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Note 10 - Long-term Debt
 9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

10.LONG-TERM DEBT

 

On April 26, 2024, we refinanced our existing debt by amending and restating our credit agreement with Bank of America, N.A., as agent, sole lead arranger and sole bookrunner and other lenders party thereto (the "ABL Agreement"). The ABL Agreement consists of a $175.0 million asset-based lending credit facility (the "ABL Facility") and a $50.0 million term loan facility (the "Term Facility"). The ABL Agreement is collateralized by a first-lien on substantially all of the Company's domestic assets. The ABL Facility includes a separate first in, last out (FILO) tranche, which allows the Company to borrow at higher advance rates on eligible accounts receivables and inventory balances. As of  September 30, 2024, we had borrowing capacity of $50.1 million under the ABL Facility. The Term Facility provides for monthly principal payments until the date of maturity, at which date the remaining principal balance is due.

 

This transaction resulted in a $2.6 million expense within Interest Expense and Other - net in the accompanying Unaudited Combined Condensed Statements of Operations, consisting of a $1.1 million loss on term loan extinguishment and a $1.5 million term loan prepayment penalty for the nine months ended  September 30, 2024. The $1.1 million loss on term loan extinguishment is included as a noncash adjustment to net income and the $1.5 million prepayment penalty is included within Repayments of long-term debt in the accompanying Unaudited Combined Condensed Statements of Cash Flows for the nine months ended  September 30, 2024.

 

Loans under the ABL agreement bear interest at a variable rate equal to either (i) the Base Rate (as calculated in the ABL Agreement) or (ii) Term SOFR (as calculated in the ABL Agreement), plus in each case an interest margin determined by the Company's average daily availability as a percentage of the aggregate amount of revolving commitments for revolving loans and term loans, with a range of Base Rate margins and term SOFR margins, as set forth of the following chart: 

 

Revolver Pricing Level(1)

  

Average Availability as a Percentage of Commitments

  

Term SOFR Term Loan

    

Base Rate Term Loan

    

Term SOFR Revolver Loan

    

Base Rate Revolver Loan

    

Term SOFR FILO Loan

    

Base Rate FILO Loan

  

I

  

> 66.7%

     2.75 %     1.50 %     1.25 %     0.00 %     1.75 %     0.50 %

II

  

>33.3% and < or equal to 66.7%

     3.00 %     1.50 %     1.50 %     0.00 %     2.00 %     0.50 %

III

  

< or equal to 33.3%

     3.25 %     1.75 %     1.75 %     0.25 %     2.25 %     0.75 %

 

(1) Until September 30, 2024, Level III applied. 

 

In connection with the ABL Agreement, we paid certain fees that were capitalized and will be amortized over the life of such agreement. 

 

Current and long-term debt under the ABL Agreement consisted of the following: 

 

  

September 30,

 

($ in thousands)

 

2024

 

Term Facility that matures in 2029 with an effective interest rate of 8.82%

 $47,213 

ABL Facility that matures in 2029:

    

SOFR borrowings with an effective interest rate of 6.76%

  105,000 

Prime borrowings with an effective interest rate of 8.47%

  470 

Total debt

  152,683 

Less: Unamortized debt issuance costs

  (2,393)

Total debt, net of debt issuance costs

  150,290 

Less: Debt maturing within one year

  (8,361)

Long-term debt

 $141,929 

 

A schedule of debt payments for the next five years is as follows:

 

 

Debt Payment

($ in thousands)

Schedule

2024

$2,090

2025

 8,361

2026

 8,361

2027

 8,361

2028

 8,361

2029

 117,149

Total

 152,683

 

Credit Facility Covenants

 

Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the agreement. As of September 30, 2024, we were in compliance with all credit facility covenants. The ABL Facility and Term Facility also contain restrictions on the amount of dividend payments. As of September 30, 2024, the Company was in compliance with the amounts paid on dividends in accordance with our debt facilities.

 

Retired Term Debt

 

On  March 15, 2021, we entered into a senior secured term loan facility with TCW Asset Management Company, LLC ("TCW"), as agent, for the lenders party thereto in the amount of $130.0 million (the "TCW Term Facility"). The TCW Term Facility provided for quarterly payments of principal and bore interest of LIBOR plus 7.00% through  June 30, 2021. After that date, interest was assessed quarterly based on our total leverage ratio. The total leverage ratio was calculated as (a) Total Debt to (b) EBITDA. If our total leverage ratio was greater than or equal to 4.00, the effective interest rate would have been SOFR plus 7.75% (or at our option, Prime Rate plus 6.75%). If our total leverage ratio was less than 4.00 but greater than or equal to 3.50, the effective interest rate would have been SOFR plus 7.50% (or at our option, Prime Rate plus 6.50%). If our total leverage ratio was less than 3.50 but greater than 3.00, the effective interest rate would have been SOFR plus 7.00% (or at our option, Prime Rate plus 6.00%). If our total leverage ratio was less than 3.00, the effective interest rate would have been SOFR plus 6.50% (or at our option, Prime Rate plus 5.50%). The TCW Term Facility also had a SOFR floor rate of 1.00%. In  June 2022, we entered into a second amendment with TCW to further amend the TCW Term Facility to consent to the modifications in our borrowing capacity under the Original ABL Facility as described below, and to adjust certain pricing and prepayment terms, among other things. The second amendment also modified the interest index to provide the use of SOFR to calculate interest rather than LIBOR. The effective interest rate was increased to SOFR plus 7.50% through  November 2022. In  November 2022, the TCW Term Facility was amended to increase the effective interest rate to SOFR plus 7.00% until  June 2023 and to provide certain EBITDA adjustments with respect to financial covenants, among other things. In  May 2023, we entered into a fourth amendment to the TCW Term Facility to provide certain EBITDA adjustments in respect of the financial covenants, adjust the method to calculate total debt, continue certain pricing terms, extend certain prepayment terms, and pay such lenders certain amendment fees, among other things. In  October 2023, we entered into a sixth amendment to the TCW Term Facility to provide certain EBITDA adjustments in respect of the financial covenants, adjust the performance pricing grid, adjust the total leverage ratio periodically through  June 30, 2025, among other things.

