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Note 6 - Debt
 6 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Debt Disclosure [Text Block]

6.

DEBT

 

On May 26, 2021, the Partnership entered into an amended and restated credit agreement with a revolving loan facility of $300.0 million. As of  July 29, 2022, approximately $109.0 million of revolver borrowings and $0.3 million of letters of credit were outstanding under the credit agreement, leaving the Partnership with approximately $190.7 million available capacity for additional revolver borrowings and letters of credit under the credit agreement, although the Partnership’s ability to borrow such funds is limited by the financial covenants in 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.

 

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 $450.0 million for all revolving loan commitments under the credit agreement.

 

The credit agreement will mature on May 26, 2025, 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) (“eurodollar rate”) plus an applicable margin that ranges from 2.0% to 3.25% 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 2.25%. 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 may be increased to 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).

 

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;
 

•

consummate 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 Fourth Amended and Restated Agreement of Limited Partnership of the Partnership (the “Partnership’s partnership agreement”).

 

At  June 30, 2022, the Partnership’s consolidated total leverage ratio was  2.16 to 1.00 and the consolidated interest coverage ratio was 16.05 to 1.00. The Partnership was in compliance with all covenants of its credit agreement as of  June 30, 2022. B ased on current operating plans and forecasts, the Partnership expects to remain in compliance with all covenants of the credit agreement for at least the next year.

 

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, on a pro forma basis after giving effect to such distributions, the Partnership is in compliance with its financial covenants under the credit agreement and no default or event of default exists under the credit agreement. Additionally, the credit agreement permits the Partnership to repurchase up to an aggregate of $40.0 million of its units (including preferred units), up to $10.0 million for each calendar year, so long as, on a pro forma basis after giving effect to such repurchases, the Partnership’s total leverage ratio is less than 4.00 to 1.00, no default or event of default exists under the credit agreement, and availability under the revolving credit facility is at least 20% of the total commitments thereunder.

 

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;
 

(ii)

Ergon ceases to own and control 50% 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. 

 

On May 26, 2021, as part of the credit agreement refinancing, there was a non-cash increase in credit borrowings of $2.9 million and a non-cash increase in debt issuance costs of $2.5 million. 

 

The following table sets forth financial information pertaining to the credit agreement (in thousands, except for interest rate):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2021

  

2022

  

2021

  

2022

 

Debt issuance costs capitalized

 $2,797  $7  $2,846  $15 

Write off of debt issuance costs due to amendments(1)

  -   -   147   - 

Write off of debt issuance costs due to new credit facility

  583   -   583   - 

Interest expense related to amortization of debt issuance costs

  217   210   462   419 

Credit facility interest expense(2)

  893   995   1,836   1,775 

Weighted average interest rate under credit facility(2)

  3.10%  3.39%  3.25%  3.14%

___________________

(1)

 On  January 8, 2021, the previous credit facility was amended to, among other things, reduce the revolving loan facility from $400.0 million to $350.0 million upon the sale of the crude oil terminalling segment.

(2)

Excludes interest expense related to amortization and write off of debt issuance costs.