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DEBT
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
DEBT DEBT
As of September 30, 2023 and December 31, 2022, our total long-term debt and finance lease obligations are summarized as follows (in thousands):
September 30, 2023December 31, 2022
(unaudited)
2022 ABL Credit Facility$110,915 $99,916 
ME/RE Loans1
24,739 — 
Uptiered Loan / Subordinated Term Loan1
125,588 107,905 
Incremental Term Loan1
34,034 — 
APSC Term Loan1
— 31,562 
Total 295,276 239,383 
Convertible Debt1
— 40,650 
Finance lease obligations5,804 5,902 
Total long-term debt and finance lease obligations301,080 285,935 
Current portion of long-term debt and finance lease obligations(5,302)(280,993)
Total long-term debt and finance lease obligations, less current portion$295,778 $4,942 
_________________
1    Comprised of principal amount outstanding, less unamortized discount and issuance costs. See below for additional information.
2022 ABL Credit Facility
On February 11, 2022, we entered into a credit agreement, with the lender parties thereto, and Eclipse Business Capital, LLC, a Delaware limited liability company, as agent, (the “ABL Agent”) (such agreement, as amended by Amendment No. 1 dated as of May 6, 2022, Amendment No. 2 dated as of November 1, 2022 and Amendment No.3 dated June 16, 2023, the “2022 ABL Credit Agreement”). Available funding commitments to us under the 2022 ABL Credit Agreement, subject to certain conditions, include a revolving credit line in an amount of up to $130.0 million to be provided by certain affiliates of the ABL Agent (the “Revolving Credit Loans”), with a $35.0 million sublimit for swingline borrowings, a $26.0 million sublimit for issuances of letters of credit, and an incremental delayed draw term loan of up to $35.0 million (the “Delayed Draw Term Loan”) provided by Corre Partners Management, LLC and certain of its affiliates (“Corre”) (collectively, the “2022 ABL Credit Facility”).
Our obligations under the 2022 ABL Credit Agreement are guaranteed by certain of our direct and indirect subsidiaries referenced below as the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties.” Our obligations under the 2022 ABL Credit Facility are secured on a first priority basis by, among other things, accounts receivable, deposit accounts, securities accounts, and inventory of the ABL Loan Parties and are secured on a second priority basis by substantially all of the other assets of the ABL Loan Parties. Availability under the revolving credit line is based on a percentage of the value of qualifying accounts receivable and inventory, reduced by certain reserves.
The terms of the 2022 ABL Credit Facility are described in the table below (dollar amounts are presented in thousands):
Revolving Credit LoansDelayed Draw Term Loan
Original maturity date2/11/20252/11/2025
Amended maturity date8/11/20258/11/2025
Original stated interest rateLIBOR + applicable margin (base + applicable margin)
LIBOR+10% (Base+9%)
Amended interest rateSOFR + applicable margin (base + applicable margin)
SOFR + 10% (Base + 9%)
Actual interest rate:
9/30/202310.09%15.44%
9/30/20227.21%12.56%
Interest paymentsmonthlymonthly
Cash paid for interest
YTD 9/30/2023$4,932$3,951
YTD 9/30/2022$3,656$1,683
Unamortized balance of deferred financing cost
9/30/2023$227$—
12/31/2022$2,312$798
Available amount at 9/30/2023$4,911$—
The “applicable margin” in the table above is defined as a rate of 3.15%, 3.40% or 3.65% for base rate loans with a 2.00% base rate floor and a rate of 4.15%, 4.40% or 4.65% for Adjusted Term Secured Overnight Financing Rate (“SOFR”) loans with a 1.00% SOFR floor, in each case depending on the amount of EBITDA (as defined in ABL Amendment No. 3 to the 2022 ABL Credit Facility) as of the most recent measurement period as reported in a monthly compliance certificate. The fee for undrawn revolving amounts is 0.50%.
