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Long-Term Debt and Revolving Lines of Credit
12 Months Ended
Dec. 31, 2014
Long-Term Debt and Revolving Lines of Credit [Abstract]  
Long-Term Debt and Revolving Lines of Credit
Note 5.  Long-Term Debt and Revolving Lines of Credit

Total debt consists of the following at December 31, 2014 and 2013:

    
Interest Rate
  
2014
  
2013
 
    
(in thousands)
 
CoBank Term Loan
Variable
  
2.67
%
  
224,250
   
230,000
 
Current maturities
       
23,000
   
5,750
 
Total long-term debt
      
$
201,250
  
$
224,250
 

On September 14, 2012, the Company executed an Amended and Restated Credit Agreement with CoBank and with the participation of 16 additional Farm Credit institutions, for the purpose of refinancing the Company’s existing outstanding debt, funding capital expenditures to upgrade the Company’s wireless network in conjunction with Sprint’s wireless network upgrade project known as Network Vision, and other corporate needs.

The Amended and Restated Credit Agreement provides for three facilities, a Term Loan Facility, a Revolver Facility, and an Incremental Term Loan Facility. The Term Loan Facility requires quarterly principal repayments of $5.75 million which began on December 31, 2014, with the remaining expected balance of approximately $120.75 million due at maturity on September 30, 2019.  The Term Loan Facility bears interest at 30-day LIBOR, currently 0.17%, plus a spread determined by the Company’s Total Leverage Ratio, currently 2.50%.  The Company may elect to use rates other than the 30-day LIBOR as the base, but does not currently expect to do so.

The Revolver Facility provides for $50 million in immediate availability for future capital expenditures and general corporate needs.  In addition, the Credit Agreement permits the Company to enter into one or more Incremental Term Loan Facilities, or to increase the Revolver Facility, in the aggregate principal amount not to exceed $100 million subject to compliance with certain covenants.  No draw has been made or is currently contemplated under either of these facilities.  When and if a draw is made, the maturity date and interest rate options would be substantially identical to the Term Loan Facility.  Repayment provisions would be agreed to at the time of each draw under the Incremental Term Loan Facility.
 
The Credit Agreement contains affirmative and negative covenants customary to secured credit facilities, including covenants restricting the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions, dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of the Company’s and its subsidiaries’ businesses.

Indebtedness outstanding under any of the facilities may be accelerated by an Event of Default, as defined in the Credit Agreement.

The Facilities are secured by a pledge by the Company of its stock in its subsidiaries, a guarantee by the Company’s subsidiaries other than Shenandoah Telephone Company, and a security interest in all of the assets of the guarantors.

The Company is subject to certain financial covenants to be measured on a trailing twelve month basis each calendar quarter unless otherwise specified.  These covenants include:

·a limitation on the Company’s total leverage ratio, defined as indebtedness divided by earnings before interest, taxes, depreciation and amortization, or EBITDA, of less than or equal to 2.50 to 1.00 from April 1, 2014 through March 31, 2015, and 2.00 to 1.00 thereafter;
·a minimum debt service coverage ratio, defined as EBITDA divided by the sum of all scheduled principal payments on the Term Loans and regularly scheduled principal payments on other indebtedness plus cash interest expense, greater than 2.50 to 1.00 at all times;
·a minimum equity to assets ratio, defined as consolidated total assets minus consolidated total liabilities, divided by consolidated total assets, of at least 0.325 to 1.00 through December 31, 2014, and at least 0.35 to 1.00 thereafter, measured at each fiscal quarter end;

As shown below, as of December 31, 2014, the Company was in compliance with the financial covenants in its credit agreements.
 
  
Actual
 
Covenant Requirement
Total Leverage Ratio
 
1.67
 
2.50 or Lower
Debt Service Coverage Ratio
 
8.57
 
2.50 or Higher
Equity to Assets Ratio
 
41.7%
 
32.5% or Higher

The Amended and Restated Credit Agreement required the Company to obtain interest rate protection within 90 days of the amendment date for at least 33% of the aggregate principal balance of the Term Loan then outstanding, for not less than three years after such date.  In September 2012, the Company entered into a pay fixed, receive variable interest rate swap (the 2012 swap) agreement covering approximately 76% of the outstanding principal of the Term Loan balance through its maturity. The 2012 swap fixes the effective rate on this portion of the debt at 1.13% over our margin, currently 2.50%, for an effective fixed rate of 3.63% at December 31, 2014. The Company has applied hedge accounting to this swap agreement.  See Note 14 for additional information on hedging transactions.

The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2014 are as follows:

Year
 
Amount
 
  
(in thousands)
 
2015
 
$
23,000
 
2016
  
23,000
 
2017
  
23,000
 
2018
  
23,000
 
2019
  
132,250
 
  
$
224,250
 

The Company has no fixed rate debt instruments as of December 31, 2014.  The estimated fair value of the variable rate debt approximates its carrying value.  The fair value of the Company’s interest rate swap was an asset of $1.9 million and $4.3 million at December 31, 2014 and December 31, 2013, respectively.
 
The Company receives patronage credits from CoBank and certain of its affiliated Farm Credit institutions, which are not reflected in the stated rates shown above.  Patronage credits are a distribution of profits of CoBank as approved by its Board of Directors.  During the first quarters of 2014, 2013 and 2012, the Company received patronage credits on its outstanding CoBank debt balance. The Company accrued $1.6 million in non-operating income in the year ended December 31, 2014, in anticipation of the early 2015 distribution of the credits by CoBank.  Patronage credits have historically been paid in a mix of cash and shares of CoBank stock.  The 2014 payout mix was 75% cash and 25% shares.