11. Credit Facilities and Debt

U.S. Credit Facilities

At September 30, 2017, the Company and its U.S. subsidiaries have a Loan and Security Agreement, as amended, (the “Loan Agreement”) with The CIBC Bank USA (“CIBC”), formally known as “The Private Bank and Trust Company”. The Loan Agreement provides a revolving credit facility with a maturity date of July 20, 2019. The aggregate amount of the facility is $25,000.

The maximum borrowing available to the Company under the Loan Agreement is limited to: (1) 85% of eligible receivables; plus (2) 50% of eligible inventory valued at the lower of cost or net realizable value subject to a $17,500 limit; plus (3) 80% of eligible used equipment, as defined, valued at the lower of cost or market subject to a $2,000 limit. At September 30, 2017, the maximum the Company could borrow based on available collateral was $25,000. At September 30, 2017, the Company had borrowed $12,575 under this facility. The Company’s collateral is subject to a $5,000 reserve until the Fixed Charge Coverage ratio exceeds 1.10 to 1.00. The indebtedness under the Loan Agreement is collateralized by substantially all of the Company’s assets, except for the certain assets of the Company’s subsidiaries.

The Loan Agreement provides that the Company can opt to pay interest on the revolving credit at either a base rate plus a spread, or a LIBOR rate plus a spread. The base rate spread ranges from 0.25% to 1.00% depending on the Senior Leverage Ratio (as defined in the Loan Agreement). The LIBOR spread ranges from 2.25% to 3.00% also depending on the Senior Leverage Ratio. At September 30, 2017, the base rate and LIBOR spreads were 1.00% and 3.00%, respectively. Funds borrowed under the LIBOR option can be borrowed for periods of one, two, or three months and are limited to four LIBOR contracts outstanding at any time.

The underlying reference rate for our base rated borrowings at September 30, 2017 was 4.25%. At September 30, 2017, the Company had four outstanding advances with interest tied to LIBOR. The contracts had an underlying LIBOR rate of 1.27%. In addition, CIBC assesses a 0.50% unused line fee that is payable monthly.

The Loan Agreement subjects the Company and its domestic subsidiaries to a quarterly EBITDA covenant (as defined). The quarterly EBITDA covenant (as defined) are $(1,000) for the quarter ended at March 31, 2017, $0 for the quarter ended June 30, 2017, and $2,000 for all quarters starting with the quarter ended September 30, 2017 through the end of the agreement. Additionally, the Company and its domestic subsidiaries are subject to a Fixed Charge Coverage ratio of 1.05 to 1.00 measured on an annual basis beginning December 31, 2017, followed by a Fixed Charge Coverage ratio of 1.15 to 1.00 measured quarterly starting March 31, 2018 (based on a trailing twelve month basis) through the term of the agreement. The Loan Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, pay dividends or make distributions, repurchase stock, in each case subject to customary exceptions for a credit facility of this size.

The Loan Agreement has a Letter of Credit facility of $3,000, which is fully reserved against availability.

Note Payable—Bank

At September 30, 2017, the Company has a $73 term note payable to a bank. The Company is required to make eleven monthly payments of $37 that began on January 30, 2017. The note dated January 18, 2017 had an original principal amount of $400 and an annual interest rate of 2.75%. Proceeds from the note were used to pay annual premiums for certain insurance policies carried by the Company. The holder of the note has a security interest in the insurance policies it financed and has the right upon default to cancel these policies and receive any unearned premiums.

Note Payable—Winona Facility Purchase

At September 30, 2017, Badger has balance on note payable to Avis Industrial Corporation of $486. Badger is required to make 60 monthly payments of $10 that began on August 1, 2017. The note dated July 26, 2017, had an original principal amount of $500 and annual interest rate of 8.00%. The note is guaranteed by the Company.

Notes Payable – SVW

At September 30, 2017, SVW has four loans outstanding with four financial institutions. The Company is not a loan party, but has included the debt associated with these loans in its consolidated financial statements as SVW was determined to be a VIE that requires consolidation (see Note 1). SVW obtained financing using cranes that are included in the Company’s inventory as collateral because of SVW's status as a VIE. The funds borrowed by SVW been have remitted to the Company. The finance companies that hold the loans have a perfected security interest in the inventory and therefore have recourse against this specific inventory. For accounting purposes, the Company did not recognize a sale and continues to include these cranes in its inventory. However, the finance company has taken legal title to the cranes used as collateral for the borrowings. The Company has entered into agreements to repurchase the cranes from the lenders in the event that SVW defaults on any of these loans. Additionally, the SVW debt was also effectively guaranteed by the Company pursuant to certain related agreements.