We incurred additional $0.3 million of financing cost related to the 2022 ABL Credit Facility in connection with Amendment No. 3 thereto (“ABL Amendment No. 3”) dated June 16, 2023. These costs were capitalized and amortized on a straight-line basis over the new term of the 2022 ABL Credit Facility.
The Company may make voluntary prepayments of the loans under the 2022 ABL Credit Facility from time to time, subject, in the case of the Delayed Draw Term Loan, to certain conditions. Mandatory prepayments are also required in certain circumstances, including with respect to the Delayed Draw Term Loan, if the ratio of aggregate value of the collateral under the 2022 ABL Credit Facility to the sum of the Delayed Draw Term Loan plus revolving facility usage outstanding is less than 130%.
Amounts repaid under the Revolving Credit Loans may be re-borrowed, subject to compliance with the borrowing base and the other conditions set forth in the 2022 ABL Credit Agreement. Amounts repaid under the Delayed Draw Term Loan cannot be re-borrowed. Certain permanent repayments of the 2022 ABL Credit Facility loans are subject to the payment of a premium of 1.00% from June 16, 2023 until August 11, 2024, and 0.50% after August 11, 2024 until August 11, 2025. The 2022 ABL Credit Agreement contains customary conditions to borrowings and covenants, as described therein. As of September 30, 2023, we are in compliance with the covenants.
As of September 30, 2023, $10.1 million in letters of credit was issued under the 2022 ABL Credit Agreement. Such amounts remain undrawn and are off-balance sheet.
ME/RE Loans
The ABL Amendment No. 3, in addition to making certain other changes to the 2022 ABL Credit Facility, provided us with $27.4 million of new term loans (the “ME/RE Loans”). Our obligations in respect of the ME/RE Loans are guaranteed by certain direct and indirect material subsidiaries of the Company (the “ABL Guarantors” and, together with the Company, the “ABL Loan Parties”). The ME/RE Loans under the 2022 ABL Credit Agreement are secured on a first priority basis by, among other things, certain real estate and machinery and equipment (the “Specified ME/RE Collateral”), accounts receivable, deposit accounts, securities accounts and inventory of the ABL Loan Parties (collectively, the “ABL Priority Collateral”) and on a second priority basis by substantially all of the other assets of the ABL Loan Parties, subject to the terms of the Intercreditor Agreement (as defined below). The ME/RE Loans were drawn in full on June 16, 2023 and were used to pay off the amounts owed under the existing APSC Term Loan, discussed below.
The terms of ME/RE Loans are described in the table below (dollar amounts are presented in thousands):
Original maturity date8/11/2025
Original stated interest rate
SOFR + 5.75% + 0.11% credit spread adjustment
Principal payments
$254 monthly
Effective interest rate
9/30/202316.75%
9/30/2022
N/A
Actual interest rate
9/30/202311.19%
9/30/2022
N/A
Interest paymentsmonthly
Cash paid for interest
YTD 9/30/2023$640
YTD 9/30/2022
N/A
Balances at 9/30/2023
Principal balance$26,551
Unamortized balance of debt issuance cost$(1,812)
Net carrying balance$24,739
Available amount at 9/30/2023$—
The Company may make voluntary prepayments of the ME/RE Loans from time to time. Mandatory prepayments are required in certain instances when sales of assets are completed that are related to the Specified ME/RE Collateral, and with annual excess cash flow (as defined in the 2022 ABL Credit Agreement), subject to certain prepayment premiums (subject to certain exceptions), plus accrued and unpaid interest. The remaining unpaid principal balance of the ME/RE loans at maturity will be $21.0 million.
Direct and incremental costs associated with the issuance of the ABL Amendment No. 3 were approximately $2.1 million and were deferred and presented as a direct deduction from the carrying amount of the related debt and are amortized on a straight-line basis over the term of the ME/RE Loans.
APSC Term Loan
On June 16, 2023, we used the proceeds from the ME/RE Loans and borrowings under the 2022 ABL Credit Facility to repay the total outstanding APSC Term Loan balance of $35.5 million plus the applicable prepayment premium, resulting in a loss on debt extinguishment of $1.6 million.
