Note 14 - Long-term Debt

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Long-term Debt [Text Block]

14. Long-Term Debt (in thousands):

December 31,	2021		2020
2.75% Convertible Notes	$	207,354	$	200,303
Credit Agreement - term loan		123,750		131,250
Debt issuance costs and other		8,814		7,247
Total debt		339,918		338,800
Less current maturities		8,727		8,278
Total long-term debt	$	331,191	$	330,522

The aggregate minimum principal maturities of long-term debt related to balances at December 31, 2021 excluding debt issuance costs, including current maturities and the $22.6 million unamortized debt discount related to the 2.75% Convertible Notes are as follows: $8.9 million in 2022; $117.7 million in 2023; $231.5 million in 2024; $1.1 million in 2025 and $6.8 million in 2026.

Credit Agreement

Granite entered into the Third Amended and Restated Credit Agreement dated May 31, 2018 which provides for, among other things, (i) a $150.0 million term loan and a $350.0 million revolving credit facility; (ii) an increase to the revolving credit facility and/or term loan at the option of the Company, in an aggregate maximum amount up to $200.0 million subject to the lenders providing the additional commitments; (iii) a maturity date of May 31, 2023 (the “Maturity Date”); and (iv) the elimination of the stipulation to have a $150.0 million minimum cash balance before and after a dividend payment. There is an aggregate sublimit for letters of credit of $100.0 million and customary affirmative, restrictive and financial covenants.

In 2019, we entered into two amendments which, among other things, (i) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; and (ii) permitted the Company to issue the 2.75% Convertible Notes (as defined below), enter into the Hedge Option (as defined below) and execute the related warrant transaction.

In 2020, we entered into three amendments which (i) reduced the revolving credit facility from $350.0 million to $275.0 million; (ii) amended the definition of Applicable Rate from 2.00% to 3.00% for loans bearing interest based on LIBOR; (iii) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; (iv) modified certain financial covenants to allow for investments in certain large projects during the four fiscal quarters during 2020; (v) provided the Company additional time to deliver its annual and quarterly financial statements; and (vi) provided for a reversion in the applicable rate from 3.00% to the applicable rate table in the Credit Agreement upon filing of our Quarterly Report on Form 10-Q for the quarter ending March 31, 2021.

On February 19, 2021, we entered into the Limited Waiver and Amendment No. 6 to the Third Amended and Restated Credit Agreement which waived any defaults or events of defaults that may have arisen in connection with the Company’s Restatement during the periods covered by the Restatement, the failure to comply with a financial covenant and any right of the lenders to collect interest at the default rate with respect to the waived defaults and events of default.

We refer to the Third Amended and Restated Credit Agreement dated  May 31, 2018 and all subsequent amendments listed above as “Credit Agreement.” 

The Credit Agreement consists of a term loan and a revolving credit facility. 

The term loan requires that Granite repay 1.25% of the principal balance each quarter until the Maturity Date, at which point the remaining balance is due. As of both  December 31, 2021 and 2020, $7.5 million of the term loan balance was included in current maturities of long-term debt on the consolidated balance sheets and the remaining $116.3 million and $123.8 million, respectively, was included in long-term debt.

As of December 31, 2021, the total unused availability under the Credit Agreement was $232.0 million resulting from $43.0 million in issued and outstanding letters of credit and no amount drawn under the revolving credit facility. The letters of credit will expire between March 2022 and December 2025. During the year ended  December 31, 2020, $50.0 million in draws were made under the revolving credit facility and none were outstanding as of December 31, 2020.

Borrowings under the Credit Agreement bear interest at LIBOR, subject to a 0.75% floor or a base rate (at our option), plus an applicable margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement) calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was 1.75% for loans bearing interest based on LIBOR and 0.75% for loans bearing interest at the base rate at December 31, 2021. Accordingly, the effective interest rate at  December 31, 2021 using three-month LIBOR and the base rate was 2.50% and 4.00%, respectively, and we elected to use LIBOR for the term loan. Using three-month LIBOR plus the applicable margin, future interest payments are expected to be $5.9 million in 2022 and $2.4 million 2023.

