DEBT

On May 11, 2017, the Partnership entered into an amended and restated credit agreement that consists of a $450.0 million revolving loan facility.

As of July 27, 2017, approximately $300.6 million of revolver borrowings and $1.5 million of letters of credit were outstanding under the credit agreement, leaving the Partnership with approximately $147.9 million available capacity for additional revolver borrowings and letters of credit under the credit agreement, although the Partnership’s ability to borrow such funds may be limited by the financial covenants in the credit agreement. In connection with entering the amended and restated credit agreement, the Partnership paid certain upfront fees to the lenders thereunder, and the Partnership paid certain arrangement and other fees to the arranger and administrative agent of the credit agreement. The proceeds of loans made under the credit agreement may be used for working capital and other general corporate purposes of the Partnership. All references herein to the credit agreement on or after May 11, 2017, refer to the amended and restated credit agreement.

The credit agreement is guaranteed by all of the Partnership’s existing subsidiaries. Obligations under the credit agreement are secured by first priority liens on substantially all of the Partnership’s assets and those of the guarantors.

The credit agreement includes procedures for additional financial institutions to become revolving lenders, or for any existing lender to increase its revolving commitment thereunder, subject to an aggregate maximum of $600.0 million for all revolving loan commitments under the credit agreement.

The credit agreement will mature on May 11, 2022, and all amounts outstanding under the credit agreement will become due and payable on such date. The credit agreement requires mandatory prepayments of amounts outstanding thereunder with the net proceeds of certain asset sales, property or casualty insurance claims, and condemnation proceedings, unless the Partnership reinvests such proceeds in accordance with the credit agreement, but these mandatory prepayments will not require any reduction of the lenders’ commitments under the credit agreement.

Borrowings under the credit agreement bear interest, at the Partnership’s option, at either the reserve-adjusted eurodollar rate (as defined in the credit agreement) plus an applicable margin that ranges from 2.0% to 3.0% or the alternate base rate (the highest of the agent bank’s prime rate, the federal funds effective rate plus 0.5%, and the 30-day eurodollar rate plus 1.0%) plus an applicable margin that ranges from 1.0% to 2.0%. The Partnership pays a per annum fee on all letters of credit issued under the credit agreement, which fee equals the applicable margin for loans accruing interest based on the eurodollar rate, and the Partnership pays a commitment fee ranging from 0.375% to 0.5% on the unused commitments under the credit agreement. The applicable margins for the Partnership’s interest rate, the letter of credit fee and the commitment fee vary quarterly based on the Partnership’s consolidated total leverage ratio (as defined in the credit agreement, being generally computed as the ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges).

The credit agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter.

Prior to the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio is 4.75 to 1.00; provided that the maximum permitted consolidated total leverage ratio will be 5.25 to 1.00 for certain quarters based on the occurrence of a specified acquisition (as defined in the credit agreement, but generally being an acquisition for which the aggregate consideration is $15.0 million or more). The acquisition of the nine asphalt terminals from Ergon in October 2016 qualified as a specified acquisition.

From and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio is 5.00 to 1.00; provided that from and after the fiscal quarter ending immediately preceding the fiscal quarter in which a specified acquisition occurs to and including the last day of the second full fiscal quarter following the fiscal quarter in which such acquisition occurred, the maximum permitted consolidated total leverage ratio will be 5.50 to 1.00.

The maximum permitted consolidated senior secured leverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated total secured debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) is 3.50 to 1.00, but this covenant is only tested from and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million.

The minimum permitted consolidated interest coverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest expense) is 2.50 to 1.00.

In addition, the credit agreement contains various covenants that, among other restrictions, limit the Partnership’s ability to:


•	create, issue, incur or assume indebtedness;


•	create, incur or assume liens;


•	engage in mergers or acquisitions;


•	sell, transfer, assign or convey assets;


•	repurchase the Partnership’s equity, make distributions to unitholders and make certain other restricted payments;


•	make investments;


•	modify the terms of certain indebtedness, or prepay certain indebtedness;


•	engage in transactions with affiliates;


•	enter into certain hedging contracts;


•	enter into certain burdensome agreements;


•	change the nature of the Partnership’s business; and


•	make certain amendments to the Partnership’s partnership agreement.

At June 30, 2017, the Partnership’s consolidated total leverage ratio was 4.17 to 1.00 and the consolidated interest coverage ratio was 5.36 to 1.00. The Partnership was in compliance with all covenants of its credit agreement as of June 30, 2017.

The credit agreement permits the Partnership to make quarterly distributions of available cash (as defined in the Partnership’s partnership agreement) to unitholders so long as no default or event of default exists under the credit agreement on a pro forma basis after giving effect to such distribution. The Partnership is currently allowed to make distributions to its unitholders in accordance with this covenant; however, the Partnership will only make distributions to the extent it has sufficient cash from operations after establishment of cash reserves as determined by the Board of Directors (the “Board”) of the general partner in accordance with the Partnership’s cash distribution policy, including the establishment of any reserves for the proper conduct of the Partnership’s business. See Note 8 for additional information regarding distributions.

