Cash and Credit Facilities

12 Months Ended

Sep. 30, 2016

Cash and Cash Equivalents [Abstract]

Cash and Credit Facilities

Cash and Credit Facilities

On May 3, 2016, the Company acquired 100% of the equity interests of Dayna International, LLC. We financed the acquisition, in part, through a combination of borrowings of $30.0 million under our new credit facility with Fifth Third Bank, and $2.5 million from a subordinated loan arrangement with Wynnefield Capital. Concurrent with these new lending arrangements, we terminated any existing credit facilities that DLH or its acquired subsidiary had in place.

A summary of our loan facilities and subordinated debt financing for the period ended September 30, 2016 is as follows:

	($ in Millions)
	As of September 30, 2016
Lender	Arrangement	Loan Balance		Interest *	Maturity Date
Fifth Third Bank	Secured term loan $25 million ceiling (a)	$	23.4	LIBOR + 3.0%	05/01/21
Fifth Third Bank	Secured revolving line of credit $10 million ceiling (b)	$	—	LIBOR + 3.0%	05/01/18
Wynnefield Capital	Subordinated notes (c)	$	—		09/30/16

* Interest rate as of September 30, 2016 was 3.5%

(a) Represents the principal amounts payable on our Term Loan with Fifth Third Bank that partially funded our acquisition of Danya on May 3, 2016. The $25.0 million term loan from Fifth Third Bank was funded at closing and is secured by liens on substantially all of the assets of DLH and Danya. The principal of the Term Loan is payable in fifty-nine consecutive monthly installments of $312,500 beginning on June 1, 2016 with the remaining balance due on May 1, 2021.

The Term Loan agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain financial covenants including:

(i) a minimum fixed charge coverage ratio of at least 1.35 to 1.0 commencing with the quarter ending June 30, 2016, and for all subsequent periods, and

(ii) a Funded Indebtedness to Adjusted EBITDA ratio not exceeding the ratio of 2.99 to 1.0 at closing and thereafter a ratio ranging from 3.5 to 1.0 for the period through September 30, 2016 to 2.5 to 1.0 for the period ending September 30, 2018.

In addition to monthly payments of the outstanding indebtedness, the loan agreement also requires prepayments of a percentage of excess cash flow, as defined in the loan agreement. Accordingly, a portion of our cash flow from operations will be dedicated to the repayment of our indebtedness. DLH is fully compliant with all covenants under the Loan Agreement with Fifth Third Bank.

(b) The secured revolving line of credit from Fifth Third Bank has a ceiling of up to $10.0 million, of which $5.0 million was drawn at closing to cover partial financing of the Danya purchase. Borrowing on the line of credit is secured by liens on substantially all of the assets of DLH and Danya. At September 30, 2016, DLH had repaid all draws on our revolving line of credit with no remaining balance.

The Company's total borrowing availability, based on eligible accounts receivables at September 30, 2016, was $5.0 million. This capacity was comprised of $0.9 million in a stand-by letter of credit and unused borrowing capacity of $4.1 million.

The revolving line of credit is subject to loan covenants as described above in the Term Loan, and DLH is fully compliant with those covenants.

(c)The Company issued subordinated notes to Wynnefield Capital in the aggregate principal amount of $2.5 million. The notes were retired on September 30, 2016 upon completion of a rights offering that resulted in $2.5 million of proceeds used to payoff the notes, in accordance with the promissory note term loan agreement and the subordinated agreement between the senior lender and Wynnefield Capital.