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Long-term Debt
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Long-term Debt Long-term Debt:
Our long-term debt outstanding consists of the following (in millions):
June 30,
2023		December 31, 2022
Credit Agreement—
Advances under revolving credit facility$180.0 $190.0 
Term loan A facility377.8 387.9 
Finance lease obligations4.0 5.2 
561.8 583.1 
Less current portion(22.5)(23.1)
Long-term debt, net of current portion$539.3 $560.0 
The following table shows scheduled principal payments due on long-term debt for the next five years (in millions):
Amount
July 1 through December 31, 2023$11.4 
202421.8 
202520.7 
202620.1 
2027490.0 
Gross maturities564.0 
Less unamortized debt issuance costs(2.2)
Total$561.8 
In June 2022, the Company entered into a credit agreement (the “Credit Agreement”) that consists of a $400.0 million term loan A facility (the “Term Loan A Facility”) and a $350.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan A Facility, the “Credit Facilities”). The Credit Facilities mature in June 2027. Interest on the loans under the Credit Facilities is calculated by reference to the Secured Overnight Financing Rate (“SOFR”) or an alternative base rate, plus an applicable interest rate margin. Enhabit may voluntarily prepay outstanding loans under the Credit Facilities at any time without premium or penalty, other than customary breakage costs with respect to SOFR loans. The Term Loan A Facility contains customary mandatory prepayments, including with respect to proceeds from asset sales and from certain incurrences of indebtedness.
On June 30, 2022, we drew the full $400.0 million of the Term Loan A Facility and $170.0 million on the Revolving Credit Facility. The net proceeds of $566.6 million were distributed to Encompass prior to the completion of the Distribution. As of June 30, 2023, amounts drawn under the Term Loan A Facility and the Revolving Credit Facility had an
interest rate of 7.2%. For additional information on the Separation, see Note 1, Summary of Significant Accounting Policies, to the accompanying unaudited condensed consolidated financial statements.
The Term Loan A Facility amortizes by an amount per annum equal to 5.0% of the outstanding principal amount thereon as of the closing date, payable in equal quarterly installments, with the balance being payable in June 2027. The Revolving Credit Facility provides the ability to borrow and obtain letters of credit, which is subject to a $75.0 million sublimit. Obligations under the Credit Facilities are guaranteed by our existing and future wholly owned domestic material subsidiaries (the “Guarantors”), subject to certain exceptions. Borrowings under the Credit Facilities are secured by first priority liens on substantially all the assets of Enhabit and the Guarantors, subject to certain exceptions. The Credit Facilities contain representations and warranties, affirmative and negative covenants and events of default customary for secured financings of this type, including limitations with respect to liens, fundamental changes, indebtedness, restricted payments, investments and affiliate transactions, in each case, subject to a number of important exceptions and qualifications.
Prior to June 27, 2023, the Credit Facilities obligated us to maintain a maximum total net leverage ratio of no more than 4.75 to 1.0 and a minimum interest coverage ratio of no less than 2.5 to 1.0 for the previous four consecutive quarters. Prior to June 27, 2023, the maximum total net leverage ratio was scheduled to decline to 4.5 to 1.0 on June 30, 2024.
On June 27, 2023, we amended the Credit Facilities to provide for, among other things, (i) a new tier to the pricing grid for interest rate margins when the total net leverage ratio exceeds 4.50 to 1.00; (ii) changes to the conditions concerning the Company’s total net leverage ratio that must be met for the Company to borrow incremental ratio-based amounts; (iii) an increase in the maximum permitted total net leverage ratio to 5.25 to 1.00 for the quarters ending June 30, 2023, September 30, 2023, and December 31, 2023, stepping down to 5.00 to 1.00 for the quarter ending March 31, 2024, 4.75 to 1.00 for the quarter ending June 30, 2024, and 4.50 to 1.00 for the quarter ending September 30, 2024 and thereafter; and (iv) modifications to the Company’s ability to declare and make certain restricted payments.
Under specified circumstances, including non-compliance with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we may not be able to borrow under the Revolving Credit Facility. Additionally, violation of the covenants would result in an event of default under the Credit Facilities. A default that occurs, and is not cured within any applicable cure period or is not waived, would permit lenders to accelerate the maturity of the debt under the Credit Facilities and to foreclose upon any collateral securing the debt. As of June 30, 2023, we were in compliance with the financial covenants under the Credit Facilities.
Our forecast for results through June 30, 2024 indicate we will continue to be in compliance with those financial covenants through that date. We cannot guarantee we will be in compliance with our financial covenants for each reporting period through June 30, 2024. We continually evaluate our expected compliance with the covenants described above and take all appropriate steps to proactively renegotiate such covenants when appropriate.
On October 20, 2022, we entered into an interest rate swap to manage our exposure to interest rate movements for a portion of our Term Loan A Facility. The interest rate swap has a $200.0 million notional value and a maturity date of October 20, 2025. Beginning in October 2022, we receive the one-month SOFR and pay a fixed rate of interest of 4.3%. See Note 7, Derivative Instruments.
The carrying amounts and estimated fair values of our long-term debt are presented in the following table (in millions):
As of June 30, 2023As of December 31, 2022
Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Long-term debt:
Advances under revolving credit facility$180.0 $180.0 $190.0 $190.0 
Term loan A facility377.8 355.5 387.9 356.6 
Finance lease obligations4.0 4.0 5.2 5.2 
Fair values for our long-term debt and financial commitments are determined using inputs, including quoted prices in nonactive markets, that are observable either directly or indirectly, or Level 2 inputs within the fair value hierarchy. See Note 1, Summary of Significant Accounting Policies—Fair Value Measurements, to the consolidated financial statements included in the Form 10-K.