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Debt Obligations

12 Months Ended

Dec. 31, 2019

Debt Obligations

Debt Obligations

8. Debt Obligations

Debt obligations consist of the following (in thousands):


		December 31,
		2019			2018
Revolving credit facility		$	28,000		$	50,000
Term loan			150,000			—
Notes to former owners			48,483			26,813
Other debt			—			105
Total principal amount			226,483			76,918
Less—unamortized debt issuance costs			(348)			—
Total debt, net of unamortized debt issuance costs			226,135			76,918
Less—current portion			(20,817)			(3,279)
Total long-term portion of debt, net		$	205,318		$	73,639

At December 31, 2019, future principal payments of debt are as follows (in thousands):


Year ended December 31—
2020		$	20,817
2021			17,666
2022			27,500
2023			27,500
2024			22,500
Thereafter			110,500
		$	226,483

Interest expense included the following primary elements (in thousands):


		Year Ended December 31,
		2019			2018			2017
Interest expense on notes to former owners		$	1,531		$	642		$	365
Interest expense on borrowings and unused commitment fees			6,887			2,211			1,862
Letter of credit fees			512			474			553
Amortization of debt financing costs			387			383			376
Total		$	9,317		$	3,710		$	3,156

Revolving Credit Facility and Term Loan

On December 20, 2019, we amended our senior credit facility (the “Facility”) provided by a syndicate of banks, increasing our borrowing capacity from $400.0 million to $600.0 million. As amended, the Facility is composed of a revolving credit line in the amount of $450.0 million and a $150.0 million term loan, and the Facility also provides for a $150.0 million accordion or increase option for the revolving portion of the Facility. The amended Facility also includes

a sublimit of up to $160.0 million issuable in the form of letters of credit. The Facility expires in January 2025 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and assets held by certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. In 2019, we incurred approximately $1.4 million in financing and professional costs in connection with an amendment to the Facility which are being amortized over the remaining term of the Facility. Of this amount, $0.4 million is attributable to the term loan and is being amortized using the effective interest method. The remaining $1.0 million is attributable to the revolving credit line, which combined with the previous unamortized costs of $1.3 million, is being amortized over the remaining term of the Facility on a straight-line basis as a non-cash charge to interest expense. For the term loan, we are required to make quarterly payments increasing over time from 1.25% to 3.75% of the original aggregate principal amount of the term loan, with the balance due in January 2025. As of December 31, 2019, we had $150.0 million principal outstanding on the term loan, $28.0 million of outstanding borrowings on the revolving credit facility, $40.9 million in letters of credit outstanding and $381.1 million of credit available.

Collateral

A common practice in our industry is the posting of payment and performance bonds with customers. These bonds are offered by financial institutions known as sureties and provide assurance to the customer that in the event we encounter significant financial or operational difficulties, the surety will arrange for the completion of our contractual obligations and for the payment of our vendors on the projects subject to the bonds. In cooperation with our lenders, we granted our sureties a first lien on assets such as receivables, costs and estimated earnings in excess of billings, and equipment specifically identifiable to projects for which bonds are outstanding, as collateral for potential obligations under bonds. As of December 31, 2019, the book value of these assets was approximately $58.2 million.

Covenants and Restrictions

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. Credit Facility Adjusted EBITDA is defined under the Facility for financial covenant purposes as net earnings for the four quarters ending as of any given quarterly covenant compliance measurement date, plus the corresponding amounts for (a) interest expense; (b) provision for income taxes; (c) depreciation and amortization; (d) stock compensation; (e) other non-cash charges; and (f) pre-acquisition results of acquired companies. The following is a reconciliation of Credit Facility Adjusted EBITDA to net income for 2019 (in thousands):


Net income		$	114,324
Provision for income taxes			37,418
Interest expense, net			9,093
Depreciation and amortization expense			51,572
Stock-based compensation			5,878
Pre-acquisition results of acquired companies, as defined under the Facility			1,404
Credit Facility Adjusted EBITDA		$	219,689

The Facility’s principal financial covenants include:

Total Leverage Ratio—The Facility requires that the ratio of our Consolidated Total Indebtedness to our Credit Facility Adjusted EBITDA not exceed 3.00 to 1.00 as of the end of each fiscal quarter. The leverage ratio as of December 31, 2019 was 1.0.

