Long-Term Debt and Notes Payable |
9 Months Ended |
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Sep. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| Long-term Debt and Notes Payable | Long-term Debt and Notes Payable The Company's long-term debt on December 31, 2022, consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”). The maturity date of the loans under the Agreement was November 30, 2023. On December 31, 2022, there was $164.0 million outstanding on the Agreement and there remained $6.0 million available.
The Company amended the Agreement on January 19, 2023, by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable. The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%. The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.
On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit was to return to $115 million. On October 31, 2023, the Company executed a second amendment to the ABL Revolving Credit facility to extend the temporary limit of $120 million until January 31, 2024. Under the provisions of the ABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings. Eligible cash receipts that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying consolidated balance sheets. The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter. On September 30, 2023, there was $86.0 million outstanding on the ABL Revolving Credit Facility and there remained $33.7 million available, net of outstanding letters of credit.
The Company also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023. The Term Loan Facility is secured primarily by fixed assets, real estate, and intellectual property. The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date. The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company will pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million which was paid on June 20, 2023, and $0.9 million of which will be paid in the second quarter of 2024.
Amortization of the principal under the Term Loan Facility began in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increased to 0.542% per month for the period July 1, 2023 through September 1, 2023, and increased to 0.833% thereafter. Total scheduled principal payments of approximately $9.0 million are payable over the next twelve months and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of September 30, 2023. The weighted-average interest rate on current maturities of long-debt is 14.1%. The remaining balance of $78.8 million on September 30, 2023, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four-quarter EBITDA of $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter. The non-cash accounts receivable reserve recorded in the quarter was not required to be included in the calculation of EBITDA pursuant to our ABL Revolving Credit Facility and the Term Loan Facility. In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principal amount outstanding on an annual basis. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility. Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. Further, the Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures. The Company is in compliance with all covenant requirements as of September 30, 2023.
The Company incurred $8.6 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. All costs are amortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.2 million as of September 30, 2023) are recorded within other assets and those associated with the Term Loan Facility ($4.8 million as of September 30, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.
Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross-default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.
The Company expects its sales growth, reductions in working capital and availability under its ABL Revolving Credit Facility will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers or other institutions to expedite receivable collections. Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts.
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