CREDIT FACILITIES

3 Months Ended

Jan. 01, 2021

NOTE 6—CREDIT FACILITIES

A summary of borrowings at period end follows:


			January 1, 2021				September 30, 2020
Credit Facility Debt	Fixed/Variable Rate	Maturity Date	Balance		Interest Rate		Balance		Interest Rate
(in thousands)
M&T Bank credit facilities:
Revolving Credit Facility	v	6/4/2023	$	29,862	2.75	%	$	19,960	2.75	%
Master Lease	v	6/4/2023	2,545		3.00		1,782		3.00
Total debt, gross			32,407				21,742
Unamortized debt issuance costs			(241)				(266)
Total debt, net			32,166				21,476
Less: current portion			—				—
Long-term debt			$	32,166			$	21,476

M&T Bank Credit Facilities

Effective as of June 4, 2020, the Company and M&T Bank entered into the Sixth Amended and Restated Credit Facility Agreement (the “Credit Facility”) which replaced the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (collectively, the “Prior Credit Facility, as amended”).

Pursuant to the Credit Facility, the Company increased its revolving credit facility to an aggregate principal amount of $45.0 million and added provisions that allow the Company, subject to certain requirements, to request further increases, in minimum amounts of $5.0 million, up to $55.0 million. The Credit Facility also amended the financial covenant, Fixed Charge Coverage Ratio, and set a Minimum Fixed Charge Coverage Ratio. In addition, the Credit Facility modified the definition of Applicable Margin used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and modified the definition of Permitted Acquisitions. The Credit Facility also established a LIBOR floor of 1% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. The Credit Facility prohibits the Company from making cash dividends without first obtaining the consent of M&T Bank.

Also on June 4, 2020, the Company and M&T Bank entered into a master equipment lease (the “Master Lease”) for a lease line of up to $10.0 million in lease value of equipment to the Company. The Master Lease contains terms and provisions customary for transactions of this type, including obligations relating to the use, operation and maintenance of the equipment. The Master Lease also contains customary events of default, including nonpayment of amounts due under the lease and assignments for the benefit of creditors, bankruptcy or insolvency. In the event that an event of default occurs, M&T Bank may exercise one or more remedies specified in the Master Lease. At the conclusion of the lease term, the Company will have the right to purchase the equipment under the Master Lease. The Master Lease will renew automatically for additional 12-month terms until the Company provides M&T Bank with notice of non-renewal.

The Credit Facility is secured by a general security agreement covering the assets of the Company and its subsidiaries, a pledge of the Company’s equity interest in its subsidiaries, a negative pledge on the Company’s real property, and a guarantee by the Company’s subsidiaries, all of which restrict use of these assets to support other financial instruments.

Individual debt facilities provided under the Credit Facility as of January 1, 2021 and September 30, 2020, are described below:

a)Revolving Credit Facility (“Revolver”): At January 1, 2021 and September 30, 2020, up to $45.0 million was available under the Credit Facility through June 4, 2023. The maximum amount the Company may borrow is determined based on a borrowing base calculation described below.

b)Master Lease: At January 1, 2021 and September 30, 2020, we had drawn down $2.5 million and $1.8 million, respectively, pursuant to the Master Lease that was entered into as of June 4, 2020.

Borrowing Base

At January 1, 2021 and September 30, 2020, under the Credit Facility, the maximum amount the Company can borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus (ii) up to 90% of eligible investment grade accounts plus (iii) a percentage of eligible inventories (up to a cap of $30.0 million).

At January 1, 2021, the upper limit on Revolver borrowings was $40.5 million and $10.6 million was available. At September 30, 2020, the upper limit on Revolver borrowings was $39.4 million and $19.4 million was available. Average Revolver balances amounted to $29.8 million and $24.5 million (under the Prior Credit Facility, as amended) during the three months ended January 1, 2021 and December 27, 2019, respectively.

Interest Rates

Under the Credit Facility, variable rate debt accrues interest at LIBOR plus the applicable marginal interest rate that fluctuates based on the Company’s Fixed Charge Coverage Ratio, as defined below. At January 1, 2021, the applicable marginal interest rate was 1.75% for the Revolver. At September 30, 2020, the applicable marginal interest rate was 1.75% for the Revolver. Changes to applicable margins and unused fees resulting from the Fixed Charge Coverage Ratio generally become effective mid-way through the subsequent quarter.

The Company incurs quarterly unused commitment fees ranging from 0.25% to 0.375% of the excess of $45.0 million over average borrowings under the Revolver. For the fiscal quarter ended January 1, 2021, the unused commitment fee was fixed at 0.25%. Fees incurred amounted to $11.7 thousand and $5.8 thousand during the three months ended January 1, 2021 and December 27, 2019, respectively. The fee percentage varies based on the Company’s Fixed Charge Coverage Ratio, as defined below.

Financial Covenants

The Credit Facility contains various affirmative and negative covenants including financial covenants. As of January 1, 2021, the Company had to maintain a minimum fixed charge coverage ratio (“Fixed Charge Coverage Ratio”). The Fixed Charge Coverage Ratio compares (i) EBITDAS minus unfinanced capital expenditures minus income tax expense, to (ii) the sum of

interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, income taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio was measured for a trailing twelve months ended January 1, 2021 as a minimum of 1.10 times. The Fixed Charge Coverage Ratio was the only covenant in effect at January 1, 2021. The Credit Facility also provides for customary events of default, subject in certain cases to customary cure periods, in which the outstanding balance and any unpaid interest would become due and payable.

The Company was in compliance with the financial debt covenant at January 1, 2021.

Contractual Principal Payments

A summary of contractual principal payments under IEC’s borrowings at January 1, 2021 for the next two years taking into consideration the Credit Facility is as follows:


Debt Repayment Schedule	Contractual Principal Payments
(in thousands)
Twelve months ending fiscal first quarter
2022	—
2023 ¹	32,407



	$	32,407

1 Includes Revolver balance of $29.9 million at January 1, 2021.