Debt

9 Months Ended

Sep. 27, 2020

Debt

Debt

8. Debt

Long-term debt, net, consists of the following (in thousands):

		September 27,		December 29,
		2020		2019
Outstanding debt	$	350,000	$	370,000
Unamortized debt issuance costs		(1,921)		(2,710)
Current portion of long-term debt		(20,000)		(20,000)
Total long-term debt, net	$	328,079	$	347,290

The Company has a secured revolving credit facility with available borrowings of $400.0 million (the “Revolving Facility”), of which $5.0 million was outstanding as of September 27, 2020, and a secured term loan facility with an outstanding balance of $345.0 million (the “Term Loan Facility”) and together with the Revolving Facility, the “PJI Facilities”.  The PJI Facilities mature on August 30, 2022.  The loans under the PJI Facilities accrue interest at a per annum rate equal to, at the Company’s election, either LIBOR plus a margin ranging from 125 to 250 basis points or a base rate (generally determined by a prime rate, federal funds rate or LIBOR plus 1.00%) plus a margin ranging from 25 to 150 basis points. In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the then most recently ended four-quarter period (the “Leverage Ratio”).  The Credit Agreement governing the PJI Facilities (the “PJI Credit Agreement”) places certain customary restrictions upon the Company based on its financial covenants.  These include limiting the repurchase of common stock and not increasing the cash dividend above the lesser of $0.225 per share per quarter or $35 million per fiscal year if the Company’s leverage ratio is above 3.75 to 1.0.  Quarterly amortization payments are required to be made on the Term Loan Facility in the amount of $5.0 million.  Loans outstanding under the PJI Facilities may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect.  Up to $35.0 million of the Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

The PJI Credit Agreement contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of the Leverage Ratio and a specified fixed charge coverage ratio.  The PJI Credit Agreement allows for a permitted Leverage Ratio of 5.00 to 1.0, decreasing over time to 4.00 to 1.0 by 2022; and a fixed charge coverage ratio of 2.25 to 1.0, which increases over time to 2.50 to 1.0 in 2021 and thereafter. We were in compliance with these financial covenants at September 27, 2020.

Under the PJI Credit Agreement, we have the option to increase the Revolving Facility or the Term Loan Facility in an aggregate amount of up to $300.0 million, subject to the Leverage Ratio of the Company not exceeding 4.00 to 1.00.  The Company and certain direct and indirect domestic subsidiaries are required to grant a security interest in substantially all of the capital stock and equity interests of their respective domestic and first tier material foreign subsidiaries to secure the obligations owed under the PJI Facilities.  

Our outstanding debt of $350.0 million at September 27, 2020 under the PJI Facilities was composed of $345.0 million outstanding under the Term Loan Facility and $5.0 million outstanding under the Revolving Facility. Including outstanding letters of credit, the Company’s remaining availability under the PJI Facilities at September 27, 2020 was approximately $348.8 million.

As of September 27, 2020, the Company had approximately $1.9 million in unamortized debt issuance costs, which are being amortized into interest expense over the term of the PJI Facilities. 

We attempt to minimize interest rate risk exposure by fixing our rate through the utilization of interest rate swaps, which are derivative financial instruments. Our swaps are entered into with financial institutions that participate in the PJI Credit Agreement.  By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our PJI Facilities.

As of September 27, 2020, we have the following interest rate swap agreements with a total notional value of $350 million:

Effective Dates	Floating Rate Debt			Fixed Rates
April 30, 2018 through April 30, 2023	$	55	million	2.33	%
April 30, 2018 through April 30, 2023	$	35	million	2.36	%
April 30, 2018 through April 30, 2023	$	35	million	2.34	%
January 30, 2018 through August 30, 2022	$	100	million	1.99	%
January 30, 2018 through August 30, 2022	$	75	million	1.99	%
January 30, 2018 through August 30, 2022	$	50	million	2.00	%

The gain or loss on the swaps is recognized in Accumulated other comprehensive loss (“AOCL”) and reclassified into earnings as adjustments to interest expense in the same period or periods during which the swaps affect earnings. Gains or losses on the swaps representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.  

The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands):

	Interest Rate Swap Derivatives
	Fair Value		Fair Value
	September 27,		December 29,
Balance Sheet Location	2020		2019
Other current and long-term liabilities	$	15,334	$	6,168

The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):

			Location of Gain		Amount of Gain
Derivatives -	Amount of Gain or		or (Loss)		or (Loss)		Total Net Interest Expense
Cash Flow	(Loss) Recognized		Reclassified from		Reclassified from		on Condensed
Hedging	in AOCL		AOCL into		AOCL into		Consolidated Statements
Relationships	on Derivative		Income		Income		of Operations
Interest rate swaps for the three months ended:
September 27, 2020	$	1,268		Interest expense	$	(1,674)	$	(3,636)
September 29, 2019	$	(1,437)		Interest expense	$	161	$	(4,249)
Interest rate swaps for the nine months ended:
September 27, 2020	$	(7,219)		Interest expense	$	(3,376)	$	(11,230)
September 29, 2019	$	(9,641)		Interest expense	$	849	$	(14,797)

The weighted average interest rates on our PJI Facilities, including the impact of the interest rate swap agreements, were 3.8% for the three- and nine-month periods ended September 27, 2020, compared to 3.8% and 4.2% for the three- and nine-month periods ended September 29, 2019, respectively.  Interest paid, including payments made or received under the swaps, was $3.9 million and $3.0 million for the three months ended September 27, 2020 and September 29, 2019, respectively, and $12.0 million and $14.1 million for the nine months ended September 27, 2020 and September 29, 2019, respectively.  As of September 27, 2020, the portion of the aggregate $15.3 million interest rate swap liability that would be reclassified into net interest expense during the next twelve months approximates $7.2 million.  

PJMF has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 (as amended, the “PJMF Loan Agreement”) with U.S. Bank National Association, as lender (“U.S. Bank”). The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving Facility matures on September 30, 2021.  The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75%.  The applicable interest rates on the PJMF Revolving Facility were 1.9% and 2.7% for the three and nine months ended September 27, 2020, respectively, compared to 4.0% and 4.2% for the three and

nine months ended September 29, 2019. As of September 27, 2020 and December 29, 2019, there was no debt outstanding under the PJMF Revolving Facility. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.