Credit Agreements

9 Months Ended

Sep. 30, 2011

9. Credit Agreements

On May 27, 2009, we entered into a $135 million credit agreement with Castle Pines Capital LLC (“CPC”) and other lenders (the “Credit Agreement”). The Credit Agreement provided a “vendor and distributor program” under which we received financing for inventory purchases from several of our largest vendors with extended payment terms.

On October 19, 2010, GTSI entered into an Amended and Restated Credit Agreement, dated as of October 19, 2010, with its lenders to amend the Credit Agreement by reducing the total facility limit from $135 million to $100 million and the revolving loan facility limit from $60 million to $45 million (“Amended Credit Agreement”). The Amended Credit Agreement carried an interest rate indexed at 1-Month LIBOR plus 300 basis points for revolving loan advances and 1-Month LIBOR plus 350 basis points for floor plan loans. Borrowing was limited to the lesser of (a) $100 million or (b) a collateral-based borrowing base (eligible accounts receivable and inventory balances) less outstanding obligations relating to any borrowings, floor plan loans and stand-by letters of credits.

On February 24, 2011, GTSI entered into an agreement with CPC and Wells Fargo Capital Finance, LLC, extending from May 27, 2011 to May 27, 2012 the maturity date of CPC’s 74.08% pro-rata share of the total loan commitment under the Amended Credit Agreement and allowing the acquisition of GTSI’s common stock related to net share settlements.

On May 31, 2011, GTSI entered into a Second Amended and Restated Credit Agreement with its lenders, which amended and restated the Amended Credit Agreement (the “Second Amended Credit Agreement”). The Second Amended Credit Agreement extended the maturity date of the $100 million facility to May 31, 2014 and carries an interest rate indexed at 1-Month LIBOR plus 300 basis points for revolving loan advances and 1-Month LIBOR plus 275 basis points for floor plan loans. Borrowing is limited to the lesser of (a) $100 million or (b) a collateral-based borrowing base (eligible accounts receivable and inventory balances) less outstanding obligations relating to any borrowings, floor plan loans and stand-by letters of credits.

On August 12, 2011, GTSI entered into a First Amendment to Second Amended and Restated Credit Agreement with its lenders. The First Amendment amends, among other provisions, the definition of (a) “Borrowing Base” to include a “Liquidity Reserve” as a deduction therefrom and (b) “Total Debt Service Coverage Ratio” to include the accrual during the respective 12-month period of fees payable by GTSI as debt service expenses of GTSI in determining if it is in compliance with the Total Debt Service Coverage Ratio covenant. In addition, the First Amendment also provides the lenders’ consent to GTSI’s previously announced acquisition of InSysCo.

On August 30, 2011, GTSI entered into a Second Amendment to Second Amended and Restated Credit Agreement with its lenders. The Second Amendment permits GTSI to purchase its common stock subject to certain terms and conditions, including that such purchases cannot exceed an aggregate purchase price of $5 million.

As of September 30, 2011, borrowing capacity and availability under the Second Amended Credit Agreement was as follows (in thousands):


Total Credit Agreement	$	100,000
Borrowing base limitation		(32,850	)

Total borrowing capacity		67,150
Less: non-interest bearing advances (floor plan loans)		(20,291	)
Less: letters of credit		(10,248	)

Total unused availability	$	36,611

As of September 30, 2011, the Company had no outstanding loan balance (other than non-interest bearing floor plan loans) under the Second Amended Credit Agreement and as reflected above, unused available credit thereunder of $36.6 million.

The Second Amended Credit Agreement contains customary covenants limiting our ability to, among other things, (a) incur debt; (b) make guarantees or grant or suffer liens; (c) purchase our common stock, (d) make certain restricted payments (including cash dividends), purchase other businesses or make investments; (e) enter into transactions with affiliates; (f) dissolve, change GTSI’s name, merge or enter into certain other material agreement regarding changes to the corporate entities; (g) acquire real estate; and (h) enter into sales and leaseback transactions.

The financial covenants of the Second Amended Credit Agreement require us, among other things, to:

	•		maintain a Tangible Net Worth of not less than or equal to $45 million as of the end of each month

	•		maintain a Ratio of Total Liabilities to Tangible Net Worth of not greater than 5.25 to 1.00 as of the end of each month

	•		maintain Current Ratio not less than (i) 1.20 to 1.00 as of the last business day of January, February, March, April, May, June, October, November and December and (ii) 1.15 to 1.00 as of the last business day of July, August and September

	•		maintain a minimum Total Debt Service Coverage Ratio of 1.25 to 1.00 as of the end of each month

The Second Amended Credit Agreement provides that the existence of a material proceeding against the Company or the Company’s failure to be in compliance with all material laws constitutes an event of default under the agreement. The Second Amended Credit Agreement also requires the Company to provide the lenders with certain information. The Company was in compliance with all financial and informational covenants in the Second Amended Credit Agreement as of September 30, 2011.

The Company uses the Second Amended Credit Agreement to finance inventory purchases from approved vendors. Inventory purchases under the Second Amended Credit Agreement usually have 60-day terms. Balances that are paid within the 60-day period do not accrue interest and are classified as floor plan financing in our balance sheet.

To the extent that we have credit availability under the Second Amended Credit Agreement, we are able to extend the payment terms past the 60-day period. Amounts extended past the no interest period accrue interest and are classified as notes payable on our balance sheet, for which there was no balance outstanding at September 30, 2011 or December 31, 2010. These extended payment balances under the Second Amended Credit Agreement accrue interest at the 1-Month LIBOR plus 275 basis points.

The Company defers loan financing costs and recognizes these costs throughout the term of the loans. The Company deferred $0.5 million of loan financing costs related to the Second Amended Credit Agreement in May 2011. Deferred financing costs were $0.4 million and less than $0.1 million as of September 30, 2011 and December 31, 2010, respectively.