On December 18, 2020, we had entered into that certain Term Loan Credit Agreement with Atlantic Park Strategic Capital Fund, L.P., as agent (“APSC”), pursuant to which we borrowed $250.0 million (the “APSC Term Loan”).
The terms of APSC Term Loan are described in the table below (dollar amounts are presented in thousands):
Original maturity date12/18/2026
Original stated interest ratevariable
Effective interest rate
9/30/2023
N/A
9/30/202225.72%
Actual interest rate:
9/30/2023
N/A
9/30/202210.24%
Interest paymentsQuarterly
Cash paid for interest
YTD 9/30/2023$2,849
YTD 9/30/2022$9,693
PIK interest added to principal
YTD 9/30/2023$—
YTD 9/30/2022$6,627
Balances at 12/31/2022
Principal balance$35,510
Unamortized balance of debt issuance cost$(3,948)
Net carrying balance$31,562
Amended and Restated Term Loan Credit Agreement - Uptiered Loan / Subordinated Term Loan and Incremental Term Loan
On November 9, 2021, we entered into a credit agreement (as amended by Amendment No. 1 dated as of November 30, 2021, Amendment No. 2 dated as of December 6, 2021, Amendment No. 3 dated as of December 7, 2021, Amendment No. 4 dated as of December 8, 2021, Amendment No. 5 dated as of February 11, 2022, Amendment No. 6 dated as of May 6, 2022, Amendment No. 7 dated as of June 28, 2022, Amendment No. 8 dated as of October 4, 2022, Amendment No. 9 dated as of November 1, 2022, Amendment No. 10 dated as of November 4, 2022, Amendment No. 11 dated as of November 21, 2022 and Amendment No. 12 dated as of March 29, 2023, the “Subordinated Term Loan Credit Agreement”) with Cantor Fitzgerald Securities, as agent, and the lenders party thereto providing for an unsecured approximately $123.1 million delayed draw subordinated term loan facility. Pursuant to the Subordinated Term Loan Credit Agreement, we borrowed $22.5 million on November 9, 2021, and an additional $27.5 million on December 8, 2021. On October 4, 2022, an additional approximately $57.0 million was added to the outstanding principal amount under the Subordinated Term Loan Credit Agreement in exchange for an equivalent amount of the Company’s senior unsecured 5.00% Convertible Senior Notes (the “Notes”) held by Corre.
On June 16, 2023, the Company, entered into an amendment and restatement of that certain subordinated term loan credit agreement dated as of November 9, 2021 (as amended and restated, the “A&R Term Loan Credit Agreement”) among the Company, as borrower, the guarantors party thereto, the lenders from time to time party thereto and Cantor Fitzgerald Securities, as agent (the “A&R Term Loan Agent”). Additional funding commitments to the Company under the A&R Term Loan Credit Agreement, subject to certain conditions, included a $57.5 million senior secured first lien term loan (the “Incremental Term Loan”) provided by Corre and certain of its affiliates, consisting of a $37.5 million term loan tranche and a $20.0 million delayed draw tranche. Amounts outstanding under the existing subordinated term loan credit agreement (the “Uptiered Loan”) have become senior secured obligations of the Company and the A&R Term Loan Guarantors (as defined below) and are secured on a pari passu basis with the Incremental Term Loan, on the terms described below.
On July 31, 2023, $42.5 million, made up of $37.5 million of the term loan tranche and $5.0 million of the delayed draw tranche, of the $57.5 million Incremental Term Loan under the A&R Term Loan Credit Agreement was drawn down and the proceeds thereof were used to repay the Notes that matured on August 1, 2023. The remaining availability of the delayed draw tranche of $15.0 million will be used, subject to certain maximum liquidity conditions, for working capital purposes.
