Debt

6 Months Ended

Jul. 02, 2021

Debt Disclosure [Abstract]

Debt

6. Debt

The Company entered into a new asset-based lending revolving credit agreement (Credit Agreement) during the 2021 second quarter, which has a five-year term that expires in May 2026, replacing its previous agreement.  Under this Credit Agreement, the Company can borrow up to $50.0 million depending on collateral availability.  The Credit Agreement is collateralized by the Company’s accounts receivable in the United States, Belgium, and Luxembourg.  Interest rates range from 1.5% to 2.0% over LIBOR or EURIBOR loans, and 0.5% to 1.0% over base rate (prime rate) loans. The Company can borrow under the agreement at either rate at its discretion. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter. 

At both July 2, 2021 and December 31, 2020, there were no amounts outstanding under the Credit Agreement or the Company’s previous Credit and Security Agreement, respectively. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll.

There were no borrowings during the 2021 second quarter. The maximum amounts outstanding under its Credit and Security Agreement in the 2020 second quarter was $12.0 million, while borrowings during that quarter averaged $12.0 million, and carried a weighted average interest rate of 1.6%.

Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at July 2, 2021 represented a fixed charge coverage ratio, where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance expenses, must be greater than 1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to a maximum of the commitment of $50.0 million, on the measurement date is less than the greater of 12.5% of the total loan availability

or $5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from our largest client, IBM, have been removed from the Credit Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. Total availability as of July 2, 2021 was approximately $39.8 million. The Company’s compliance with its financial covenant was not required to be tested at July 2, 2021 as the availability under the Credit Agreement was in excess of 12.5% of the total loan availability. The Company was in compliance with its applicable covenants under the previous Credit and Security Agreement at June 26, 2020.

During the 2021 second quarter, the Company wrote-off approximately $0.1 million in deferred financing fees associated with its previous Credit and Security Agreement. The Company incurred approximately $1.4 million in fees associated with the Credit Agreement which have been deferred and will be amortized over the life of the agreement (60 months).