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Long-Term Debt
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Long-Term Debt
Long-Term Debt

Total debt consists of the following:
 
December 31,   
 
December 31,   
(in thousands)
2017
 
2016
Term loan A-1
436,500

 
472,875

Term loan A-2
400,000

 
375,000

 
836,500

 
847,875

Less: unamortized loan fees
14,542

 
18,610

Total debt, net of unamortized loan fees
$
821,958

 
$
829,265

 
 
 
 
Current maturities of long term debt, net of unamortized loan fees
$
64,397

 
$
32,041

Long-term debt, less current maturities, net of unamortized loan fees
$
757,561

 
$
797,224



On December 18, 2015, the Company entered into a Credit Agreement (as amended, the “2016 credit agreement”) with various banks and other financial institutions party thereto and CoBank, ACB, as administrative agent for the lenders, providing for three facilities: (i) a five-year revolving credit facility of up to $75 million; (ii) a five-year term loan facility of up to $485 million (Term Loan A-1”); and (iii) a seven-year term loan facility of up to $400 million (“Term Loan A-2”), (collectively our "Credit Facility" or "Credit Facilities").

In connection with the closing of the nTelos acquisition, the Company borrowed (i) $485 million under Term Loan A-1 and (ii) $325 million under Term Loan A-2, which amounts were used to, among other things, fund the payment of the nTelos merger consideration, to refinance, in full, all indebtedness under the Company’s existing credit agreement, to repay existing long-term indebtedness of nTelos and to pay fees and expenses in connection with the foregoing.  In connection with the consummation of the nTelos acquisition, nTelos and its subsidiaries became guarantors under the 2016 credit agreement and pledged their assets as security for the obligations under the 2016 credit agreement.  The 2016 credit agreement also included $75 million available under the Term Loan A-2 as a delayed draw term loan, and as of December 2016, the Company drew $50 million under this portion of the agreement and in January 2017 the Company drew the remaining $25 million. Additionally, the 2016 credit agreement includes a $75 million Revolver Facility and permits the Company to enter into one or more Incremental Term Loan Facilities not to exceed $150 million in the aggregate. At December 31, 2017, no draw had been made under the Revolver Facility and the Company had not entered into any Incremental Loan Facility. The debt issuance costs associated with the Revolver Facility are included in deferred charges and other assets on the balance sheet, and are amortized on a straight-line basis over the life of the Revolver Facility.

As of December 31, 2017, the Company’s indebtedness totaled approximately $822.0 million, net of unamortized loan fees of $14.5 million, with an annualized overall weighted average interest rate of approximately 4.23%.  As of December 31, 2017, the Term Loan A-1 bears interest at one-month LIBOR plus a margin of 2.75%, while the Term Loan A-2 bears interest at one-month LIBOR plus a margin of 3.00%.  LIBOR resets monthly.  These loans are more fully described below. (See Note 18, Subsequent Events).

The Term Loan A-1 requires quarterly principal repayments of $6.1 million, which began on September 30, 2016 and continued through June 30, 2017, increasing to $12.1 million quarterly from September 30, 2017 through June 30, 2020; then increasing to $18.2 million quarterly from September 30, 2020 through March 31, 2021, with the remaining balance due June 30, 2021.  The Term Loan A-2 requires quarterly principal repayments of $10.0 million beginning on September 30, 2018 through March 31, 2023, with the remaining balance due June 30, 2023.

The 2016 credit agreement also required the Company to enter into one or more hedge agreements to manage its exposure to interest rate movements.  The Company elected to hedge the minimum required under the 2016 credit agreement, and entered into a pay-fixed, receive-variable swap on 50% of the aggregate expected principal balance of the term loans outstanding.  The Company will receive one month LIBOR and pay a fixed rate of 1.16%, in addition to the 2.75% initial spread on Term Loan A-1 and the 3.00% initial spread on Term Loan A-2.

The 2016 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 or 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 2016 credit agreement.

The Facilities are secured by a pledge by the Company of its stock and membership interests in its subsidiaries, a guarantee by the Company’s subsidiaries other than Shenandoah Telephone Company, and a security interest in substantially all of the assets of the Company and 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 3.75 to 1.00 from the closing date through December 30, 2018, then 3.25 to 1.00 through December 30, 2019, and 3.00 to 1.00 thereafter;
a minimum debt service coverage ratio, defined as EBITDA minus certain cash taxes divided by the sum of all scheduled principal payments on the Term Loans and other indebtedness plus cash interest expense, greater than 2.00 to 1.00;
the Company must maintain a minimum liquidity balance, defined as availability under the revolver facility plus unrestricted cash and cash equivalents on deposit in a deposit account for which a control agreement has been delivered to the administrative agent under the 2016 credit agreement, of greater than $25 million at all times.

These ratios are generally less restrictive than the covenant ratios the Company had been required to comply with under its previously existing debt arrangements. 

As shown below, as of December 31, 2017, the Company was in compliance with the financial covenants in its credit agreements.
 
 
Actual
 
Covenant Requirement
Total Leverage Ratio
2.93

 
3.75 or Lower
Debt Service Coverage Ratio
3.73

 
2.00 or Higher
Minimum Liquidity Balance (in millions)
$
151.9

 
$25 million or Higher


Future maturities of long-term debt principal are as follows:
Year Ending
 
Amount
 
 
(in thousands)
2018
 
$
68,500

2019
 
88,500

2020
 
100,625

2021
 
318,875

2022
 
40,000

2023
 
220,000

Total
 
$
836,500



The Company has no fixed-rate debt instruments as of December 31, 2017.  The estimated fair value of the variable-rate debt approximates its carrying value due to its floating interest rate structure.  The fair value of the Company’s interest rate swap was an asset of $13.2 million and $11.2 million at December 31, 2017 and 2016, respectively. (See Note 10, Derivatives and Hedging).

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 quarter of the year, the Company receives patronage credits on its average outstanding CoBank debt balance during the prior fiscal year. The Company accrued $2.8 million in non-operating income in the year ended December 31, 2017, in anticipation of the early 2018 distribution of the credits by CoBank.  Patronage credits have historically been paid in a mix of cash and shares of CoBank stock.  The 2017 payout mix was 75% cash and 25% shares.