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Debt and Financing
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt and Financing
Debt and Financing

Our outstanding debt as of September 30, 2019 consisted of the following:
As of September 30, 2019 (in millions)
Par Value
 
Discount
 
Debt Issuance Costs
 
Book
Value
Average Effective
Interest Rate
 
Term Loan
$
600.0

 
$
(29.7
)
 
$
(11.0
)
 
$
559.3

10.7
%
(a) 
ABL Facility

 

 

 

N/A

 
Secured Second A&R CDA
26.8

 

 
(0.1
)
 
26.7

7.9
%
 
Unsecured Second A&R CDA
46.7

 

 
(0.2
)
 
46.5

7.9
%
 
Lease financing obligations
232.8

 

 
(0.3
)
 
232.5

16.4
%
(b) 
Total debt
$
906.3

 
$
(29.7
)
 
$
(11.6
)
 
$
865.0

 
 
Current maturities of Term Loan

 

 

 

 
 
Current maturities of lease financing obligations
(2.8
)
 

 

 
(2.8
)
 
 
Current maturities of Unsecured Second A&R CDA
(1.5
)
 

 

 
(1.5
)
 
 
Long-term debt
$
902.0

 
$
(29.7
)
 
$
(11.6
)
 
$
860.7

 
 

(a)  
Variable interest rate of 1, 3 or 6-month LIBOR, with a floor of 1.0%, plus a fixed margin of 7.5%.
(b) Interest rate for lease financing obligations is derived from the difference between total rent payment and calculated principal amortization over the life of lease agreements.

New Term Loan

On September 11, 2019, the Company and certain of its subsidiaries, as guarantors (the “Term Guarantors”), amended and restated the existing credit facilities under the credit agreement dated February 13, 2014 (the “Prior Term Loan Agreement”) and entered into a $600.0 million term loan agreement (“New Term Loan”) with funds managed by Apollo Global Management, LLC acting collectively as lead lender, and Cortland Products Corp, as administrative agent and collateral agent. The obligations of the Company under the agreement governing (the “New Term Loan Agreement”) are unconditionally guaranteed by the Term Guarantors.

The New Term Loan has a maturity date of June 30, 2024, with a single payment due at maturity of the outstanding balance. The New Term Loan bears interest at LIBOR (subject to a floor of 1.0%) plus a margin of 7.5% per annum, payable at least quarterly in cash, subject to a 1.0% margin step down in the event the Company achieves greater than $400.0 million in trailing-twelve-month Adjusted EBITDA (defined in the New Term Loan Agreement as “Consolidated EBITDA”). Obligations under the New Term Loan are secured by a perfected first priority security interest in (subject to permitted liens) assets of the Company and the Term Guarantors, including but not limited to all of the Company’s wholly owned terminals, tractors and trailers, subject to certain limited exceptions.

The New Term Loan eliminated the total maximum leverage ratio covenant that the Company was subject to under the Prior Term Loan Agreement and introduced a new covenant that requires the Company maintain a minimum trailing-twelve-month Adjusted EBITDA of $200.0 million, measured quarterly. The New Term Loan is subject to repayment with, among other things, 100.0% of the net cash proceeds from the disposition of assets outside the ordinary course of business, except that the Company is permitted to keep the first $40.0 million in trucking terminal property sales over the term of the loan to reinvest in operations or other strategic initiatives, where applicable.

Borrowings under the New Term Loan may be voluntarily prepaid, provided however, that any such prepayment or mandatory prepayment (other than with respect to a prepayment with excess cash flow) will be subject to a 3.0% premium until the first anniversary date, a 2.0% premium from the first anniversary date until the second anniversary date, and a 1.0% premium from the second anniversary date until the third anniversary date, and 0.0% thereafter.

The New Term Loan resulted in an extinguishment of $11.2 million in capitalized issuance discount and unamortized deferred debt issuance costs relating to the prior term loan. The original issuance discount and transaction fees relating to the New Term Loan were capitalized and will be amortized through interest expense over the life of the New Term Loan.




Liquidity

Our principal sources of liquidity are cash and cash equivalents, available borrowings under our asset-based loan facility (the
“ABL Facility”) and any prospective net cash flow from operations. As of September 30, 2019, our maximum availability under our ABL Facility was $69.5 million. Our Managed Accessibility was $28.8 million, which represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured at September 30, 2019. As of September 30, 2019, our cash and cash equivalents and Managed Accessibility were $150.1 million.

For the December 31, 2018 borrowing base certificate, which was filed in January of 2019, we transferred $25.0 million of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to $203.8 million.

