Lines of Credit and Paycheck Protection Plan Loan

12 Months Ended

May 03, 2020

Debt Disclosure [Abstract]

Lines of Credit and Paycheck Protection Plan Loan

13. LINES OF CREDIT AND PAYCHECK PROTECTION PLAN LOAN

Revolving Credit Agreement – United States

Overall

At April 28, 2019, our Credit Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) provided for a revolving loan commitment of $25 million, was set to expire on August 15, 2020, and allows us to issue letters of credit not to exceed $1 million.

Outstanding borrowings are secured by a pledge of 65% of the common stock of Culp International Holdings, Ltd. (our subsidiary located in the Cayman Islands), as required by the Credit Agreement.  

Interest was charged at a rate (applicable interest rate of 1.75% and 3.93% at May 3, 2020 and April 28, 2019, respectively) as a variable spread over LIBOR based on our ratio of debt to EBITDA.

At May 3, 2020 and April 28, 2019, there were $250,000 in outstanding letters of credit (all of which related to workers compensation) provided by the Credit Agreement. As a result, we have $750,000 remaining for the issuance of additional letters of credit.

As a result of the COVID-19 global pandemic and the uncertainty relating to the unknown duration and overall effect on the company, we proactively took a precautionary measure and borrowed the maximum amount available from our line of credit during the fourth quarter of fiscal 2020. As of May 3, 2020, there were outstanding borrowings of $29.8 million under the Credit Agreement, which have since been repaid during June 2020. There were no borrowings outstanding under the Credit Agreement at April 28, 2019.

Sixth Amendment to the Credit Agreement

Effective March 27, 2020, we entered into a Sixth Amendment to our Credit Agreement which includes provisions that (i) increased the amount available from our line of credit from $25 million to $30 million; (ii) extended the expiration date to August 15, 2022; (iii) reduced the amount of the Unencumbered Liquid Assets maintenance covenant from $15 million to $10 million; (iv) increased the maximum company debt to EBITDA ratio to 3.00; (v) amended the pricing matrix that provides interest payable on obligations under the agreement as a variable spread over LIBOR, based on the company’s ratio of debt to EBITDA, to add a fourth price level for a ratio of debt to EBITDA that is greater than or equal to 2.25 to 1.00 but less than 3.00 to 1.00; (vi) added a new interest coverage covenant to establish a minimum EBITDA to interest expense ratio of not less than 3.00 to 1.00.

Seventh Amendment to the Credit Agreement

Effective June 30, 2020, we entered into a Seventh Amendment to our Credit Agreement which includes provisions that (i) modify the method for calculating the company’s debt to EBITDA covenant under the Credit Agreement solely during the temporary period beginning on the date of the Seventh Amendment and ending on the Rate Determination Date (as defined in the Credit Agreement), next following the end of the company’s fiscal 2021 fourth quarter (such temporary period, the “Modification Period,”), and (ii) amend the pricing matrix used to determine the interest rate payable on loans made under the Credit Agreement solely during the Modification Period.

Specifically, the Seventh Amendment provides that during Modification Period, the company’s ratio of debt to EBITDA shall be determined by excluding the fourth quarter of fiscal 2020 from the calculation thereof, such that the ratio shall be determined using the four most recent quarterly periods other than (i.e. excluding) the fourth quarter of fiscal 2020, rather than calculating on a rolling four-quarter basis. It further provides that during the Modification Period, the Applicable Margin (as defined in the Credit Agreement) set forth the pricing matrix is increased to 1.6% for price level I, 2.05% for price level II, 2.5% for price level III, and 3.00% for price level IV.

Additionally, the Seventh Amendment (i) changes the capital expenditure covenant by reducing permitted annual capital expenditures to $10 million during fiscal year 2021, (ii) changes the liens and other indebtedness covenant to reduce the permitted amount of allowable liens and other indebtedness to 5% of consolidated net worth, and (iii) adds a new covenant that prohibits the company, solely during the Modification Period, from paying dividends or repurchasing stock in excess of $10 million in the aggregate during the Modification Period.

Revolving Credit Agreement – China

We have an unsecured credit agreement associated with our operations in China that provides for a line of credit up to 40 million RMB ($5.7 million USD at May 3, 2020). Interest is charged at a rate (applicable interest rate of 2.41% at May 3, 2020) determined by the Chinese government and is set to expire on December 4, 2020. As of May 3, 2020, there were outstanding borrowings totaling $1.0 million which have since been repaid during June 2020. There were no outstanding borrowings as of April 28, 2019.

Small Business Administration - Paycheck Protection Program

On April 15, 2020, we received a loan of $7.6 million (the “Loan”) pursuant to the U.S. Small Business Administration (the “SBA”) Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”).  We planned to use the proceeds from the Loan for covered payroll costs, rent, and utilities in accordance with the applicable terms and conditions of the CARES Act. We believed the Loan would enable us to retain more of our employees, maintain payroll and benefits, and make lease and utility payments while producing and supplying critical products for essential businesses during the COVID-19 global pandemic.

Following our application and receipt of the Loan, the SBA and U.S. Treasury Department issued new guidance regarding eligibility requirements under the PPP, raising questions regarding the eligibility of publicly traded companies to receive loans under the program.  As a result, out of an abundance of caution, we voluntarily repaid the Loan in full on May 13, 2020.

Overall

Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of May 3, 2020, we were in compliance with our financial covenants

Interest paid during fiscal years 2020, 2019, and 2018 were $124,000, $54,000, and $181,000, respectively.