Debt

9 Months Ended

Sep. 30, 2019

Debt [Abstract]

Debt Disclosure [Text Block]

Note 15 – Debt

The Company’s indebtedness as of September 30, 2019 and December 31, 2018 includes the following:

		As of September 30, 2019				As of December 31, 2018
		Interest		Outstanding		Interest	Outstanding
		Rate		Balance		Rate	Balance
Credit Facilities:
	Revolver		3.60%	$	110,000	1.00%	$	24,034
	U.S. Term Loan		3.60%		600,000	N/A		—
	EURO Term Loan		1.50%		147,162	N/A		—
Industrial development bonds			5.26%		10,000	5.26%		10,000
Bank lines of credit and other debt obligations			Various		10,846	Various		2,570
Total debt				$	878,008		$	36,604
Less: debt issuance costs					(14,970)			—
Less: short-term and current portion of long-term debts					(36,535)			(670)
Total long-term debt				$	826,503		$	35,934

Credit facilities

As previously disclosed in its Annual Report filed on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2018, in connection with the Combination, the Company initially secured $1.15 billion in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the purchase consideration and to provide additional liquidity, which was replaced with a syndicated bank agreement (the “New Credit Facility”) with a group of lenders. Prior to closing the Combination, during July 2019, the Company amended and extended the bank commitment to August 30, 2019. The New Credit Facility was contingent upon and was not effective until the closing of the Combination. Concurrent with the closing of the Combination on August 1, 2019, the New Credit Facility is in full effect and is the Company’s primary borrowing facility, replacing the Company’s previous revolving credit facility (the “Old Credit Facility”).

The New Credit Facility is comprised of a $400.0 million multicurrency revolver (“Revolver”), a $600.0 million U.S. dollar denominated term loan (“U.S. Term Loan”), each with the Company as borrower, and a $150.0 million (euro equivalent) euro denominated term loan (“EURO Term Loan”) with Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower (collectively with the U.S. Term Loan, the “Term Loans”), each with a five-year term maturing in August 2024. The maximum amount available under the New Credit Facility can be increased by $300.0 million at the Company’s option if the lenders agree and the Company has satisfied certain conditions. Borrowings under the New Credit Facility bear interest at a base rate or LIBOR plus an applicable margin based upon the Company’s consolidated net leverage ratio. Interest cost incurred on the outstanding borrowings under the New Credit Facility post-closing of the Combination was approximately 3.3%. In addition to paying interest on outstanding principal under the New Credit Facility, the Company is required to pay a 0.25% commitment fee to the lenders under the Revolver in respect of the unutilized commitments thereunder. The Company has unused capacity under the Revolver of approximately $281 million, net of bank letters of credit of approximately $9 million, as of September 30, 2019. Until closing of the Combination, the Company incurred certain interest costs to maintain the bank commitment (“ticking fees”), which began to accrue on September 29, 2017 and bore an interest rate of 0.30% per annum. Concurrent with closing of the Combination and executing the New Credit Facility, the Company paid approximately $6.3 million of ticking fees.

The New Credit Facility is subject to certain financial and other covenants, including covenants that the Company’s initial consolidated net debt to consolidated adjusted EBITDA ratio cannot exceed 4.25 to 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 (as such covenants are defined therein). At the closing of the Combination and as of September 30, 2019, the Company was in compliance with all of the New Credit Facility covenants. The Term Loans have quarterly principal amortization during their respective five-year maturities, with 5.0% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10.0% in years 4 and 5, with the remaining principal amount due at maturity. The New Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and is secured by first priority liens on substantially all of the assets of the Company and the domestic subsidiary guarantors, subject to certain customary exclusions, and the obligations of the Dutch borrower only are guaranteed by certain foreign subsidiaries on an unsecured basis.

The New Credit Facility required the Company fix at least 20% of the variable interest rates on its Term Loans. In November 2019, the Company entered into $170.0 million notional amounts of three-year interest rate swaps at a fixed rate of approximately 3.1% to satisfy this requirement of the New Credit Facility as well as to manage the Company’s exposure to variable interest rate risk associated with the New Credit Facility. The Company anticipates that these interest rate swaps will be designated and will qualify as cash flow hedges.

The Company capitalized $23.7 million of certain third-party debt issuance costs in connection with executing the New Credit Facility. Approximately $15.5 million of the capitalized costs was attributed to the Term Loans and was recorded as a direct reduction of long-term debt on the Company’s Condensed Consolidated Balance Sheet. Approximately $8.3 million was attributed to the Revolver and recorded within other assets on the Company’s Condensed Consolidated Balance Sheet. These capitalized costs will be amortized into interest expense over the five-year term of the New Credit Facility. The Old Credit Facility was a $300.0 million syndicated multicurrency, unsecured revolving credit facility with a group of lenders. The maximum amount available under the Old Credit Facility could have been increased to $400.0 million at the Company’s option if the lenders agreed and the Company satisfied certain conditions. Borrowings under the Old Credit Facility generally bore interest at a base rate or LIBOR rate plus a margin. The Old Credit Facility had certain financial and other covenants, with the key financial covenant requiring that the Company’s consolidated total debt to adjusted EBITDA ratio could not exceed 3.50 to 1. At the date the Old Credit Facility was replaced, the Company was in compliance with all of its covenants. During July 2019, the Old Credit Facility was amended and restated to extend the maturity date to August 31, 2020, and was subsequently replaced by the New Credit Facility as of August 1, 2019.

Industrial development bonds

As of September 30, 2019 and December 31, 2018, the Company had fixed rate, industrial development authority bonds due in 2028. These bonds have similar covenants to the credit facilities noted above.

Bank lines of credit and other debt obligations

In connection with the Combination, the Company assumed certain unsecured bank lines of credit and discounting facilities in one of its foreign subsidiaries. The bank lines of credit are not collateralized. Total unused capacity under these arrangements as of September 30, 2019 was approximately $10 million. The Company’s other debt obligations primarily consist of certain domestic and foreign low interest rate or interest-free municipality-related loans, local credit facilities of certain foreign subsidiaries and capital lease obligations.

In addition to the bank letters of credit described in the Credit facilities section above, the Company’s only other off-balance sheet arrangements include financial guarantees. The Company’s total bank letters of credit and guarantees outstanding as of September 30, 2019 were approximately $15 million.

At September 30, 2019, annual maturities on long-term borrowings maturing in the next five fiscal years and thereafter (excluding the reduction to long-term debt attributed to capitalized and unamortized debt issuance costs) are as follows:

2020	$	45,876
2021		35,276
2022		49,556
2023		60,590
2024		676,271

The Company incurred the following debt related expenses included within Interest expense, net, on the Condensed Consolidated Statements of Operations:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Interest expense	$	5,761	$	1,510	$	8,258	$	4,804
Amortization of debt issuance costs		792		—		792		—
Total	$	6,553	$	1,510	$	9,050	$	4,804

Based on the variable interest rates associated the New Credit Facility and Old Credit Facility, as of September 30, 2019 and December 31, 2018, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value.