The Company’s obligations under the A&R Term Loan Credit Agreement are guaranteed by certain direct and indirect material subsidiaries of the Company (the “A&R Term Loan Guarantors” and, together with the Company, the “A&R Term Loan Parties”). The obligations of the A&R Term Loan Parties are secured on a second priority basis by the ABL Priority Collateral and on a first priority basis by substantially all of the other assets of the A&R Term Loan Parties, subject to the terms of an intercreditor agreement (the “Intercreditor Agreement”) between the A&R Term Loan Agent, the ABL Agent and the A&R Term Loan Parties, that sets forth the priorities in respect of the collateral and certain related agreements with respect thereto.
The Company may make voluntary prepayments of the loans under the A&R Term Loan Credit Agreement from time to time, and the Company is required in certain instances related to change of control, asset sales, equity issuances, non-permitted debt issuances and with annual excess cash flow (as defined in the A&R Term Loan Credit Agreement), to make mandatory prepayments of the loans under the A&R Term Loan Credit Agreement, subject to certain prepayment premiums as specified in the A&R Term Loan Credit Agreement (subject to certain exceptions), plus accrued and unpaid interest.
The A&R Term Loan Credit Agreement contains certain customary conditions to borrowings, events of default and affirmative, negative, and financial covenants (as described in the A&R Term Loan Credit Agreement). As of September 30, 2023, we are in compliance with the covenants.
Further, the A&R Term Loan Credit Agreement includes certain customary events of default, the occurrence of which may require an additional 2.00% interest on the outstanding loans and other obligations under the A&R Term Loan Credit Agreement and the debt may become payable immediately.
The terms of Uptiered Loan / Subordinated Term Loan and Incremental Term Loan are described in the table below (dollar amounts are presented in thousands):
Uptiered Loan / Subordinated Term Loan
 Incremental Term Loan
Maturity date
12/31/2027 (12/31/2026 if outstanding balance is greater than $50 million)
12/31/2026
Stated interest rate
 12% PIK through 12/31/2023, then cash and PIK split as described below
12% paid in cash
Principal paymentsat maturity
$300 quarterly
Effective interest rate
9/30/202312.86%23.69%
9/30/202246.79%
N/A
Interest paymentscash quarterly/PIK monthly quarterly
PIK interest added to principal
YTD 9/30/2023$10,829
 N/A
YTD 9/30/2022$4,596
 N/A
Balances at 9/30/2023
Principal balance 1
$126,272$43,371
Unamortized balance of debt issuance cost$(684)$(9,337)
Net carrying balance$125,588$34,034
Balances at 12/31/2022
Principal balance 1
$115,443
 N/A
Unamortized balance of debt issuance cost$(7,538)
 N/A
Net carrying balance$107,905
 N/A
Available amount at 9/30/20232
$—$15,000
___________
1 The principal balance of the Uptiered Loan / Subordinated Term Loan is made up of $22.5 million drawn on November 9, 2021, $27.5 million drawn on December 8, 2021, and $57.0 million added as part of the exchange agreement on October 4, 2022. In addition, the principal balance also includes PIK interest recorded to date of $18.2 million and $7.4 million as of September 30, 2023 and December 31, 2022, respectively, and, with respect to the Incremental Term Loan, PIK fees of $0.9 million.
2 $5.0 million was drawn from the available balance on October 6, 2023.
The Uptiered Loan under the A&R Term Loan Credit Agreement bears interest at an annual rate of 12.00%, paid-in-kind (noncash) (“PIK”) from June 16, 2023 through December 31, 2023, and thereafter a split between cash and PIK, with the cash portion ranging from 2.50% per annum to 12.00% per annum, and the PIK portion ranging from 9.50% per annum to 0.00% per annum, depending on the Company’s Net Leverage Ratio (as defined in the A&R Term Loan Credit Agreement). In addition, if certain minimum liquidity thresholds set forth in the A&R Term Loan Credit Agreement are not met for an applicable interest payment date, all interest in respect of the Uptiered Loan payable on such interest payment date will be PIK, irrespective of the Net Leverage Ratio at such time.
