Annual report pursuant to Section 13 and 15(d)

Note 10 - Long-term Debt

v3.6.0.2
Note 10 - Long-term Debt
12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Long-term Debt [Text Block]
NOTE
10
LONG-TERM DEBT
 
Long-term debt consists of the following at
December
31,
2016
and
December
31,
2015:
 
(Amounts in Thousands)
 
December 31,
2016
   
December 31,
2015
 
Revolving Credit
facility dated October 31, 2011, as amended, borrowings based upon
eligible accounts receivable, subject to monthly borrowing base calculation, balance due
March 24, 2021. Effective interest rate for 2016 and 2015 was 3.9% and 4.0%,
respectively. (1) (2)
  $
3,803
 
  $
2,349
 
Term Loan
dated October 31, 2011, as amended, payable in equal monthly installments of
principal of $102, balance due on March 24, 2021. Effective interest rate for 2016 and 2015
was 3.8% and 3.7%, respectively.
(1) (2)
   
 5,030
(5)
   
6,514
(5)
Promissory Note
dated August 2, 2013, payable in twelve monthly installments of interest
only, starting September 1, 2013 followed with twenty-four monthly installments of $125 in
principal plus accrued interest (at annual rate of 2.99%). Note paid in full in August 2016.
(3) (4)
   
 
   
950
(4)
Capital lease (
interest at rate of 6.0%)
 
 
 
   
23
 
Total debt
   
8,833
 
   
9,836
 
Less current portion of long-term debt
   
1,184
 
   
2,431
 
Long-term debt
  $
7,649
 
  $
7,405
 
 
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property, plant, and equipment.
 
(2)
See below “Revolving Credit and Term Loan Agreement” for monthly payment interest options. Prior to
April
1,
2016,
the monthly installment payment under the term loan was approximately
$190,000.
 
(3)
Uncollateralized note.
 
(4)
Net of debt discount of
($50,000)
at
December
31,
2015.
See “Promissory Notes” below for additional information.
 
(5)
Net of debt issuance costs of
($151,000)
and
($152,000)
at
December
31,
2016
and
December
31,
2015,
respectively.
 
Revolving Credit and Term Loan
Agreement
The Company is subject to an Amended and Restated Revolving Credit, Term Loan and Security Agreement (“Loan Agreement”) with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement, as subsequently amended prior to the
March
24,
2016
amendment discussed below (“Amended Loan Agreement”), provided the Company with the following credit facility: (a) up to
$12,000,000
revolving line of credit (“revolving credit”), subject to the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan (“term loan”) of
$16,000,000,
which required monthly installments of approximately
$190,000
(based on a
seven
-year amortization).
 
Under the Amended Loan Agreement, the Company had the option of paying an annual rate of interest due on the revolving credit at prime plus
2%
or London Inter Bank Offer Rate (“LIBOR”) plus
3%
and the term loan at prime plus
2.5%
or LIBOR plus
3.5%.
 
On
March
24,
2016,
the Company entered into an amendment to the Amended Loan Agreement with PNC which provided, among other things, the following (the amendment, together with the Amended Loan Agreement is collectively the “Revised Loan Agreement”):
 
 
extended the due date of our credit facility from
October
31,
2016
to
March
24,
2021
(“maturity date”);
 
 
amended the term loan to approximately
$6,100,000,
which requires monthly payments of
$101,600
(based on a
five
-year amortization) and which approximated the term loan balance under the existing credit facility at the date of the amendment. The revolving credit remains at up to
$12,000,000
(subject to the amount of borrowings based on a percentage of eligible receivables as previously defined under the Amended Loan Agreement);
 
 
released
$1,000,000
of the
$1,500,000
borrowing availability restriction that the lender had previously placed on the Company in connection with the insurance settlement proceeds received in
2014
by our PFSG facility. The Company’s lender had authorized the Company to use such proceeds for working capital purposes but had placed an indefinite reduction on our borrowing availability of
$1,500,000;
 
 
revised the interest payment options to paying an annual rate of interest due on the revolving credit at prime plus
1.75%
or LIBOR plus
2.75%
and the term loan at prime
(3.75%
at
December
31,
2016)
plus
2.25%
or LIBOR plus
3.25%;
and
 
 
revised our annual capital spending maximum limit from
$6,000,000
to
$3,000,000.
 
In connection with the
March
24,
2016
amendment, the Company paid PNC total closing fees of approximately
$72,000.
As a result of the
March
24,
2016
amendment, the Company recorded approximately
$68,000
in loss on extinguishment of debt in accordance with ASC
470
-
50,
“Debt – Modifications and Extinguishments,” which was included in interest expense in the accompanying Consolidated Statements of Operations.
 
Pursuant to the Revised Loan Agreement, the Company
may
terminate the Revised Loan Agreement upon
90
days’ prior written notice upon payment in full of its obligations under the Revised Loan Agreement. The Company has agreed to pay PNC
1.0%
of the total financing in the event the Company pays off its obligations on or before
March
23,
2017,
.50%
of the total financing if the Company pays off its obligations after
March
23,
2017
but prior to or on
March
23,
2018,
and
.25%
of the total financing if the Company pays off its obligations after
March
23,
2018
but prior to or on
March
23,
2019.
No
early termination fee shall apply if the Company pays off its obligations after
March
23,
2019.
 
