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Note 9 - Financing Arrangements
 6 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

NOTE 9 – FINANCING ARRANGEMENTS

 

Debt consisted of:

  

June 30, 2024

    

December 31, 2023

  
Senior Secured Credit Agreement                

Senior term loan facility

   $ 370,000     $ 323,750  

6.40% Note Agreement

                

6.40% Notes

     30,000       -  

Subordinated Credit Agreement

                

Subordinated credit facility

     -       90,000  

Total debt

     400,000       413,750  

Unamortized discount and debt issuance fees

     (4,620 )     (9,296 )

Total debt, net

     395,380       404,454  

Less: current portion of long-term debt

     (18,500 )     (21,875 )

Total long-term debt, net

   $ 376,880     $ 382,579  

 

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.

 

Amended and Restated Senior Secured Credit Agreement

 

On May 31, 2024, the Company entered into an Amended and Restated Senior Secured Credit Agreement (the “Amended and Restated Senior Credit Agreement”) with several lenders, which amended, extended, and restated the Company’s existing Senior Secured Credit Agreement, dated as of May 31, 2022. The Amended and Restated Senior Credit Agreement provides for a term loan facility in an aggregate principal amount of $370 million (the “Senior Term Loan Facility”), a revolving credit facility in an aggregate principal amount of up to $100 million (the “Credit Facility”), a letter of credit sub-facility in the aggregate available amount of up to $30 million, as a sublimit of the Credit Facility, and a swing line sub-facility in the aggregate available amount of up to $20 million, as a sublimit of the Credit Facility. The obligations of the Company under the Amended and Restated Senior Credit Agreement are secured by a first priority lien on substantially all of its personal property, and guaranteed by certain of the Company’s direct, wholly-owned subsidiaries (the “Guarantors”), which guarantees are secured by a first priority lien in substantially all of the Guarantors’ personal property.

 

The Amended and Restated Senior Credit Agreement has a maturity date of May 31, 2029, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2024 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 (as defined in the Amended and Restated Senor Credit Agreement), plus the applicable margin, which ranges from 0.5% to 1.25% for base rate loans and 1.50% to 2.25% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s total leverage ratio. At June 30, 2024, the applicable interest rate under the Amended and Restated Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.25%.

 

The Amended and Restated Senior Credit Agreement requires the Company to maintain a consolidated total net leverage ratio not to exceed 4.50 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2024 and September 30, 2024, decreasing to 4.25 to 1.00 for each of the four consecutive quarters ending December 31, 2024 and March 31, 2025, decreasing to 4.00 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2025 and September 30, 2025, and decreasing to 3.50 to 1.00 for the four consecutive fiscal quarter period ending December 31, 2025 and each of the four consecutive fiscal quarter periods ending thereafter.

 

The Amended and Restated Senior Credit Agreement requires the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 for any four consecutive fiscal quarter period.

 

The Amended and Restated Senior Credit Agreement contains customary affirmative and negative covenants, including among others, limitations on the Company and its subsidiaries with respect to the incurrence of liens and indebtedness, dispositions of assets, mergers, transaction with affiliates, and the ability to make or pay dividends in excess of certain thresholds.

 

The Amended and Restated Senior Credit Agreement also contains customary provisions requiring the following mandatory prepayments, including, among others, prepayments of the net cash proceeds from any non-ordinary course sale of assets, and net cash proceeds of any non-permitted indebtedness.

 

6.40% Note Agreement

 

On May 31, 2024, the Company entered into a Note Agreement (the “6.40% Note Agreement”) whereby the Company issued $30.0 million aggregate principal amount of 6.40% senior secured notes (the “6.40% Notes”). The Company’s obligations under the 6.40% Notes are secured by a first priority lien on substantially all of its personal property, and guaranteed by each of the Guarantors, which guarantees are secured by a first priority lien in substantially all of the Guarantors’ personal property. The liens granted under the 6.40% Notes are equal in priority to those granted pursuant to the Amended and Restated Senior Credit Agreement.

 

The 6.40% Note Agreement has a maturity date of May 31, 2031 and interest is payable semiannually on the last day of May and November in each year, commencing with November 30, 2024.

 

The 6.40% Note Agreement includes representations, warranties, covenants and events of default, substantially consistent with those contained in the Amended and Restated Senior Credit Agreement.

 

Subordinated Credit Agreement

 

On May 31, 2024, using the proceeds from the upsized Amended and Restated Senior Secured Credit Agreement and the issuance of the 6.40% Notes, as well as approximately $10.0 million of cash on hand, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its unsecured subordinated credit agreement (the “Subordinated Credit Agreement”), dated as of May 31, 2022.

 

The Company’s payment to the lenders under the Subordinated Credit Agreement was approximately $91.8 million, which included a make-whole payment of approximately $1.8 million. This amount satisfies all of the Company’s obligations under the Subordinated Credit Agreement, which would have matured on December 1, 2027.

 

Other

 

In the second quarter of 2024, the Company expensed $1.3 million of transaction related fees and recorded a non-cash charge of $4.4 million to write-off unamortized previously deferred transaction fees related to both the Subordinated Credit Agreement and a portion of the existing Senior Term Loan Facility.

 

The Company incurred total issuance costs of approximately $0.7 million related to the Amended and Restated Senior Secured Credit Agreement and the 6.40% Note Agreement. These costs are being amortized to interest expense over the respective terms.

 

The Company was in compliance with all debt covenants as of June 30, 2024.

 

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 June 30, 2024 and December 31, 2023:

 

   

Notional Amount

    

Average Fixed Rate

      
   

June 30,

2024

    

December 31,

2023

    

June 30,

2024

    

December 31,

2023

    

Term

Interest rate swaps

   $ 157,500     $ 161,875       4.1 %     4.1 %  

Extending to May 2027

 

The fair value of the Company’s interest rate swaps was a receivable of $1.0 million as of June 30, 2024 and a payable of $1.4 million as of December 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. 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 June 30, 2024 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:

 

   

June 30, 2024

    

December 31, 2023

  

Current Assets:

                

Prepaid and Other

   $ 1,304     $ 955  

Long-term liabilities:

                

Other long-term liabilities

     (289 )     (2,355 )

Total derivatives

   $ 1,015     $ (1,400 )

 

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

 

Derivatives in Cash Flow
Hedging Relationships

  

Amount of (Loss) Gain Recognized in AOCI on Derivatives

  
   

Three Months Ended
June 30,

    

Six Months Ended
June 30,

  
   

2024

    

2023

    

2024

    

2023

  

Interest rate swaps

   $ 817     $ 3,842     $ 3,452     $ 2,023  

 

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

 

Location of (Loss) Gain Reclassed

from AOCI into Income (Effective

Portion)

  

Amount of (Loss) Gain Reclassed from AOCI into Income

(Effective Portion)

  
   

Three Months Ended
June 30,

    

Six Months Ended
June 30,

  
   

2024

    

2023

    

2024

    

2023

  

Interest expense

   $ (512 )   $ (397

)

   $ (1,037 )   $ (588 )