Long-term Debt and Financing Arrangements

3 Months Ended

Mar. 31, 2020

Long-term Debt and Financing Arrangements

On August 31, 2018, the Company amended and restated its $175 million senior secured revolving credit agreement ("2018 Credit Agreement") which increased the available borrowing from $175 million to $450 million, added three additional lenders and extended the maturity date from July 7, 2021 to August 31, 2023. On May 11, 2020, the Company amended its 2018 Credit Agreement ("2020 Amendment") which, among other changes, decreased available borrowings from $450 million to $314 million.

2018 Credit Agreement

Under the terms of the 2018 Credit Agreement, the lenders provided up to a $450 million credit facility (the “Facility”) to the Company, including a term loan commitment of $200 million and revolving loans to or for the benefit of the Company and its subsidiaries of up to $250 million. The Facility was secured by substantially all of the assets of the Company.

Interest was charged on borrowings at the Company’s option of either: (i) Base Rate plus the Applicable Rate, or (ii) the Eurodollar Rate plus the Applicable Rate. The Base Rate is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by Bank of America, and (c) the Eurocurrency Rate plus 1.00%. The Eurocurrency Rate means (i) if denominated in LIBOR quoted currency, a fluctuating LIBOR per annum rate equal to the London Interbank Offered Rate; (ii) if denominated in Canadian Dollars, the rate per annum equal to the Canadian Dollar Offered Rate; or (iii) the rate per annum as designated with respect to such alternative currency at the time such alternative currency is approved by the Lenders. The Applicable Rate is determined based on the Company’s Consolidated Leverage Ratio (as defined in the 2018 Credit Agreement). The Applicable Rate added to the Base Rate Committed Loans ranged from 0.00% to 1.25%, and the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit ranged from 0.75% to 2.00%. The Company paid a quarterly fee ranging from 0.15% to 0.275% on the unused portion of the revolving commitment. The Company has entered into multiple interest rate swaps to convert a portion of the Company's one-month LIBOR-based borrowings from a variable rate to a fixed rate. See Note 7, "Derivatives".

The Company is permitted to prepay term and revolving borrowings in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, and the Company was generally permitted to irrevocably cancel unutilized portions of the revolving commitments under the 2018 Credit Agreement. The Company is required to repay the term commitment

in an amount of $2.5 million per quarter beginning with the quarter ending December 31, 2018 through the quarter ending June 30, 2023.

The 2018 Credit Agreement contained covenants required of the Company and its subsidiaries, including various affirmative and negative financial and operational covenants. The Company was required to meet certain quarterly financial covenants calculated from the four fiscal quarters most recently ended, including: (i) a minimum Consolidated Fixed Charge Coverage Ratio, which requires that at the end of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed maintenance capital expenditures, restricted payments and taxes paid, each as defined in the 2018 Credit Agreement, may not be lower than 1.25 to 1.0; and (ii) a Consolidated Net Leverage Ratio, which required that at the end of each fiscal quarter the ratio of consolidated funded indebtedness minus consolidated domestic cash to consolidated EBITDA, as defined in the 2018 Credit Agreement, could not be greater than 3.5 to 1.0. The Company was in compliance with all covenants at March 31, 2020.

At March 31, 2020, the Company had $288.5 million of borrowings outstanding and standby letters of credit outstanding of $1.9 million. The borrowings outstanding included a $143.6 million term loan, net of $0.4 million in debt issuance costs being amortized to interest expense over the debt maturity period.

In addition to the amounts outstanding under the Facility, the Company has various foreign credit facilities totaling approximately $7.0 million. At March 31, 2020, the Company's foreign subsidiaries had $0.1 million in borrowings outstanding as well as $1.4 million in standby letters of credit outstanding.

The Company also has finance lease agreements for machinery and equipment at multiple operations requiring monthly principal and interest payments through 2020.

Total outstanding debt consists of:



In thousands	Effective Rate		Maturity	March 31, 2020			December 31, 2019
Revolver loan	2.99	%	8/31/2023	$	144,500		$	126,500
Term loan, net of debt issuance costs	2.99	%	8/31/2023	143,632			146,106
Finance leases	1.60	%	2020	24			35
				288,156			272,641
Less portion due within one year				(9,916		)	(9,928		)
Total long-term debt, net of debt issuance costs				$	278,240		$	262,713

The carrying value of the Company’s debt outstanding on its Facility approximates fair value given the variable rate nature of the debt. The fair values of the Company’s long-term debt are determined using discounted cash flows based upon the Company’s estimated current interest cost for similar type borrowings or current market value, which falls under Level 2 (observable inputs other than quoted prices in active markets, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data) of the fair value hierarchy.

The weighted average interest rate on long-term debt was 4.4% for the three months ended March 31, 2020 and 4.3% for the year ended December 31, 2019.

2020 Amendment to the 2018 Credit Agreement

On May 11, 2020, the Company amended its $450 million senior secured revolving 2018 Credit Agreement. The principal purpose of the Amendment was to modify certain financial maintenance covenants contained in the 2018 Credit Agreement, at least one of which the Company expected to fail as early as the second quarter of 2020 as a result of the impact of COVID-19. Key amended terms and conditions include:


•	The maximum Consolidated Net Leverage Ratio, applicable on the last day of each fiscal quarter, is 6.5:1 through the period ending March 31, 2021, stepping down to 4.50:1 for the period ending June 30, 2021 through the period ending March 31, 2022, and 3.50:1 for the period ending June 30, 2022 and thereafter;

•

The minimum Consolidated Fixed Charge Coverage Ratio, applicable on the last day of each fiscal quarter, is 1.10:1 on a trailing twelve month basis through the period ending June 30, 2020, stepping up to 1.25:1 on a distinct quarterly basis for the quarters ended September 30, 2020 through June 30, 2021, and on a trailing twelve month basis beginning with the period ending September 30, 2021 and thereafter;


•	The amended terms also provide that the Company maintain cash and cash equivalents balances of $40 million, excluding deposit accounts in China;


•	The term loan facility is $144 million and the revolving credit facility is $170 million for a total overall facility of $314 million. The accordion feature has been eliminated, and there is no change to the maturity date;


•	There is a floor on the Base and Eurocurrrency Rate of 1%;


•	The range for the Applicable Rate, as determined based on the Company’s Consolidated Net Leverage Ratio, and added to the Base Rate Committed Loans is 2.00% to 3.25% and the range for the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit is 3.00% to 4.25%;


•	The quarterly fee is 0.375% on the unused portion of the revolving commitment; and


•	The Company will pay an amendment fee to the Lenders based on their commitment levels.

The Company believes that its liquidity resources including the 2020 Amendment are sufficient to meet its working capital needs and other cash requirements.