 

The TCW Term Facility was collateralized by a second-lien on accounts receivable, inventory, cash and related assets and a first-lien on substantially all other assets. The TCW Term Facility was replaced by the Term Facility that was part of the ABL Agreement in April 2024.

 

On  March 15, 2021, we also entered into a senior secured asset-based credit facility (the "Original ABL Facility") with Bank of America, N.A. as agent, for the lenders party thereto. The Original ABL Facility provided a senior secured asset-based revolving credit facility up to a principal amount of $150.0 million, which included a sub-limit for the issuance of letters of credit up to $5.0 million. The Original ABL Facility would be increased up to an additional $50.0 million at the borrowers’ request and the lenders’ option, subject to customary conditions. In  June 2022, we further amended the Original ABL Facility to temporarily increase our borrowing capacity to $200.0 million through  December 31, 2022, which thereafter was reduced to $175.0 million. In  November 2022, we entered into a third amendment to the Original ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant. The Original ABL Facility included a separate first in, last out (FILO) tranche, which allowed us to borrow at higher advance rates on eligible accounts receivables and inventory balances. In  October 2023, we entered into a fifth amendment to the Original ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant. 

 

The Original ABL Facility was collateralized by a first-lien on accounts receivable, inventory, cash and related assets and a second-lien on substantially all other assets. The Original ABL Facility was replaced with the ABL Facility that was part of the ABL Agreement in April 2024. Interest on the Original ABL Facility was based on the amount available to be borrowed as set forth on the following chart:

 

Revolver Pricing Level

  

Average Availability as a Percentage of Commitments

  

Base Rate

    

Term SOFR Loan

    

Base Rate for FILO

    

Term SOFR FILO Loans

  

I

  

> 66.7%

     0.00 %     1.25 %     0.50 %     1.75 %

II

  

>33.3% and < or equal to 66.7%

     0.00 %     1.50 %     0.50 %     2.00 %

III

  

< or equal to 33.3%

     0.25 %     1.75 %     0.75 %     2.25 %

 

In connection with the TCW Term Facility and the Original ABL Facility, we had to pay certain fees that were capitalized and amortized over the life of each respective loan. In addition, the Original ABL Facility required us to pay an annual collateral management fee in the amount of $75,000 due on each anniversary of the issuance date, until it matured.

 

Current and long-term debt under the Original ABL Facility and TCW Term Facility consisted of the following:

 

   

December 31,

    

September 30,

  

($ in thousands)

  

2023

    

2023

  

TCW Term Facility refinanced in April 2024 with an effective interest rate of 13.20% as of December 31, 2023 and 12.77% as of September 30, 2023

   $ 77,932     $ 88,594  

Original ABL Facility amended and restated in April 2024:

                

SOFR borrowings with an effective interest rate of 7.31% and 7.25% as of December 31, 2023 and September 30, 2023, respectively

     83,144       124,660  

Prime borrowings with an effective interest rate of 8.75% as of and December 31, 2023 and September 30, 2023

     13,938       2,737  

Total debt

     175,014       215,991  

Less: Unamortized debt issuance costs

     (1,884 )     (2,097 )

Total debt, net of debt issuance costs

     173,130       213,894  

Less: Debt maturing within one year

     (2,650 )     (2,704 )

Long-term debt

   $ 170,480     $ 211,190  

 

Retired Credit Facility Covenants

 

The TCW Term Facility contained restrictive covenants which required us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio, as defined in the TCW Term Facility agreement. The Original ABL Facility contained a restrictive covenant which required us to maintain a fixed charge coverage ratio upon a triggering event taking place (as defined in the Original ABL Facility). During the three months ended September 30, 2023, we were in compliance with all credit facility covenants.

 

The TCW Term Facility and the Original ABL Facility also contained restrictions on the amount of dividend payments.

 

We were in compliance with all TCW Term Facility and Original ABL Facility Agreement covenants through April 26, 2024, the date on which we refinanced such debt.