The Company’s credit facility with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company failed to meet its minimum quarterly fixed charge coverage ratio (“FCCR”) requirement of
1.15:1
in the
first
quarter of
2016.
On
May
23,
2016,
the Company’s lender waived this non-compliance. In connection with this waiver, the Company paid PNC a fee of
$5,000
which was included in selling, general and administrative expenses. The Company met its financial covenant requirements in the
second
quarter of
2016
except for its quarterly FCCR requirement. On
August
22,
2016,
the Company entered into an amendment to its Revised Loan Agreement with its lender which waived the Company’s non-compliance with its minimum quarterly FCCR for the
second
quarter of
2016.
In addition, the amendment revised the methodology to be used in calculating the FCCR in the
third
quarter of
2016,
the
fourth
quarter of
2016
and the
first
quarter of
2017.
This amendment also revised the Company’s minimum Tangible Adjusted Net Worth requirement (as defined in the Revised Loan Agreement) from
$30,000,000
to
$26,000,000.
In connection with the amendment, the Company paid PNC a fee of
$25,000,
which is being amortized over the remaining term of the loan as interest expense – financing fees. The Company failed to meet its FCCR in the
third
quarter of
2016.
On
November
17,
2016,
the Company entered into another amendment to its Revised Loan Agreement with its lender. This amendment included the following:
 
waived the Company’s non-compliance with its minimum quarterly FCCR for the
third
quarter of
2016;
 
further revised the methodology to be used in calculating the FCCR as follows (with continued requirement to maintain a minimum
1:15:1
ratio in each of the quarters): FCCR for the
fourth
quarter of
2016
is to be calculated using the financial results for the
three
month period ending
December
31,
2016;
FCCR for
first
quarter of
2017
is to be calculated using financial results for the
six
month period ending
March
31,
2017;
FCCR for
second
quarter of
2017
is to be calculated using the financial results for the
nine
month period ending
June
30,
2017;
and FCCR for the
third
quarter of
2017
and each fiscal quarter thereafter is to be calculated using the financial results for a trailing
twelve
month period basis;
 
placed an immediate additional restriction on the Company’s borrowing availability of
$750,000,
in addition to the restriction on our borrowing availability of
$500,000
which had been previously placed by our lender; and
 
revised the interest payment options to paying an annual rate of interest due on the revolving credit at prime plus
2%
or LIBOR plus
3%
and the term loan at Prime plus
2.5%
or LIBOR plus
3.5%.
Such interest payment option will automatically revert back to interest payment options as revised on the
March
24,
2016
amendment (see the
March
24,
2016
amendment the Company entered into with PNC above) if the Company is able to attain minimally a FCCR of
1:15:1,
as calculated using a trailing
twelve
month period, subsequent to any quarters after the
third
quarter of
2016.
 
As of
December
31,
2016,
the availability under our revolving credit was
$1,748,000,
based on our eligible receivables and includes the remaining indefinite reduction of borrowing availability of
$1,250,000
as discussed above.
 
Pursuant to the amendment dated
November
17,
2016
as discussed above, the Company’s lender also established a “Condition Subsequent” which requires the Company to receive restricted cash from a finite risk sinking fund in connection with our PFNWR closure policy. Immediately upon the receipt of funds, the Company’s lender is to immediately place another
$750,000
restriction on the Company’s borrowing availability resulting in a total of
$2,000,000
restriction on the Company’s borrowing availability (see “Note
14
– Commitments and Contingencies” – “Insurance” for further information of the PFNWR closure policy and the pending receipt of the related sinking fund).
 
All other terms of the Revised Loan Agreement remain principally unchanged. In connection with this amendment, the Company paid its lender a fee of
$25,000,
which is being amortized over the remaining term of the loan as interest expense-financing fees.
 
Promissory Note
The Company entered into a
$3,000,000
loan dated
August
2,
2013
with Messrs. Robert Ferguson and William Lampson (each known as the “Lender”). As consideration for the Company receiving the loan, the Company issued to each Lender a Warrant to purchase up to
35,000
shares of the Company’s Common Stock at an exercise price of
$2.23
per share. On
August
2,
2016,
each Lender exercised his Warrant for the purchase of
35,000
shares of our Common Stock, resulting in total proceeds paid to the Company of approximately
$156,000.
As further consideration for the loan, the Company had also issued to each Lender
45,000
shares of the Company’s Common Stock. The fair value of the Warrants and Common Stock and the related closing fees incurred from this transaction were recorded as a debt discount, which has been fully amortized using the effective interest method over the term of the loan as interest expense – financing fees. The loan was repaid in full by the Company in
August
2016.
 
The following table details the amount of the maturities of long-term debt maturing in future years as of
December
31,
2016
of our continuing operations (excludes debt issuance costs).
 
Year ending December 31:
       
(In thousands)        
2017
  $
1,219
 
2018
   
1,219
 
2019
   
1,219
 
2020
   
1,219
 
2021
   
4,108
 
Total
  $
8,984