Note 5: Long-Term Debt

Long-term debt consisted of the following:

	June 30,		December 31,
(in thousands)	2018		2017

Revolving credit facility	$	19,567	$	38,024
Notes		19,000		19,000
Term loan		18,141		21,541
Capital leases		1,730		1,897

Total debt		58,438		80,462
Less: current portion of long-term debt		(6,742)		(4,707)
Less: deferred financing costs		(1,310)		(749)

Long-term debt	$	50,386	$	75,006

Credit Facility

We have a Revolving Credit, Term Loan and Security Agreement (“Credit Agreement”) with PNC Bank, National Association, as administrative agent and co-collateral agent, Bank of America, N.A., as co-collateral agent, and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement provides for a senior secured revolving credit facility not to exceed $65.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in the amount of $30.0 million (together with the Revolving Credit Facility, “Facilities”). The Credit Agreement also provides for a letter of credit sub-facility not to exceed $10.0 million and a swing loan sub-facility not to exceed $6.5 million.

On April 24, 2018, the Company announced it had amended its Credit Agreement increasing our Revolving Credit Facility by $8.0 million from $65.0 million to $73.0 million. This amendment will provide additional liquidity to the Company. Further, there have been no changes to the financial covenants as a result of this amendment. Subsequent to the Company’s April 24, 2018 amendment to the Revolving Credit Facility, the Company may request to increase the maximum aggregate principal amount of the borrowings by $17.0 million prior to January 21, 2020.

On May 18, 2018, the Company executed a letter agreement with PNC Bank. Under this agreement, equity offering net cash proceeds below $30.0 million were applied to the Revolving Credit Facility. Proceeds in excess of $30.0 million were applied, 50% to the Term Loan and 50% to the Revolving Credit Facility. In accordance with this amendment, $1.3 million of the equity offering proceeds were applied to the Term Loan.

The Facilities, which expire upon the earlier of (i) January 21, 2021 or (ii) the date that is 90 days prior to the scheduled maturity date of the notes (as defined below) (in either case, “Expiration Date”), are collateralized by a first lien on substantially all of the assets of the Company and its subsidiaries, except that no real property is collateral under the Facilities other than the Company’s real property in North Jackson, OH.

Availability under the Revolving Credit Facility is based on eligible accounts receivable and inventory. The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility.

With respect to the Term Loan, the Company makes quarterly installment payments of principal of approximately $1.1 million, plus accrued and unpaid interest, on the first day of each fiscal quarter. To the extent not previously paid, the Term Loan will become due and payable in full on the Expiration Date.

Amounts outstanding under the Facilities, at the Company’s option, will bear interest at either a base rate plus a margin or a rate based on LIBOR plus a margin, in either case calculated in accordance with the terms of the Credit Agreement. Interest under the Credit Agreement is payable monthly. We elected to use the LIBOR based rate for the majority of the debt outstanding under the Facilities for the six months ended June 30, 2018, which was 3.99% on our Revolving Credit Facility and 4.49% for the Term Loan at June 30, 2018.

The Credit Agreement contains customary affirmative and negative covenants. The Company must maintain a fixed charge coverage ratio of not less than 1.10 to 1.0, in each case measured on a rolling four-quarter basis calculated in accordance with the terms of the Credit Agreement. We were in compliance with our covenants under the Credit Agreement at June 30, 2018 and December 31, 2017.

At June 30, 2018, we had Credit Agreement related deferred financing costs of approximately $0.6 million. For the six months ended June 30, 2018, we amortized $0.1 million of deferred financing costs.

$6.7 million of the first quarter increase in the Revolving Credit Facility was to fund cash restricted for use related to the New Markets Tax Credit (“NMTC”) Financing Transaction. As of June 30, 2018, NMTC related restricted cash receipts totaling $2.2 million were applied to the Company’s Revolving Credit Facility, described in Note 6.

Notes

In connection with the acquisition of the North Jackson facility, in August 2011, we issued $20.0 million in notes (collectively, “Notes”) to the sellers of the North Jackson facility as partial consideration of the acquisition.

On January 21, 2016, the Company entered into Amended and Restated Notes in the aggregate principal amount of $20.0 million, each in favor of Gorbert Inc. (“Holder”). The Company’s obligations under the Notes are collateralized by a second lien on the same assets of the Company that collateralize the obligations of the Company under the Facilities.

The Notes were originally scheduled to mature on March 17, 2019. On March 30, 2018, the Company provided notification of its intent to extend the maturity date to March 17, 2020 in accordance with the terms of the Notes.

Upon the Company’s extension of the maturity date of the Notes to March 17, 2020, principal payments in the aggregate of $2.0 million will be required to be made in March 2019. In conjunction with the intended extension of the maturity date of the Notes, $2.0 million has been classified within current portion of long-term debt.

Additionally, the Company has the option to further extend the maturity date of the Notes to March 17, 2021. Extending the maturity date of the Notes to March 17, 2021 would require a principal payment in the aggregate of $2.0 million to be made in March 2020.

The Notes bear interest at a rate of 5.0% per year through and including August 17, 2017 and a rate of 6.0% per year from and after August 18, 2017. Through and including June 18, 2017, all accrued and unpaid interest was payable semi-annually in arrears on each June 18 and December 18. After June 18, 2017, all accrued and unpaid interest is payable quarterly in arrears on each September 18, December 18, March 18 and June 18.

The Holder had the right to elect at any time on or prior to August 17, 2017 to convert all or any portion of the outstanding principal amount of the Notes which is an integral multiple of $0.1. The Holder’s conversion rights expired and are no longer subject to exercise.

Capital Leases

The Company enters into capital lease arrangements. The capital assets and obligations are recorded at the present value of minimum lease payments. The assets are included in Property, Plant and Equipment, net on the Consolidated Balance Sheet and are depreciated over the respective lease terms which range from three to five years. The long-term component of the capital lease obligations is included in Long-term debt and the current component is included in Current portion of long-term debt. During the six months ended June 30, 2018, the Company entered into a new capital lease agreement for which the net present value of the minimum lease payments, at inception, was not significant. During the six months ended June 30, 2017, the Company entered into capital lease agreements for which the net present value of the minimum lease payments, at inception, was $0.4 million. These amounts have been excluded from the Consolidated Statements of Cash Flows as they are non-cash.

As of June 30, 2018, future minimum lease payments applicable to capital leases were as follows:

2018	$	302
2019		605
2020		583
2021		471
2022		56
2023		16
Total minimum capital lease payments	$	2,033
Less amounts representing interest		(303)
Present value of net minimum capital lease payments	$	1,730
Less current obligation		(457)
Total long-term capital lease obligation	$	1,273

For the three and six months ended June 30, 2018, the amortization of capital lease assets was $0.1 million and $0.3 million, respectively, which is included in cost of products sold in the Consolidated Statements of Operations.