of specified corporate events described in the Indenture; and (4) if Layne has called the Convertible Notes for redemption. Layne will be required to settle conversions in shares of Layne’s common stock, together with cash in lieu of any fractional shares, until such time as Layne obtains the approval of its shareholders to issue shares in excess of 20% of Layne’s outstanding shares. This is in accordance with NASDAQ Global Select Market listing standards. As of October 31, 2014, the if-converted value did not exceed its principal amount. |
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The Convertible Notes bear interest at a rate of 4.25% per year, payable semi-annually in arrears in cash on May 15 and November 15 of each year, beginning on May 15, 2014. The Convertible Notes will mature on November 15, 2018, unless earlier repurchased, redeemed or converted. |
The initial conversion rate is 43.6072 shares of Layne’s common stock per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $22.93 per share of Layne’s common stock). The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, Layne may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including Layne’s calling the Convertible Notes for redemption. |
On and after November 15, 2016, and prior to the maturity date, pursuant to the Indenture, Layne may redeem all, but not less than all, of the Convertible Notes for cash if the sale price of Layne’s common stock equals or exceeds 130% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date Layne delivers notice of the redemption. However, the Third Amendment to the ABL facility precludes Layne from prepaying the Convertible Notes as long as the ABL facility is in place, other than with the proceeds of certain permitted refinancings. The redemption price will equal 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Convertible Notes will have the right, at their option, to require Layne to repurchase their Convertible Notes in cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. |
Layne is currently in compliance and expects to be in compliance with the debt covenants associated with the Convertible Notes for the next twelve months. |
In accordance with ASC Topic 470-20, “Debt with Conversion and Other Options,” Layne separately accounts for the liability and equity conversion components of the Convertible Notes. The principal amount of the liability component of the Convertible Notes was $106.0 million as of the date of issuance based on the present value of its cash flows using a discount rate of 8.0%, Layne’s approximate borrowing rate at the date of the issuance for a similar debt instrument without the conversion feature. The carrying value of the equity conversion component was $19.0 million. A portion of the initial purchaser’s discount and commission and the offering costs totaling $0.8 million and deferred taxes totaling $7.1 million were allocated to the equity conversion component. The liability component will be accreted to the principal amount of the Convertible Notes using the effective interest method over five years. |
In accordance with guidance in ASC Topic 470-20 and ASC Topic 815-15, “Embedded Derivatives,” Layne determined that the embedded conversion components and other embedded derivatives of the Convertible Notes do not require bifurcation and separate accounting. |
The following table presents the carrying value of the Convertible Notes as of October 31, 2014 (in thousands): |
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Carrying amount of the equity conversion component | | $ | 11,128 | | | | | |
Principal amount of the Convertible Notes | | $ | 125,000 | | | | | |
Unamortized debt discount(1) | | | (15,790 | ) | | | | |
Net carrying amount | | $ | 109,210 | | | | | |
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-1 | As of October 31, 2014, the remaining period over which the unamortized debt discount will be amortized is 48 months using an effective interest rate of 9%. | | | | | | | |
Credit Agreement |
Layne previously maintained a Credit Agreement dated March 25, 2011, among Layne, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndications Agent and PNC Bank and U.S. Bank National Association, as Co-Documentation Agents (the “Credit Agreement”), which extended to March 25, 2016. During FY2014, the Credit Agreement was amended as it was unlikely Layne would be in compliance with its covenants for the quarters ended April 30, 2013, July 31, 2013 and October 31, 2013. |
In November 2013, Layne received net proceeds of approximately $105.4 million from the issuance of the Convertible Notes, which were used to pay all amounts then outstanding under the Credit Agreement. |
On April 15, 2014, Layne entered into the ABL facility and terminated the Credit Agreement. The balance owed on the Credit Agreement was $1.5 million as of April 15, 2014. Layne used a portion of the proceeds from the ABL facility to pay the outstanding balance on the Credit Agreement and to cash collateralize the then-existing outstanding letters of credit of $32.6 million issued under the Credit Agreement until such letters of credit could be transitioned to the ABL facility. As of October 31, 2014, $4.1 million of cash collateralized letters of credit remain outstanding and are classified as short term restricted cash on the condensed consolidated balance sheet. |
Remaining unamortized debt issuance costs of $1.1 million associated with the Credit Agreement were written off as of April 15, 2014, in conjunction with the termination of the agreement. |