In addition, if certain conditions related to repayments in respect of the Incremental Term Loan are not met, certain additional quarterly fees (not to exceed 4 such fees) plus a 150 basis point increase to the applicable interest rate will be payable to the lenders under the A&R Term Loan Credit Agreement in cash or common stock of the Company, at the Company’s option.
Warrants
As of September 30, 2023 and December 31, 2022, APSC Holdco II, L.P. held 500,000 warrants and certain Corre holders collectively held 500,000 warrants in each case providing for the purchase of one share of the Company’s common stock per warrant at an exercise price of $15.00. The warrants will expire on December 8, 2028.
The exercise price and the number of shares of our common stock issuable on exercise of the warrants are subject to certain antidilution adjustments, including for stock dividends, stock splits, reclassifications, noncash distributions, cash dividends, certain equity issuances and business combination transactions.
Convertible Notes
Description of Convertible Notes
On July 31, 2023, $42.5 million of the $57.5 million under the Incremental Term Loan was drawn down and the proceeds thereof were used to repay the principal and accrued interest of the outstanding Notes on their maturity date of August 1, 2023.
On July 31, 2017, we issued $230.0 million principal amount of Notes due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act of 1933) pursuant to Rule 144A under the Securities Act (the “Offering”). Net proceeds received from the Offering were approximately $222.3 million after deducting discounts, commissions and expenses and were used to repay outstanding borrowings under a previous credit facility.
The Notes bore interest at a rate of 5.0% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018.
Cash interest paid amounted to $2.1 million and $2.1 million for the nine months ended September 30, 2023 and 2022, respectively. PIK interest of $4.2 million was added to principal during the nine months ended September 30, 2022. There was no PIK interest in 2023.
Fair Value of Debt
The fair value of our 2022 ABL Credit Facility, Uptiered Loan, Incremental Term Loan and ME/RE Loans are representative of the carrying value based upon the variable interest rate terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt. The fair value of the Notes as of December 31, 2022 was $37.5 million, (inclusive of the fair value of the conversion option) and a “Level 2” measurement, determined based on the observed trading price of these instruments. The Notes were fully paid off on August 1, 2023.
1970 Group Substitute Insurance Reimbursement Facility
On September 29, 2022, the 1970 Group extended us credit in the form of a substitute reimbursement facility (the “Substitute Reimbursement Facility”) to provide up to approximately $21.4 million of letters of credit on our behalf in support of our workers’ compensation, commercial automotive and general liability insurance policies (the “Insurance Policies”).
We are required to reimburse the 1970 Group for any draws made under the letters of credit within five business days of notice of any such draw. The Substitute Insurance Reimbursement Facility Agreement was renewed on August 29, 2023 to update the letters of credit limit up to approximately $24.9 million with the termination date on the earlier of (i) the expiration or termination of our Insurance Policies or (ii) September 29, 2024.
According to the provisions of ASC 470 – Debt, the arrangement is a Substitute Insurance Reimbursement Facility limited to the amounts drawn under the letters of credit. Therefore, until there is a draw on the Substitute Insurance Reimbursement Facility, the letters of credit are treated as an off-balance sheet credit arrangement. The fees paid by us periodically under this arrangement are deferred and amortized to interest expense over the term of the arrangement. As of September 30, 2023, we had approximately $2.8 million of unamortized deferred fees.
Liquidity
As of September 30, 2023, we had $16.5 million of unrestricted cash and cash equivalents and $5.0 million of restricted cash. International cash balances as of September 30, 2023 were $11.2 million, and approximately $0.7 million of such cash is located in countries where currency restrictions exist. As of September 30, 2023, we had approximately $19.9 million of available borrowing capacity under our various credit agreements, consisting of $4.9 million available under the Revolving Credit Loans and $15.0 million available under the Incremental Term Loan under the A&R Term Loan Credit Agreement. We have $37.6 million in letters of credit and $1.7 million in surety bonds outstanding and $2.1 million in miscellaneous cash
deposits securing leases or other required obligations. Our cash and cash equivalents as of December 31, 2022 totaled $58.1 million including $1.4 million of cash located in countries where currency restrictions existed.