7. Credit Agreement

In connection with the acquisition of HDI, the Company entered into a five-year, revolving and term secured credit agreement, (“2011 Credit Agreement”), with certain financial institutions and Citibank, N.A. as Administrative Agent. In May 2013, the Company amended and restated the 2011 Credit Agreement and entered into a $500 million five-year, amended and restated revolving credit agreement (“2013 Credit Agreement”). During the year ended December 31, 2015, no principal payments were made against the Company’s revolving credit facility. During the year ended December 31, 2014, HMS made principal payments of $35.0 million against the revolving credit facility. The $197.8 million principal balance of the revolving credit facility is due in May 2018.

The 2013 Credit Agreement provides for an initial $500 million revolving credit facility, and, under specified circumstances, the revolving credit facility can be increased or one or more incremental term loan facilities can be added, provided that the incremental credit facilities do not exceed in the aggregate the sum of (a) $75 million plus (b) an additional amount not less than $25 million, so long as the total secured leverage ratio, calculated giving pro forma effect to the requested incremental borrowing and other customary and appropriate pro forma adjustment events, including any permitted acquisitions, is no greater than 2.5:1.0. The 2013 Credit Agreement is collateralized by the Company’s assets.

The 2013 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. The 2013 Credit Agreement requires the Company to comply, on a quarterly basis, with certain principal financial covenants, including a maximum consolidated leverage ratio reducing from 3.50:1.00 to 3.25:1.00 over the next five years and a minimum interest coverage ratio of 3.00:1.00.

The interest rates applicable to the revolving credit facility are, at the Company’s option, either (a) the LIBOR multiplied by the statutory reserve rate plus an interest margin ranging from 1.50% to 2.25% based on the Company’s consolidated leverage ratio, or (b) a base rate (which is equal to the greatest of (a) Citibank’s prime rate, (b) the federal funds effective rate plus 0.50% and (c) the one-month LIBOR plus 1.00% plus an interest margin ranging from 0.50% to 1.25% based on the Company’s consolidated leverage ratio). HMS pays an unused commitment fee on the revolving credit facility during the term of the 2013 Credit Agreement ranging from 0.375% to 0.50% per annum based on the consolidated leverage ratio.

Obligations under the 2013 Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default including, without limitation, payment defaults, failures to perform affirmative covenants, failure to refrain from actions or omissions prohibited by negative covenants, the inaccuracy of representations or warranties, cross-defaults, bankruptcy and insolvency related defaults, defaults relating to judgments, defaults due to certain ERISA related events and a change of control default. As of December 31, 2015, the Company was in compliance with all the terms of the 2013 Credit Agreement.

Borrowings under the 2013 Credit Agreement were used to refinance the outstanding principal and unpaid interest of $323.8 million and $1.1 million, respectively, under the term loan of the 2011 Credit Agreement. Lender fees of $2.9 million were paid in connection with amending and restating the Credit Agreement. These fees are included in deferred financing costs and will amortized through the term of the 2013 Credit Agreement

The interest expense and the commitment fees on the unused portion of the Company’s revolving credit facility are as follows (

in thousands

	December 31,
	2015		2014		2013
Interest expense	$	4,117	$	4,186	$	8,156
Commitment fees	$	1,513	$	1,465	$	887

At December 31, 2015 and December 31, 2014, the unamortized balance of deferred origination fees and debt issue costs were $4.9 million and $6.9 million, respectively. HMS amortized $2.1 million for both December 31, 2015 and 2014, respectively, of interest expense related to the Company’s deferred origination fees and debt issue costs.

Although HMS expects that operating cash flows will continue to be a primary source of liquidity for the Company’s operating needs, the revolving credit facility, which may be used for general corporate purposes, including acquisitions, is available for future cash flow needs, if necessary.

As part of a contractual agreement with a customer, the Company has an outstanding irrevocable letter of credit for $3.0 million, which was established against the existing revolving credit facility. The expiration date of the letter of credit is June 30, 2016.