Debt and Financing |
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Debt and Financing |
3. Debt and Financing Our outstanding debt as of June 30, 2020 consisted of the following:
US Treasury Loan On July 7, 2020, the Company and certain of its subsidiaries, as guarantors (the “Term Guarantors”), entered into the UST Tranche A Term Loan Credit Agreement (the “Tranche A UST Credit Agreement”) with The Bank of New York Mellon, as administrative agent and collateral agent and the UST Tranche B Term Loan Credit Agreement (the “Tranche B UST Credit Agreement” and together with the Tranche A UST Credit Agreement, the “UST Credit Agreements”) with The Bank of New York Mellon, as administrative agent and collateral agent, pursuant to which the United State Treasury (“UST”) will lend an aggregate of $700.0 million to the Company pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The obligations of the Company under the UST Credit Agreements are unconditionally guaranteed by the Term Guarantors. The UST Credit Agreements have maturity dates of September 30, 2024, with a single payment at maturity of the outstanding balance. The Tranche A UST Credit Agreement consists of a $300.0 million term loan and bears interest at a rate of Eurodollar rate plus a margin of 3.5% per annum, consisting of 1.50% in cash and the remainder paid-in-kind. Proceeds from the Tranche A UST Credit Agreement will primarily be used to meet the Company’s contractual obligations and maintain working capital. The Tranche B UST Credit Agreement consists of a $400.0 million term loan and bears interest at a rate of Eurodollar rate plus a margin of 3.5% per annum, paid in cash. Proceeds from the Tranche B UST Credit Agreement will be used predominantly for the acquisition of tractors and trailers. Each agreement requires that the Company must maintain minimum “Liquidity” (defined in the UST Credit Agreements to indicate that such amount is calculated as the Company’s unrestricted cash on hand plus the amount of “Availability” (as defined in the loan agreement for the ABL Facility) to the extent such Availability could be borrowed under the ABL Facility) of $125.0 million and a minimum Adjusted EBITDA commencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the four quarters ending December 31, 2021, $150.0 million for the four quarters ending March 31, 2022, and $200.0 million thereafter. Obligations under the UST Credit Agreements are secured by a perfected first priority security interest in the escrow or controlled account and a perfected junior priority security interest (subject to permitted liens) in substantially all assets of the Company and the Term Guarantors, subject to certain exceptions. The Company issued 15,943,753 shares of common stock as consideration related to the UST Credit Agreements as described in Item 2. The UST Credit Agreements will be funded through a series of draws made over time as the proceeds are utilized for the purposes outlined by the agreements. As of July 31, 2020, $245.0 million of funds have been drawn on the Tranche A UST Credit Agreement and no funds have been drawn on the Tranche B UST Credit Agreement. Adjusted EBITDA, defined in our UST Credit Agreements and the New Term Loan Agreement (defined below), as amended, 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, 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 Adjusted EBITDA in such future period to the extent paid). 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 UST Credit 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 initially bore 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. 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.
On April 7, 2020, the Company and certain of its subsidiaries entered into Amendment No. 1 (the “First New Term Loan Amendment”) to the New Term Loan Agreement as a result of expected future covenant and liquidity tightening due to unprecedented economic deterioration. Beginning the last two weeks of March, our industry and the economy at-large experienced an unexpected and significant decline in economic activity due to the impact of the 2019 novel coronavirus disease (“COVID-19”) and the resulting business shutdown and shelter-in-place orders made across North America by various governmental entities and private enterprises. The First New Term Loan Amendment principally provided additional liquidity allowing the Company to defer quarterly interest payments for the quarter ended March 31, 2020 and the quarter ending June 30, 2020 with almost all of such interest to be paid-in-kind. The First New Term Loan Amendment also provided for a waiver with respect to the Consolidated EBITDA financial covenant during each fiscal quarter during the fiscal year ending December 31, 2020. The interest rate was retroactively reset to a fixed 14% during the first six months of 2020.
On July 7, 2020, the Company and the Term Guarantors entered into Amendment No. 2 (the “Second New Term Loan Amendment”) to the New Term Loan Agreement. The material terms of the Second New Term Loan Amendment include, among other things, a consent to the refinancing and conforming changes to the description of collateral set forth in the UST Credit Agreements, permanently capitalizing previously paid-in-kind interest on borrowings under the New Term Loan Agreement, that all future interest shall accrue at the Eurodollar rate plus a margin of 7.5% per annum and 6.5% per annum in the case of alternative base rate borrowings paid in cash and a requirement that the Company must maintain minimum Liquidity of $125.0 million and a minimum Consolidated EBITDA commencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the four quarters ending December 31, 2021, $150.0 million for the four quarters ending March 31, 2022 and thereafter, $200.0 million, and an extension of the EBITDA covenant holiday to the fiscal quarter ending December 31, 2021.