The following table summarizes the principal terms of the borrowings:

										Element
Lending Institutions	Equify			Evolve			Heartland			Loan 1
Balance as of September 30, 2017	$	1,880		$	1,147		$	1,412		$	2,016

Loan origination date	June 27, 2016			July 8, 2016			July 16, 2016			July 28, 2016
Amount borrowed	$	3,009		$	2,710		$	1,648		$	2,941
Approximate Interest rate		8.07	%		6.75	%		8.00	%		8.00	%

Prepayment penalty	At stipulated vaules			3% decreasing to 2% after 24 months			Not applicable			1% per for each remaining year no penalty if equipment is sold

Required payments:
First payment stream
Frequencies of payment	Monthly			Monthly			Monthly			Monthly
Remaining payments	22			21			58			47
Date of first payment	August 1, 2016			August 8, 2016			September 1, 2016			September 1, 2016
Payment amount	$	33		$	17		$	29		$	50

Final balloon payment
Date of payment	August 1, 2019			July 9, 2019			August 1, 2022			December 1, 2021
Payment amount	$	1,391		$	918		$	39		$	1

The September 30, 2017, balances on the above table total $6,455. Total SVW debt on the balance sheet is $6,260 the difference is deferred finance costs of $195 which is netted against the gross debt.

PM Group Short-Term Working Capital Borrowings

At September 30, 2017, PM Group had established demand credit and overdraft facilities with seven Italian banks and six banks in South America. Under the facilities, PM Group can borrow up to approximately €25,507 ($30,131) for advances against invoices, and letter of credit and bank overdrafts. Interest on the Italian working capital facilities is charged at the 3-month or 6-month Euribor plus 200 basis points, while interest on overdraft facilities is charged at the 3month Euribor plus 350 basis points. Interest on the South American facilities is charged at a flat rate of points for advances on invoices ranging from 9%-24%.

At September 30, 2017, the Italian banks had advanced PM Group €20,746 ($24,507), at variable interest rates, which currently range from 1.42% to 1.67%. At September 30, 2017, the South American banks had advanced PM Group €591 ($698). Total short-term borrowings for PM Group were €21,337 ($25,205) at September 30, 2017.

PM Group Term Loans

At September 30, 2017, PM Group has a €10,842 ($12,808) (net of debt issuance costs) term loan with two Italian banks, BPER and Unicredit. The term loan is split into three separate notes and is secured by PM Group’s common stock. Debt issuance costs offset against these term loans totaled €358 ($423) at September 30, 2017.

The first note has an outstanding principal balance of €3,595 ($4,247), which is net of unamortized debt issuance costs of €358 ($423) is charged interest at the 6-month Euribor plus 236 basis points, effective rate of 2.09% at September 30, 2017. The note is payable in semi-annual installments beginning June 2017 and ending December 2021. The second note has an outstanding principal balance of €4,394 ($5,191), is charged interest at the 6-month Euribor plus 286 basis points, effective rate of 2.59% at September 30, 2017. The note is payable in semi-annual installments beginning June 2017 and ending December 2021. The third note has an outstanding principal balance of €2,853 ($3,370) and is non-interest bearing. The note is payable in semi-annual installments beginning June 2016 and ending December 2017 with a final balloon payment of €2,500 in March 2022.

The Company acquired PM Group in January 2015 and at acquisition it was determined that the fair value of the term notes described above was €1,460 or $1,725 less than the book value. This reduction is not reflected in the above descriptions of PM debt. As of September 30, 2017, the remaining balance was €665 or $786 and has been offset to the debt.

PM Group is subject to certain financial covenants as defined by the debt restructuring agreement with BPER and Unicredit including maintaining (1) Net debt to EBITDA, (2) Net debt to equity, and (3) EBITDA to net financial charges ratios. The covenants are measured on a semi-annual basis.

At September 30, 2017, PM Group has unsecured borrowings with four Italian banks totaling €13,015 ($15,375). Interest on the unsecured notes is charged at the 3-month Euribor plus 250 basis points, effective rate of 2.17% at September 30, 2017. Principal payments are due on a semi-annual basis beginning June 2019 and ending December 2021. Accrued interest on these borrowings through the date of acquisition at January 15, 2015, totaled €358 ($423) and is payable in semi-annual installments beginning June 2019 and ending December 2019.

