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Note 5 - Debt | 12 Months Ended
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Jan. 31, 2021
Notes to Financial Statements |
Debt Disclosure [Text Block] | Note 5 - Debt
(In thousands) |  | 2020 |  |  | 2019 |
Revolving line - North America |  | $ | 2,826 |  |  | $ | 8,577 |
Mortgage notes |  |  | 6,394 |  |  |  | 6,568 |
Revolving lines - foreign |  |  | 3,272 |  |  |  | 691 |
Term loan - foreign |  |  | 17 |  |  |  | - |
Finance lease obligations |  |  | 701 |  |  |  | 1,094 |
Total debt |  |  | 13,210 |  |  |  | 16,930 |
Unamortized debt issuance costs |  |  | (166 | ) |  |  | (169 | )
Less current maturities |  |  | 6,776 |  |  |  | 10,044 |
Total long-term debt |  | $ | 6,268 |  |  | $ | 6,717 |
Current portion of long-term debt |  | $ | 6,776 |  |  | $ | 10,044 |
Unamortized debt issuance costs |  |  | (9 | ) |  |  | (9 | )
Total short-term debt |  | $ | 6,767 |  |  | $ | 10,035 |
The following table summarizes the Company's scheduled maturities on January 31:
(In thousands) |  | Total |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | 2025 |  |  | 2026 |  |  | Thereafter |
Revolving line - North America |  | $ | 2,826 |  |  | $ | 2,826 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Mortgages |  |  | 6,394 |  |  |  | 373 |  |  |  | 379 |  |  |  | 385 |  |  |  | 391 |  |  |  | 398 |  |  |  | 4,468 |
Revolving lines - foreign |  |  | 3,272 |  |  |  | 3,272 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Term loan - foreign |  |  | 17 |  |  |  | 5 |  |  |  | 6 |  |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | - |
Finance lease obligations |  |  | 701 |  |  |  | 300 |  |  |  | 255 |  |  |  | 146 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 13,210 |  |  | $ | 6,776 |  |  | $ | 640 |  |  | $ | 537 |  |  | $ | 391 |  |  | $ | 398 |  |  | $ | 4,468 |
Paycheck Protection Program Loan. On May 1, 2020, the Company entered into a loan agreement under the Small Business Administration's Paycheck Protection Program ("PPP") and received proceeds of approximately $3.2 million. Interest on the loan accrued at a fixed interest rate of 1.0%, and the loan had a maturity date of April 28, 2022. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the three months ended July 31, 2020, the Company used all of the PPP loan proceeds to pay for qualified expenses, 100% of which were used for payroll related expenses. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program. Guidance from the American Institute of Certified Public Accountants' ("AICPA") Technical Question and Answer Section 3200.18 states that if a company expects to meet the PPP's eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, it may analogize to International Accounting Standards ("IAS") 20 - Accounting for Government Grants and Disclosure of Government Assistance to account for the PPP loan. The Company believes the PPP loan proceeds will be forgiven under the terms of the CARES Act program, although no assurance to that effect can be provided. Therefore, the Company has recognized the earnings impact on a systematic basis over the periods in which the Company recognized as expenses the related costs for which the grants were intended to compensate. We noted that all of these expenses, and thus the related earnings impact, were incurred during the year ended January 31, 2021. The IAS 20 guidance allows for recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected the former option, to make a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. As such, we have recognized the proceeds in earnings during the year ended January 31, 2021. The amounts are recognized in other income in the consolidated statements of operations. The Company has submitted its application and supporting documentation for forgiveness to its bank, which has submitted the application and supporting documents to the SBA. We are currently awaiting approval of forgiveness from the SBA. Revolving line - North America . On September 20, 2018, the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender, providing for a three -year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”). The Company has used proceeds from the Senior Credit Facility to pay outstanding amounts under a prior credit facility, a cash collateralized letter of credit, and for on-going working capital needs, and expects to continue using this facility to fund future capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or LIBOR, plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility. Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally payable in arrears on the last day of each interest period. Additionally, the Company is required to pay a 0.375% per annum facility fee on the unused portion of the Senior Credit Facility. The facility fee is payable quarterly in arrears. Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of assets of its North American subsidiaries. The North American Loan Parties' obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September 20, 2021. Subject to certain qualifications and exceptions, the Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties' ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties cannot allow capital expenditures to exceed $3.0 million annually (plus a limited carryover of unused amounts). The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve a ratio of their EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company's foreign subsidiaries not party to the Credit Agreement) to be not less than 1.10 to 1.00 at each quarter end on a trailing four -quarter basis; and (ii) the Company and its subsidiaries (including the Company's foreign subsidiaries not party to the Credit Agreement) to achieve a ratio of their EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility of not less than 1.10 to 1.00 at each quarter end on a trailing four -quarter basis. Due to project delays as a result of the COVID- 19 pandemic, as of October 31, 2020, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the trailing four -quarters ended October 31, 2020 under its Credit Agreement for both the North American Loan Parties and the Company and its subsidiaries. On December 18, 2020, the Company entered into the First Amendment and Waiver to the Revolving Credit and Security Agreement (“Amendment and Waiver”) with PNC, which (i) reflected PNC's waiver of the Company's failure to maintain a fixed charge coverage ratio of 1.10 to 1.00 as of October 31, 2020 on a trailing four quarter basis as required under the Company's Credit Agreement and (ii) further amended certain future fixed charge coverage ratio covenants requirements under the Credit Agreement as described below. Additionally, the Company was also required to have received, and applied to reduce the outstanding balance under the Credit Agreement, $1 million from one of its foreign subsidiaries, Perma-Pipe Middle East FZC, in the United Arab Emirates. The transfer and repayment occurred on December 17, 2020 and did not cause the Company to incur any additional fees or taxes, nor did it force the Company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries. The Company will incur additional fees over the remainder of the Amendment and Waiver of approximately $0.2 million. The Amendment and Waiver also eliminated the Company's ability to make LIBOR borrowings and reduces the overall availability by $2.0 million until maturity. The amended fixed charge coverage ratio requirements for the Company and its subsidiaries under the Amendment and Waiver are (i) 1.25 to 1.00 for the six -month period ending April 30, 2021 and (ii) 1.25 to 1.00 for the nine -month period ending July 31, 2021. The amended fixed charge coverage ratio requirements for the North American Loan Parties under the Amendment and Waiver are (i) 1.10 to 1.00 for the three -month period ending January 31, 2021; ( ii) 1.10 to 1.00 for the six -month period ending April 30, 2021; and (iii) 1.10 to 1.00 for the nine -month period ending July 31, 2021. In order to cure any future breach of the fixed charge coverage ratio covenant by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Credit Agreement in an amount which, when added to the amount of the Company's Consolidated Adjusted EBITDA, would result in pro forma compliance with the covenant. Due to continued project delays as a result of the COVID- 19 pandemic, as of January 31, 2021, the Company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the three -month period ended January 31, 2021 under the Amendment and Waiver for the North American Loan Parties. Per the Amendment and Waiver, the Company will repatriate approximately $0.8 million in cash from its subsidiary in the United Arab Emirates in April 2021 to cure the breach. The repatriation will not cause the Company to incur any additional fees or taxes, nor did it force the Company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries. As of January 31, 2021, the Company's foreign subsidiaries that are not a party to the Credit Agreement had approximately $6.6 million of cash available to satisfy a future potential repatriation cure of any potential future breach of the fixed charge coverage ratio covenant. The Company estimates that it may need to repatriate cash of up to $0.1 million in the next six months. Any cash required to cure future covenant defaults would be repatriated through the Company's subsidiaries in the United Arab Emirates, Saudi Arabia, Egypt and/or India. Most of this cash could be repatriated without any tax consequences, however, some repatriation would require payment of withholding taxes. The Company does not anticipate any material tax impacts of any potential future repatriation. The Company believes it has alleviated any concerns about its ability to satisfy its obligations in the normal course of business for the next year after the date these financial statements are available to be issued based on the following:
| ● | The Company's execution of the Amendment and Waiver described above,
| ● | The Company's ability to repatriate cash from its foreign subsidiaries to cure any future covenant defaults without any material cost or tax consequences,
| ● | The Company expects an increase in business activity and cash flow from operations over the remaining term of the Amendment and Waiver,
| ● | Management expects to be able to borrow within the reduced availability parameters noted above, and
| ● | The Company's flexibility in deciding when to incur its planned capital expenditures allows the Company to defer cash spending if necessary to ensure compliance with loan covenants in the future.
