| DEBT |
DEBT Senior Notes—As of September 30, 2017, we had outstanding $60 million of senior notes (the "Notes") consisting of the following series: | | • | $24 million of Senior Notes, Series A, due April 16, 2020 |
| | • | $18 million of Senior Notes, Series B, due April 14, 2023 |
| | • | $18 million of Senior Notes, Series C, due April 16, 2025 |
We originally issued $150 million of the Notes in 2013. Since the beginning of the fourth quarter of 2016, we have repaid an aggregate principal amount of $90 million of the Notes, including $6 million paid in the three months ended September 30, 2017, and a total of $75 million paid in the nine months ended September 30, 2017. In June 2017, we entered into an amendment with the holders of the Notes that requires us to prepay an additional $10 million of the Notes, together with accrued interest and a make-whole amount, on or before December 31, 2018, of which none had been paid as of September 30, 2017. The June 2017 amendment also altered the methodology for determining the variable interest rate for the Notes, though the interest rates will continue to be based on our financial performance as measured by certain financial covenant levels, and modified certain terms regarding the mandatory redemptions or offers of prepayment to the holders of the Notes. The agreement governing the Notes provides for the following: | | • | We granted to the collateral agent for the noteholders a first lien on substantially all of our non-current assets and second lien on substantially all of our current assets. |
| | • | The agreement requires us to maintain a minimum trailing twelve-month adjusted EBITDA, which adjusts over time and is measured quarterly through March 2018, ranging from negative $10 million in the period ended September 30, 2017, to negative $7.5 million in the period ending March 31, 2018. Adjusted EBITDA is a non-GAAP measure that is calculated as adjusted earnings before interest, income taxes, depreciation, amortization, and certain other expenses for the prior four quarters, as defined under the agreement. Our adjusted EBITDA as calculated under the agreement was $19.4 million for the four quarters ended September 30, 2017, satisfying the adjusted EBITDA covenant. |
| | • | The agreement requires us to maintain minimum liquidity of $15 million as of the last day of any month ending on or prior to March 31, 2018, and monthly thereafter if we do not meet certain financial covenants. Liquidity is calculated as unencumbered cash and unused availability under our credit facility. Our liquidity as calculated under the agreement was $24.2 million as of September 30, 2017, satisfying the liquidity covenant. |
| | • | The agreement requires us to maintain a minimum fixed charge coverage amount of negative $15 million and negative $10 million for the quarters ending June 30, 2018, and September 30, 2018, respectively. The agreement also includes requirements relating to a leverage ratio and a fixed charge coverage ratio to be tested on a quarterly basis commencing with the quarter ending June 30, 2018, with respect to the leverage ratio, and December 31, 2018, with respect to the fixed charge coverage ratio. The maximum leverage ratio will be 11.5 to 1.0 for the quarter ending June 30, 2018, and decreases to 3.5 to 1.0 for the quarter ending September 30, 2019, and each quarter thereafter. The minimum fixed charge coverage ratio will be 0.25 to 1.0 for the quarter ending December 31, 2018, and increases to 1.3 to 1.0 for the quarter ending September 30, 2019, and each quarter thereafter. In general, our fixed charge coverage amount is calculated as adjusted EBITDA for the prior four quarters, minus capital expenditures, cash paid for income taxes, and interest expense plus scheduled principal amortization of long-term funded indebtedness; our leverage ratio is calculated as the ratio of funded indebtedness to adjusted EBITDA for the prior four quarters; and our fixed charge coverage ratio is calculated as the ratio of adjusted EBITDA for the prior four quarters, minus capital expenditures and cash paid for income taxes, to interest expense plus scheduled principal amortization of long-term funded indebtedness. |