The table below summarizes cash and cash equivalents and Managed Accessibility as of September 30, 2019 and December 31, 2018:

(in millions)
September 30, 2019
 
December 31, 2018
Cash and cash equivalents
$
121.3

 
$
227.6

Changes to restricted cash

 
(25.0
)
Managed Accessibility
28.8

 
1.2

Total cash and cash equivalents and Managed Accessibility
$
150.1

 
$
203.8



Covenants

The New Term Loan Agreement includes a financial covenant requirement for the Company to maintain a minimum of $200.0 million trailing-twelve-month Adjusted EBITDA, measured quarterly. Consolidated Adjusted EBITDA, defined in our New Term Loan Agreement as “Consolidated EBITDA,” is a measure that reflects our earnings before interest, taxes, depreciation, and amortization expense, and is further adjusted for, among other things, letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring charges, transaction costs related to issuances of debt, non-recurring consulting fees, non-cash impairment charges, integration costs, severance, non-recurring charges and the gains or losses from permitted dispositions, discontinued operations, and certain non-cash expenses, charges and losses (provided that if any of such non-cash expenses, charges or losses represents an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period will be subtracted from Consolidated EBITDA in such future period to the extent paid). The definition was further modified under the New Term Loan Agreement such that certain expenses that qualify as adjustments are capped at 10.0% of the trailing-twelve-month Adjusted EBITDA, in aggregate. Adjustments subject to the 10.0% cap include, but are not limited to, restructuring charges, integration costs, severance, and non-recurring charges. Additionally, all net gains from the disposition of properties are excluded from the definition of Adjusted EBITDA, therefore any gains previously recognized in Adjusted EBITDA, as that term was previously defined in our SEC filings, in accordance with its definition in the Prior Term Loan Agreement, will not be included in the calculation of Adjusted EBITDA under the New Term Loan Agreement.

The ABL Facility also contains certain covenants, including, but not limited to, annual limits on capital expenditures. The ABL includes a $200.0 million annual limit on capital expenditures but one year lookback is permitted. The annual capital expenditure limit covenant was removed from the New Term Loan Agreement.

Risks and Uncertainties Regarding Compliance with Credit Facility Financial Covenants

We believe that our results of operations will allow us to comply with the minimum Adjusted EBITDA covenant in the New Term Loan Agreement for at least the next twelve months, subject to specific actions and cost savings initiatives we are taking in the fourth quarter of 2019 and the first quarter of 2020 to provide additional Adjusted EBITDA. These actions include headcount reductions commensurate with our current volume levels, a hiring freeze on new and replacement positions, temporary elimination of short-term incentive compensation and a reduction in discretionary spend. We are taking these actions because we have not been able to fully realize operational efficiencies arising from our new five-year national master contract (“New NMFA”) due to depressed volume levels. Our ability to satisfy our liquidity needs and meet our minimum Adjusted EBITDA requirement during the next twelve months and thereafter is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019, which were negatively impacted by the process to obtain our five-year labor agreement scheduled to expire on March 31, 2019 and successfully ratified on May 14, 2019. Significant adverse conditions, which may result from changes in global trade policies or increased contraction in the general economy, may impact our ability to achieve a minimum Adjusted EBITDA above $200.0 million on a trailing-twelve-month basis. Means for improving our profitability include accelerated implementation of network optimization, specific initiatives in the areas of pricing and customer engagement, and other operational actions to improve productivity and efficiency, as well as increased volume, all of which may not be within our control. If we are unable to achieve the improved results required to comply with this covenant in one or more quarters over the next twelve months, we may be required to take specific actions in addition to those described above, including but not limited to, additional reductions in headcount, targeted procurement initiatives to reduce operating costs and accelerating terminal closures to reduce overhead and other operating costs, or alternatively, seeking an amendment or waiver from our lenders or taking other remedial measures.

Fair Value Measurement

The book value and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:
 
 
September 30, 2019
 
December 31, 2018
(in millions)
Book Value
 
Fair value
 
Book Value
 
Fair value
Prior Term Loan
$

 
$

 
$
559.4

 
$
546.0

New Term Loan
559.3

 
559.3

 

 

Lease financing obligations
232.5

 
234.7

 
242.2

 
234.7

Second A&R CDA
73.2

 
74.1

 
73.3

 
70.0

Total debt
$
865.0

 
$
868.1

 
$
874.9

 
$
850.7



The fair value of the New Term Loan was determined to be equivalent to the book value based on the closing date’s proximity to the balance sheet date. The fair values of the Second Amended and Restated Contribution Deferral Agreement (the “Second A&R CDA”) and the lease financing obligations are estimated using a publicly-traded secured loan with similar characteristics (level three input for fair value measurement).