Fixed Charge Coverage Ratio—The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA, less non-financed capital expenditures, provision for income taxes, dividends, and amounts used to repurchase stock when the Company’s Total Leverage Ratio exceeds 2.00 to 1.00, to (b) the sum of interest expense and scheduled principal payments of indebtedness be at least 1.50 to 1.00. Credit Facility Adjusted EBITDA, capital expenditures, provision for income taxes, dividends, stock repurchase payments, interest expense, and scheduled principal payments are defined under the Facility for purposes of this covenant to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of December 31, 2019 was 11.3.

Other Restrictions—The Facility permits acquisitions of up to $5.0 million per transaction, provided that the aggregate purchase price of such an acquisition and of acquisitions in the same fiscal year does not exceed $10.0 million. However, these limitations only apply when the Company’s Total Leverage Ratio is greater than 2.50 to 1.00.

While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders.

We were in compliance with all of our financial covenants as of December 31, 2019.

Interest Rates and Fees

There are two interest rate options for borrowings under the Facility, the Base Rate Loan Option and the Eurodollar Rate Loan Option. Additional margins are then added to these two rates. Under the Base Rate Loan Option, the interest rate is determined based on the highest of the Federal Funds Rate plus 0.5%, the prime lending rate offered by Wells Fargo Bank, N.A. or the one-month Eurodollar Rate plus 1.00%. Under the Eurodollar Rate Loan Option, the interest rate is determined based on the one- to six-month Eurodollar Rate. The Eurodollar Rate corresponds very closely to rates described in various general business media sources as the London Interbank Offered Rate or “LIBOR.” Additional margins are then added to these rates. The additional margins are determined based on the ratio of our Consolidated Total Indebtedness as of a given quarter end to our “Credit Facility Adjusted EBITDA” for the twelve months ending as of that quarter end, as defined in the credit agreement and shown below.

The interest rates under the Facility are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. For illustrative purposes, the following are the respective market rates as of December 31, 2019 relating to interest options under the Facility:


Base Rate Loan Option:
Federal Funds Rate plus 0.50%		2.05%
Wells Fargo Bank, N.A. Prime Rate		4.75%
One-month LIBOR plus 1.00%		2.76%
Eurodollar Rate Loan Option:
One-month LIBOR		1.76%
Six-month LIBOR		1.91%

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the Facility. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the lenders for amounts they fund to honor the letter of credit holder’s claim. Absent a claim, there is no payment or reserving of funds by us in connection with a letter of credit. However, because a claim on a letter of credit would require immediate reimbursement by us to our lenders, letters of credit are treated as a use of facility capacity just the same as actual borrowings. We have never had a claim made against a letter of credit that resulted in payments by a lender or by us and believe such claim is unlikely in the foreseeable future.

Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. Letter of credit fees and commitment fees are based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA.


		Consolidated Total Indebtedness to
		Credit Facility Adjusted EBITDA
		Less than 1.00		1.00 to 1.75		1.75 to 2.50		2.50 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option		0.25	%	0.50	%	0.75	%	1.00	%
Eurodollar Rate Loan Option		1.25	%	1.50	%	1.75	%	2.00	%
Letter of credit fees		1.25	%	1.50	%	1.75	%	2.00	%
Commitment fees on any portion of the Revolving Loan capacity not in use for borrowings or letters of credit at any given time		0.20	%	0.25	%	0.30	%	0.35	%

The weighted average interest rate applicable to the borrowings under the revolving credit facility was approximately 3.2% as of December 31, 2019. The weighted average interest rate applicable to the term loan was approximately 3.3% as of December 31, 2019.

Notes to Former Owners

As part of the consideration used to acquire six companies, we have outstanding notes to the former owners. These notes had an outstanding balance of $48.5 million as of December 31, 2019. In conjunction with the Walker acquisition in the second quarter of 2019, we issued a promissory note to former owners with an outstanding balance of $25.0 million as of December 31, 2019 that bears interest, payable quarterly, at a stated interest rate of 4.0%. The principal is due in equal installments in April 2022 and April 2023. In conjunction with the BCH acquisition in the second quarter of 2017, we issued a promissory note to former owners with an outstanding balance of $14.3 million as of December 31, 2019 that bears interest, payable quarterly, at a stated interest rate of 3.0%. The principal is due in equal installments in April 2020 and 2021. In conjunction with four immaterial acquisitions in 2018 and 2019, we issued notes to former owners with an outstanding balance of $9.2 million as of December 31, 2019 that bear interest, payable quarterly, at stated interest rates ranging from 2.9% - 3.5%. The principal amounts are due between May 2020 – July 2021.