| | • | The interest rates on the Notes may adjust quarterly based on our leverage ratio and fixed charge coverage ratio. As our financial position improves as measured by these ratios, we pay lower interest rates under the Notes. If our leverage ratio is less than 3.5 to 1.0 and our fixed charge coverage ratio is greater than 1.3 to 1.0, we pay the lowest interest rates available under the Notes. Conversely, if our leverage ratio is greater than or equal to 7.5 to 1.0 or our fixed charge coverage ratio is less than or equal to 1.3 to 1.0, we pay the highest interest rates required under the Notes. During the quarter ended September 30, 2017, the interest rates on the Notes were 7.73% for the Series A Notes, 8.63% for the Series B Notes and 8.78% for the Series C Notes. Beginning November 1, 2017, the interest rates on the Notes will be reduced to 3.73% for the Series A Notes, 4.63% for the Series B Notes and 4.78% for the Series C Notes. These rates represent the lowest interest rates available under the Notes. |
| | • | We are required to offer to prepay the Notes with the proceeds of dispositions of certain specified property and with the proceeds of certain equity issuances, as set forth in the agreement. |
| | • | The obligations under the Notes are unconditionally guaranteed by several of our subsidiaries. |
We were in compliance with the applicable covenants under the agreement governing the Notes as of September 30, 2017. Our outstanding long-term debt, net, as of September 30, 2017, and December 31, 2016, is as follows (in thousands): | | | | | | | | | | September 30, 2017 | | December 31, 2016 | Senior Notes | $ | 60,000 |
| | $ | 135,000 |
| Less deferred financing costs | (596 | ) | | (1,566 | ) | Long-term debt, net | $ | 59,404 |
| | $ | 133,434 |
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Credit Facility—In October 2016, we entered into a credit agreement with Bank of Montreal that provides an asset-based revolving credit facility of up to $35 million in aggregate principal amount. In June 2017, we amended the agreement to extend the maturity date to October 31, 2019, and to permit up to $10 million of borrowings under the agreement to be used to make payments on the Notes. The amount of the facility remains at $35 million and is available subject to monthly borrowing base limits based on our inventory and receivables. If our total remaining availability under the credit facility was to fall below $6 million, we would be subject to a minimum fixed charge coverage ratio of 1 to 1, which we would not currently meet. Any borrowings on the credit facility bear interest at 1.75% to 2.25% above LIBOR (London Interbank Offered Rate), based on average availability under the credit facility. We have granted to Bank of Montreal a first lien on substantially all of our current assets and a second lien on substantially all of our non-current assets. We occasionally borrow and repay amounts under the facility for near-term working capital needs and may do so in the future. For the nine months ended September 30, 2017, we borrowed and repaid $9.0 million under the facility. As of September 30, 2017, there were no amounts outstanding under the facility, other than $3.5 million in letters of credit. Considering the outstanding letters of credit and the fixed charge coverage ratio requirement described above, we have $22.5 million available under the facility as of September 30, 2017. We were in compliance with the applicable covenants under the facility as of September 30, 2017.
Interest expense is recorded net of any capitalized interest associated with investments in capital projects. We incurred gross interest expense of $2.1 million and $4.1 million for the three months ended September 30, 2017, and 2016, respectively, and $10.8 million and $9.5 million for the nine months ended September 30, 2017, and 2016, respectively. Amounts included in interest expense for the three and nine months ended September 30, 2017, and 2016, are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2017 | | 2016 | | 2017 | | 2016 | Interest on Notes and credit facility commitment fees | | $ | 1,382 |
| | $ | 2,688 |
| | $ | 6,180 |
| | $ | 6,429 |
| Make-whole payments | | 448 |
| | 806 |
| | 3,001 |
| | 806 |
| Amortization of deferred financing costs | | 246 |
| | 564 |
| | 1,596 |
| | 2,228 |
| Gross interest expense | | 2,076 |
| | 4,058 |
| | 10,777 |
| | 9,463 |
| Less capitalized interest | | 82 |
| | 153 |
| | 146 |
| | 329 |
| Interest expense, net | | $ | 1,994 |
| | $ | 3,905 |
| | $ | 10,631 |
| | $ | 9,134 |
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