As of January 31, 2021, the Company had borrowed an aggregate of $2.8 million at a rate of 6.25% and had $1.7 million available under the Senior Credit Facility. Revolving lines - foreign. The Company also has credit arrangements used by its Middle Eastern subsidiaries in the U.A.E. and Egypt as discussed further below. The Company has a revolving line for 8.0 million Dirhams (approximately $2.2 million at January 31, 2021) from a bank in the U.A.E. The facility has an interest rate of approximately 3.4% and was originally set to expire in November 2020. However, the expiration has been extended due to the COVID- 19 pandemic and the inability to finalize renewal documentation prior to that time. The Company is awaiting final documentation to complete the renewal process, which is expected to occur in April 2021. The Company has a second revolving line for 19.5 million Dirhams (approximately $5.3 million at January 31, 2021) from a bank in the U.A.E. The facility was renewed in January 2021 under the same terms. It has an interest rate of approximately 3.9% and is set to expire in January 2022. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt. In November 2019, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 200.0 million Egyptian Pounds (approximately $12.7 million at January 31, 2021). This credit arrangement was in the form of project financing at rates competitive in Egypt. The line was secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary. Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricts the Company's Egyptian subsidiary's ability to undertake any additional debt. The facility was originally set to expire in June 2020, however, the expiration was extended to January 2021 due to the COVID- 19 pandemic and the inability to finalize renewal documentation prior to that time. The Company has not made borrowings under this facility. The Company is currently negotiating the renewal of the facility under similar terms, with a revolving line of 100.0 million Egyptian Pounds and the renewal process is expected to be completed in April 2021. In January 2021, the Company entered into a second credit arrangement for project financing with a bank in Egypt for 46.2 million Egyptian Pounds (approximately $2.9 million at January 31, 2021). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary. The facility has an interest rate of approximately 8.0% and is expected to expire in August 2021 in connection with the completion of the project. The Company's credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company guarantees the subsidiaries' debt including all foreign debt. The Company was in compliance with the covenants under the credit arrangements in the U.A.E. and the 200.0 million Egyptian Pound facility in Egypt as of January 31, 2021. The Company was not in compliance with a covenant under its 46.2 million Egyptian Pound project financing in Egypt as of January 31, 2021. The Company did not have a share capital increase registered with the General Authority for Investment, as required by facility covenants, but is in the process of curing the breach and has received a waiver from the bank as of January 31, 2021. On January 31, 2021, interest rates were based on the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E. credit arrangements, one of which has a minimum interest rate of 4.5% per annum, and based on the stated interest rate in the agreement for the Egypt credit arrangement. Based on these base rates, as of January 31, 2021, the Company's interest rates ranged from 3.4% to 8.0%, with a weighted average rate of 6.05%, and the Company could borrow $23.1 million under these credit arrangements. As of January 31, 2021, $5.8 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. Additionally, as of January 31, 2021, the Company had borrowed $3.3 million, and had an additional $1.3 million of borrowing remaining available under the foreign revolving credit arrangements. The foreign revolving lines balances as of January 31, 2021 and January 31, 2020, were included as current maturities of long-term debt in the Company's consolidated balance sheets. Mortgages. On July 28, 2016, the Company borrowed CAD 8.0 million (approximately USD $6.1 million at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the manufacturing facility located in Alberta, Canada that matures on December 23, 2042. The interest rate is variable, currently at 4.55%, with monthly payments of CAD 37 thousand (approximately USD $28 thousand) for interest; and monthly payments of CAD 27 thousand (approximately USD $21 thousand) for principal. Principal payments began January 2018. On June 19, 2012, the Company borrowed $1.8 million under a mortgage note secured by its manufacturing facility in Lebanon, Tennessee. The proceeds were used for payment of amounts borrowed. The loan bears interest at 4.5% with monthly payments of $13 thousand for both principal and interest and matures July 1, 2027. On June 19, 2022, and on the same day of each year thereafter, the interest rate shall adjust to the prime rate, provided that the applicable interest rate shall not adjust more than 2.0% per annum and shall be subject to a ceiling of 18.0% and a floor of 4.5%.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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