DEBT

6 Months Ended

Mar. 31, 2022

DEBT

DEBT

7. DEBT

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in a loan syndication.

CREDIT FACILITY

The Facility included the following significant terms at March 2022:

● A March 2025 maturity date without a penalty for prepayment.

● $110.0 million revolving credit limit.

● Loan accordion allowing the Company to increase the size of the Facility by $25.0 million.

● A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

● Evergreen renewal clause automatically renewing the Facility for one year unless either the borrower or lender provides written notice terminating the Facility at least 90 days prior to the end of any original or renewal term of the Facility.

● The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 - 150 basis points depending on certain Facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than zero basis points.

● Lending limits subject to accounts receivable and inventory limitations.

● An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

● Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

● A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the Facility. The Company’s fixed charge coverage ratio was over 1.0 for the trailing twelve months.

● Provides that the Company may use up to $5.0 million annually, on a collective basis, for the payment of dividends on its common stock, or other distributions or investments, provided the Company is not in default before or after such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $5.0 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments.

The amount available for use from the Facility at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at March 2022 was $106.0 million, of which $35.2 million was outstanding, leaving $70.8 million available.

At March 2022, the revolving portion of the Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 1.76% at March 2022. For the six months ended March 2022, our peak borrowings under the Facility were $64.3 million, and our average borrowings and average availability under the Facility were $39.1 million and $56.5 million, respectively.

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO (the “Real Estate Loan”) which is also a participant lender on the Facility. The Real Estate Loan contains cross default provisions which would cause the loan to be considered in default if the loans where BMO is a lender, including the Facility, were in default. There were no such cross defaults at March 2022. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.