$450 Million ABL Facility On February 13, 2014, we entered into our $450 million ABL Facility from a syndicate of banks arranged by Citizens Bank N.A. (formerly known as RBS Citizens, N.A.) (the “ABL Agent”), Merrill Lynch, Pierce, Fenner & Smith and CIT Finance LLC. YRC Worldwide and our subsidiaries, YRC Freight, Reddaway, Holland and New Penn are borrowers under the ABL Facility, and certain of the Company’s domestic subsidiaries are guarantors thereunder. Availability under the ABL Facility is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our outstanding letters of credit and revolving loans. Eligible borrowing base cash is cash that is deposited from time to time into a segregated restricted account and is included in “Restricted amounts held in escrow” in the accompanying consolidated balance sheet. At our option, borrowings under the ABL Facility bear interest at either: (i) the applicable LIBOR rate plus 2.25%, as amended, or (ii) the base rate (as defined in the ABL Facility) plus 1.25%, as amended. Letter of credit fees equal to the applicable LIBOR margin in effect, 2.25% as amended, are charged quarterly in arrears on the average daily stated amount of all letters of credit outstanding during the quarter. Unused line fees are charged quarterly in arrears (such unused line fee percentage is equal to 0.375% per annum if the average revolver usage is less than 50% or 0.25% per annum if the average revolver usage is greater than 50%.) The ABL Facility is secured by a perfected first priority security interest (subject to permitted liens) in accounts receivable, cash, deposit accounts and other assets related to accounts receivable of the Company and the other loan parties and an additional second priority security interest (subject to permitted liens) in substantially all remaining assets of the borrowers and the guarantors other than the CDA Collateral. The ABL Facility contains conditions, representations and warranties, events of default and indemnification provisions that are customary for financings of this type, including, but not limited to, a springing minimum fixed charge coverage ratio covenant, borrowing base reporting, limitations on incurrence of debt, investments, liens on assets, certain sale and leaseback transactions, transactions with affiliates, mergers, consolidations, purchases and sales of assets, and restricted payments. Certain provisions relating to investments, restricted payments and capital expenditures are relaxed upon meeting specified payment conditions or debt repayment conditions.
On July 7, 2020, the Company and certain of its subsidiaries entered into Amendment No. 6 (the “ABL Treasury Amendment”) in which the maturity date of the ABL was extended to January 9, 2024 and it included a consent to the refinancing and conforming changes to the description of collateral set forth in the UST Credit Agreements as well as an increase of 0.5% to applicable margin to borrowings under the ABL Facility (which increase is already reflected above). 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 June 30, 2020, our maximum availability under our ABL Facility was $61.3 million, and our managed accessibility was $20.4 million. Maximum availability is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our $347.9 million of outstanding letters of credit. Our Managed Accessibility of $20.4 million represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured at June 30, 2020. The credit agreement governing the ABL Facility permits adjustments from eligible borrowing base cash to restricted cash prior to the compliance measurement date of July 15, 2020. As of July 15, 2020, we moved $18.0 million of cash out of restricted cash, as permitted under the ABL Facility, which effectively put our cash and cash equivalents and Managed Accessibility to $302.6 million as of June 30, 2020. For the December 31, 2019 borrowing base certificate, which was filed in January of 2020, we transferred $29.0 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 $80.4 million. The table below summarizes cash and cash equivalents and Managed Accessibility as of June 30, 2020 and December 31, 2019:
Covenants
The UST Credit Agreements and the New Term Loan Agreement include a financial covenant requirement for the Company to maintain a minimum Liquidity of $125.0 million until the first date on which Consolidated EBITDA on the last day of a fiscal quarter is greater than $200.0 million and a requirement that minimum Consolidated EBITDA commencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the four quarters ending December 31, 2021, $150.0 million for the four quarters ending March 31, 2022 and $200.0 million thereafter. Risks and Uncertainties Regarding Liquidity and Compliance with Credit Facility Financial Covenants
Based on the close of UST Credit Agreements and the Second New Term Loan Amendment, the only applicable financial covenant until December 31, 2021 is the Liquidity requirement of $125.0 million. With Liquidity as of June 30, 2020 of $302.6 million, proceeds from the UST Credit Agreements to be received in the third quarter 2020, and forecasted operating results, management concludes it probable the Company will meet covenant requirements for the next twelve months. Substantial doubt raised during the first quarter 2020 under the accounting requirements of ASC 205-40, Going Concern, has been alleviated. 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:
The fair values of the New Term Loan and Second Amended and Restated Contribution Deferral Agreement (the “Second A&R CDA”) were estimated based on observable prices (level two inputs for fair value measurements). The fair value of the lease financing obligations are estimated using a publicly traded secured loan with similar characteristics (level three input for fair value measurement). |