In addition to other customary events of default, the credit agreement includes an event of default if (i) the general partner ceases to own 100% of the Partnership’s general partner interest or ceases to control the Partnership, or (ii) Ergon ceases to own and control 50.0% or more of the membership interests of the general partner, or (iii) during any period of 12 consecutive months, a majority of the members of the Board of the general partner ceases to be composed of individuals (A) who were members of the Board on the first day of such period, (B) whose election or nomination to the Board was approved by individuals referred to in clause (A) above constituting at the time of such election or nomination at least a majority of the Board or (C) whose election or nomination to the Board was approved by individuals referred to in clauses (A) and (B) above constituting at the time of such election or nomination at least a majority of the Board; provided that, any changes to the composition of individuals serving as members of the Board approved by Ergon will not cause an event of default.

If an event of default relating to bankruptcy or other insolvency events occurs with respect to the general partner or the Partnership, all indebtedness under the credit agreement will immediately become due and payable. If any other event of default exists under the credit agreement, the lenders may accelerate the maturity of the obligations outstanding under the credit agreement and exercise other rights and remedies. In addition, if any event of default exists under the credit agreement, the lenders may commence foreclosure or other actions against the collateral.

If any default occurs under the credit agreement, or if the Partnership is unable to make any of the representations and warranties in the credit agreement, the Partnership will be unable to borrow funds or to have letters of credit issued under the credit agreement.

Upon the execution of the amended and restated credit agreement, the Partnership expensed $0.7 million of debt issuance costs related to the prior revolving loan facility, leaving a remaining balance of $0.9 million ascribed to those lenders with commitments under both the prior and the amended and restated credit facility. The Partnership capitalized debt issuance costs of less than $0.1 million and $4.0 million during the three months ended June 30, 2016 and 2017, respectively. The Partnership capitalized debt issuance costs of less than $0.1 million and $4.0 million during the six months ended June 30, 2016 and 2017, respectively. Debt issuance costs are being amortized over the term of the credit agreement. Interest expense related to debt issuance cost amortization for the three months ended June 30, 2016 and 2017, was $0.2 million and $0.3 million, respectively. Interest expense related to debt issuance cost amortization for the six months ended June 30, 2016 and 2017, was $0.4 million and $0.6 million, respectively.

During the three months ended June 30, 2016 and 2017, the weighted average interest rate under the Partnership’s credit agreement, excluding the $0.7 million of debt issuance costs related to the prior credit facility that was expensed during the three months ended June 30, 2017, was 3.89% and 4.44%, respectively, resulting in interest expense of approximately $2.7 million and $3.4 million, respectively. During the six months ended June 30, 2016 and 2017, the weighted average interest rate under the Partnership’s credit agreement, excluding the $0.7 million of debt issuance costs related to the prior credit facility that was expensed during the six months ended June 30, 2017, was 3.75% and 4.27%, respectively, resulting in interest expense of approximately $5.1 million and $6.7 million, respectively.

During each of the three and six months ended June 30, 2016 and 2017, the Partnership capitalized interest of less than $0.1 million.

The Partnership is exposed to market risk for changes in interest rates related to its credit facility. Interest rate swap agreements are used to manage a portion of the exposure related to changing interest rates by converting floating-rate debt to fixed-rate debt. As of December 31, 2016 and June 30, 2017, the Partnership had interest rate swaps with notional amounts totaling $200.0 million to hedge the variability of its LIBOR-based interest payments, with half maturing on June 28, 2018, and the other half on January 28, 2019. During the three months ended June 30, 2016 and 2017, the Partnership recorded swap interest expense of $0.6 million and $0.4 million, respectively. During the six months ended June 30, 2016 and 2017, the Partnership recorded swap interest expense of $1.3 million and $0.8 million, respectively. The interest rate swaps do not receive hedge accounting treatment under ASC 815 - Derivatives and Hedging.

The following provides information regarding the Partnership’s liabilities related to its interest rate swap agreements as of the periods indicated (in thousands):



	Fair Values of Liability Derivative Instruments
	December 31, 2016			June 30, 2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swap liabilities	$	1,947	Interest rate swap liabilities	$	972

Changes in the fair value of the interest rate swaps are reflected in the unaudited condensed consolidated statements of operations as follows (in thousands):



Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Net Income on Derivative	Amount of Gain (Loss) Recognized in Net Income on Derivative
		Three Months ended June 30,					Six Months ended June 30,
		2016			2017		2016			2017
Interest rate swaps	Interest expense, net of capitalized interest	$	(314	)	$	223	$	(2,194	)	$	975