Convertible Notes

2.75% Convertible Notes

In November 2019, we issued an aggregate principal amount of $230.0 million of convertible senior notes (the “2.75% Convertible Notes”) at an interest rate of 2.75% per annum payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020 and maturing on November 1, 2024, unless earlier converted, redeemed or repurchased. The 2.75% Convertible Notes will be convertible at the option of the holders prior to May 1, 2024 only during certain periods and upon the occurrence of certain events. Thereafter, the 2.75% Convertible Notes will be convertible at the option of the holders at any time until October 30, 2024. Future interest payments are expected to be $6.3 million each year through 2024.

The initial conversion rate applicable to the 2.75% Convertible Notes is 31.7776 shares of Granite common stock per $1,000 principal amount of 2.75% Convertible Notes, which is equivalent to an initial conversion price of approximately $31.47 per share of Granite common stock. Upon conversion, we will pay or deliver shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2.75% Convertible Notes, (the “Indenture”) or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2.75% Convertible Notes in connection with such a make-whole fundamental change or notice of redemption.

On or after November 7, 2022, we have the option to redeem for cash all or any portion of the 2.75% Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time. Upon the occurrence of a “fundamental change” as defined in the Indenture, holders may require us to repurchase for cash all or any portion of their 2.75% Convertible Notes at a price equal to 100% of the principal amount plus any accrued and unpaid interest. In addition, as described in the Indenture, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the 2.75% Convertible Notes becoming due and payable immediately. 

The cash received from the issuance of the 2.75% Convertible Notes was separated into a $192.6 million liability component and a $37.4 million (less $9.5 million of taxes) equity component on the consolidated balance sheets at the time of issuance based on the fair value of a similar liability that does not have an associated convertible feature. The $37.4 million difference between the principal amount and the $192.6 million (“debt discount”) will increase the debt balance over the expected life of the 2.75% Convertible Notes. The $6.4 million in third party offering costs (“debt issuance costs”) reduced the debt balance at original issuance and will increase the debt balance over the expected life of the 2.75% Convertible Notes. As of December 31, 2021 and 2020, the carrying amount of the liability component was $207.4 million and $200.3 million, respectively, excluding $3.2 million and $4.3 million, respectively, of debt issuance costs, including $14.8 million and $7.7 million, respectively, of amortized debt discount. As of December 31, 2021 and 2020, the remaining unamortized debt discount was $22.6 million and $29.7 million, respectively. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The debt discount has been recorded to interest expense using an effective interest rate of 6.62% over the expected life of the 2.75% Convertible Notes. The debt issuance costs have been recorded to interest expense over the expected life of the 2.75% Convertible Notes. During the years ended December 31, 2021 and 2020, we recorded $7.1 million and $6.6 million, respectively, of amortization related to the debt discount to interest expense in our consolidated statements of operations and $2.4 million and $2.1 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our consolidated statements of operations. Combined, the amortization of the debt discount and debt issuance costs were presented as amortization related to the 2.75% Convertible Notes on our consolidated statements of cash flows. 

On October 29, 2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument for $37.4 million (less $9.5 million of taxes) to offset the potential common share dilution of any shares above $31.47 (“Hedge Option”) and sold warrants for $11.2 million to reduce the cost of the Hedge Option with potential common share dilution above $53.44. The net costs incurred in connection with the Hedge Option and warrants were recorded as an increase to additional paid-in capital on our consolidated balance sheets. 

Real Estate Indebtedness

Our unconsolidated investments in real estate entities are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite, but is recourse to the real estate entity. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate project as it progresses through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is disclosed in Note 10.

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of December 31, 2021, the Consolidated Leverage Ratio was 2.39, which did not exceed the maximum of 3.00. Our Consolidated Interest Coverage Ratio was 6.69, which exceeded the minimum of 4.00. As of December 31, 2021, we were in compliance with all covenants contained in the Credit Agreement. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.