At September 30, 2017, Autogru PM RO, a subsidiary of PM Group, has two notes. The first note is payable in 60 monthly principal installments of €8 ($9), plus interest at the 1-month Euribor plus 300 basis points, effective rate of 3.00% at September 30, 2017, maturing October 2020. At September 30, 2017, the outstanding principal balance of the note was €313 ($370). The second note is payable in monthly installments of €6 ($7) beginning on October 1, 2017, increasing to €9 ($11) on January 1, 2018 with a final payment of €395 ($467) due on March 7, 2018 and is charged interest at the 1-month Euribor plus 250 basis points, effective rate of 2.50% at September 30, 2017. At September 30, 2017, the outstanding principal balance of the note was €440 ($520).

PM has an interest rate swap with a fair market value at September 30, 2017 of €6 or $7 which has been included in debt.

PM Debt Restructuring

On March 6, 2018, PM Group and Oil & Steel S.p.A. (PM Group’s subsidiary) entered into a Debt Restructuring Agreement (the “Restructuring Agreement”) with Banca Monte dei Paschi di Siena S.p.A., Banca Nazionale del Lavoro S.p.A., BPER Banca S.p.A., Cassa di Risparmio in Bologna S.p.A. and Unicredit S.p.A. (collectively the “Lenders”), and Loan Agency Services S.r.l. (the “Agent”). The Restructuring Agreement, which replaces the previous debt restructuring agreement with the Lenders entered into in 2014, provides for, among other things:

•

The provision of subordinated shareholders’ loans by the Company to PM Group, consisting of (i) conversion of an existing trade receivable in the amount of €3.1 million into a loan; (ii) an additional subordinated shareholders’ loan in the aggregate maximum amount of up to €2.4 million, to be made currently; and (iii) a further loan of €1.8 million to be made by December 31, 2018, in each case to be used to repay a portion of PM Group’s outstanding obligations to the Lenders;

•

Amendments to the 2014 put and call options agreement with BPER to, among other things, extend the exercise of the options until the approval of PM Group’s financial statements for the 2021 fiscal year and permit the assignment of certain subordinated receivables to the Company; and

•

New amortization and repayment schedules for amounts owed by PM Group to the Lenders under the various outstanding tranches of indebtedness, along with revised interest rates and financial covenants. Under the Restructuring agreement term debt is repaid over a nine-year period starting in 2018 and ending in 2026 (2022 prior to Debt Restructuring Agreement).

•

The effect of PM not meeting its December 31, 2017 financial covenants was cured by the Debt Restructuring Agreement

Valla Short-Term Working Capital Borrowings

At September 30, 2017, Valla had established demand credit and overdraft facilities with three Italian banks. Under the facilities, Valla can borrow up to approximately €1,343 ($1,586) for advances against orders, invoices and bank overdrafts. Interest on the Italian working capital facilities is charged at a flat percentage rate for advances on invoices and orders ranging from 4.50% - 4.75%. At September 30, 2017, the Italian banks had advanced Valla €694 ($820).

Valla Term Loans

At September 30, 2017, Valla has a term loan with Carisbo. The note is payable in quarterly principal installments beginning on October 30, 2017 of €8 ($9), plus interest at the 3-month Euribor plus 470 basis points, effective rate of 4.37% at September 30, 2017. The note matures on January 2021. At September 30, 2017, the outstanding principal balance of the note was €110 ($130)

Capital leases

Georgetown facility

The Company leases its Georgetown facility under a capital lease that expires on April 30, 2028. The monthly rent is currently $66 and is increased by 3% annually on September 1 during the term of the lease. At September 30, 2017, the outstanding capital lease obligation is $5,225.

Equipment

The Company has entered into a lease agreement with a bank pursuant to which the Company is permitted to borrow 100% of the cost of new equipment with 60 months repayment periods. At the conclusion of the lease period, for each piece of equipment the Company is required to purchase that piece of leased equipment for one dollar.

The equipment, which is acquired in ordinary course of the Company’s business, is available for sale and rental prior to sale.

Under the lease agreement the Company can elect to exercise an early buyout option at any time, and pay the bank the present value of the remaining rental payments discounted by a specified Index Rate established at the time of leasing. The early buyout option results in a prepayment penalty which progressively decreases during the term of the lease. Alternatively, under the like-kind provisions in the agreement, the Company can elect to replace or substitute different equipment in place of equipment subject to the early buyout without incurring a penalty.

The following is a summary of amounts financed under equipment capital lease agreements:

Remaining

Balance as of

Amount

Borrowed

Repayment

Period

Amount of

Monthly Payment

September 30,

2017

New equipment

896

709

As of September 30, 2017, the Company has two additional capital leases with total capitalized lease obligations of $17.