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Note 10 - Financing Arrangements
 3 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Debt Disclosure [Text Block]

NOTE 10 – FINANCING ARRANGEMENTS

 

Debt consisted of:

  

Senior Secured Credit Agreement

  

March 31, 2023

    

December 31, 2022

  

Senior term loan facility

   $ 336,875     $ 341,250  

Credit facility

     20,000       17,000  

Subordinated Credit Agreement

                

Subordinated credit facility

     90,000       90,000  

Total debt

     446,875       448,250  

Unamortized discount and debt issuance fees

     (10,800 )     (11,423 )

Total debt, net

     436,075       436,827  

Less: current portion of long-term debt

     (17,500 )     (17,500 )

Total long-term debt, net

   $ 418,575     $ 419,327  

 

The carrying value of long term debt, including the current portion, approximates fair value as the variable interest rates approximate rates available to other market participants with comparable credit risk.

 

Senior Secured Credit Agreement

 

On May 31, 2022, the Company entered into a Senior Secured Credit Agreement with several lenders, which provides a term loan of $350.0 million (“Senior Term Loan Facility”) and a revolving credit facility up to $100.0 million (“Credit Facility”). The Credit Facility has a letter of credit sublimit of up to $15.0 million, as a sublimit of the Credit Facility, and a swing line subfacility of up to $20.0 million, as a sublimit of the Credit Facility. The Company borrowed $5.0 million under the Credit Facility, which, along with the Senior Term Loan Facility, and cash-on-hand and the proceeds of the Subordinated Credit Facility described below, was used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”. The Company has agreed to secure all of its obligations under the Senior Secured Credit Agreement by granting a first priority lien on substantially all of its personal property, and each of Patterson Pump Company, AMT Pump Company, National Pump Company and Fill-Rite Company (collectively, the “Guarantors”) has agreed to guarantee the obligations of the Company under the Senior Secured Credit Agreement and to secure the obligations thereunder by granting a first priority lien in substantially all of such Guarantor’s personal property.

 

The Senior Secured Credit Agreement has a maturity date of May 31, 2027, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2022 and continuing on the last day of each consecutive December, March, June and September thereafter.

 

At the option of the Company, borrowings under the Senior Term Loan Facility and under the Credit Facility bear interest at either a base rate or at an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 0.75% to 1.75% for base rate loans and 1.75% to 2.75% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s senior leverage ratio. As of March 31, 2023, the applicable interest rate under the Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.50%.

 

The Senior Secured Credit Agreement includes covenants subject to maximum leverage ratios and a minimum fixed charge coverage ratio. We were in compliance with all of our debt covenants as of March 31, 2023.

 

Subordinated Credit Agreement

 

On May 31, 2022, the Company entered into an unsecured subordinated credit agreement (“Subordinated Credit Agreement”) which provides for a term loan of $90.0 million (the “Subordinated Credit Facility”). Each of the Guarantors has agreed to guarantee the obligations of the Company under the Subordinated Credit Agreement. The proceeds from the Subordinated Credit Facility, along with cash-on-hand and the proceeds of the Senior Term Loan Facility described above, were used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”.

 

The Subordinated Credit Agreement has a maturity date of December 1, 2027. If the Subordinated Credit Facility is prepaid prior to the second anniversary, such prepayment must be accompanied by a make-whole premium. If the Subordinated Credit Facility is prepaid after the second anniversary but prior to the third anniversary, such prepayment requires a prepayment fee of 2%, and if the Subordinated Credit Facility is prepaid after the third anniversary but prior to the fourth anniversary, such prepayment requires a prepayment fee of 1%.

 

At the option of the Company, borrowings under the Subordinated Credit Facility bear interest at either a base rate plus 8.0%, or at an Adjusted Term SOFR Rate plus 9.0%. As of March 31, 2023 borrowings under the Subordinated Credit Facility bear interest at an Adjusted Term SOFR Rate plus 9.1%.

 

The Subordinated Credit Agreement includes covenants subject to maximum leverage ratios. We were in compliance with all of our debt covenants as of March 31, 2023.

 

 

Interest Rate Derivatives

 

The Company entered into interest rate swaps that hedge interest payments on its SOFR borrowing during the fourth quarter of 2022. All swaps have been designated as cash flow hedges. The following table summarizes the notional amounts, related rates and remaining terms of interest swap agreements as of March 31:

 

   

Notional Amount

    

Average Fixed Rate

  

 
   

2023

    

2022

    

2023

    

2022

   Term 

Interest rate swaps

   $ 168,437       -       4.1 %     - % Extending to May 2027

 

The fair value of the Company’s interest rate swaps was a payable of $2.8 million as of March 31, 2023. The fair value was based on inputs other than quoted prices in active markets for identical assets that are observable either directly or indirectly and therefore considered level 2. There were no interest rate swaps in place as of March 31, 2022. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in Accumulated Other Comprehensive Loss. The interest rate swap agreements held by the Company on March 31, 2023 are expected to continue to be effective hedges.

 

The following table summarizes the fair value of derivative instruments as recorded in the Consolidated Balance Sheets:

 

   

March 31 2023

    

December 31, 2022

  
Current Assets:                

Prepaid and Other

   $ 910     $ 1,203  
Long-term liabilities:                

Other long-term liabilities

     (3,730 )     (2,012 )

Total derivatives

   $ (2,820 )   $ (809 )

 

The following table summarizes total gains (losses) recognized on derivatives:

 

Derivatives in Cash Flow Hedging Relationships

  

Location of (Loss) Gain Recognized

in Income on Derivatives

  

Amount of (Loss) Gain

Recognized in Income on Derivatives

 
       

2023

    

2022

  

Interest rate swaps

   Interest Expense   $ 191     $ -  

 

The effects of derivative instruments on the Company’s Consolidated Statements of Results of Operations and Comprehensive Income (Loss) for OCI are as follows:

 

Derivatives in Cash Flow

Hedging Relationships

  

Amount of (Loss) Gain Recognized

in AOCI on Derivatives

 

Location of (Loss) Gain Reclassed

from AOCI into Income

(Effective Portion)

  

Amount of (Loss) Gain Reclassed from AOCI into Income (Effective Portion)

  
   

March 31,

      

March 31,

 
   

2023

    

2022

      

2023

    

2022

  

Interest rate swaps

   $ (1,819 )   $ -   Interest expense   $

(191

 )   $ -