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Debt | 6 Months Ended
--- | ---
Jun. 30, 2020
Debt Disclosure [Abstract] |
Debt | Debt consists of the following:
| June 30, 2020 |  | December 31, 2019
Term loans, interest at a variable rate (8.0% at June 30, 2020 and 6.30% at December 31, 2019) with monthly payments of interest and quarterly payments of principal through January 2023 | $ | 36,000,000 |  |  | $ | 38,250,000 |
Revolving loans, interest at a variable rate (8.0% at June 30, 2020 and 6.04% at December 31, 2019) | — |  |  | 12,008,000 |
Term loan, interest at a fixed rate (5.5% at June 30, 2020) with monthly payments of interest and principal through April 2025 | 167,000 |  |  | — |
Total | 36,167,000 |  |  | 50,258,000 |
Less deferred loan costs | (672,000 | ) |  | (807,000 | )
Less current portion | (35,360,000 | ) |  | (49,451,000 | )
Long-term debt | $ | 135,000 |  |  | $ | — |
Credit Agreement On January 16, 2018, the Company entered into an Amended and Restated Credit Agreement (the "A/R Credit Agreement") with KeyBank National Association as administrative agent and various financial institutions party thereto as lenders (the "Lenders"). Pursuant to the terms of the A/R Credit Agreement (i) the Company may borrow revolving loans in the aggregate principal amount of up to $40,000,000 (the “U.S. Revolving Loans”) from the Lenders and term loans in the aggregate principal amount of up to $32,000,000 from the Lenders, (ii) the Company's wholly-owned subsidiary, Horizon Plastics International, Inc., (the "Subsidiary") may borrow revolving loans in an aggregate principal amount of up to $10,000,000 from the Lenders (which revolving loans shall reduce the availability of the U.S. Revolving Loans to the Company on a dollar-for-dollar basis) and term loans in an aggregate principal amount of up to $13,000,000 from the Lenders, (iii) the Company obtained a Letter of Credit Commitment of $250,000, of which $160,000 has been issued and (iv) the Company repaid the outstanding term loan balance of $6,750,000. The Credit Agreement is secured by a guarantee of each U.S. and Canadian subsidiary of the Company, and by a lien on substantially all of the present and future assets of the Company and its U.S. and Canadian subsidiaries, except that only 65% of the stock issued by Corecomposites de Mexico, S. de R.L. de C.V. has been pledged. Concurrent with the closing of the A/R Credit Agreement the Company borrowed the $32,000,000 term loan and $2,000,000 from the U.S. Revolving Loan and the Subsidiary borrowed the $13,000,000 term loan and $2,500,000 from revolving loans to provide $49,500,000 of funding for the acquisition of Horizon Plastics. Interest is payable monthly at one month LIBOR plus a basis point margin of 700 basis points with a LIBOR floor of 100 basis points. On March 14, 2019, the Company entered into the first amendment (“First Amendment”) to the A/R Credit Agreement (as amended by the First Amendment, the "Amended Credit Agreement") with the Lenders. Pursuant to the terms of the First Amendment, the Company and Lenders agreed to modify certain terms of the A/R Credit Agreement. These modifications included (1) implementation of an availability block on the U.S. Revolving Loans reducing availability from $40,000,000 to $32,500,000, (2) modification to the definition of EBITDA to add back certain one-time expenses, (3) waiver of non-compliance with the leverage covenant as of December 31, 2018 and modification of the leverage ratio definition and covenant to eliminate testing of the leverage ratio until December 31, 2019, (4) waiver of non-compliance with the fixed charge covenant as of December 31, 2018 and modification of the fixed charge coverage ratio definition and covenant requirement, (5) implementation of a capital expenditure spend limit of $7,500,000 during the first six months of 2019 and $12,500,000 for the full year 2019, (6) an increase of the applicable interest margin spread for existing term and revolving loans, and (7) an increase in the commitment fees on any unused U.S. Revolving Loans. On November 22, 2019, the Company entered into a forbearance agreement (the "Forbearance Agreement") with the Lenders. Pursuant to the Forbearance Agreement, the Borrowers and the Lenders acknowledged and confirmed that an event of default occurred under the A/R Credit Agreement resulting from the Borrowers failure to maintain the required Fixed Charge Coverage Ratio (as defined in the A/R Credit Agreement) for the fiscal quarter ended September 30, 2019. The Forbearance Agreement provided that the Administrative Agent and Lenders shall forbear from the exercise of rights and remedies pursuant to the Loan Documents described in the A/R Credit Agreement through March 13, 2020, as long as the Company satisfies the conditions set forth in the Forbearance Agreement, including, (i) the Borrowers shall remain current on all loan payments during the forbearance period, (ii) on or before December 6, 2019, the Administrative Agent and Lenders shall each receive a copy of a report of Huron Consulting Group containing findings and observations in respect of the businesses and operations of the Company and the Borrowers shall deliver a strategic alternative assessment in respect of the Borrowers’ operations and financing, (iii) on or before December 15, 2019, the Administrative Agent and Lenders shall each receive a copy of appraisals of machinery and equipment and inventory appraisals, and the Borrowers shall have determined and proposed a new capital structure to the Administrative Agent and Lenders, (iv) on or before February 14, 2020, the Borrowers shall have obtained a definitive, written commitment from involved parties and/or lenders providing the basis for implementation of a new capital structure, and (v) on or before March 13, 2020, the Borrowers shall have closed on a new capital structure, acceptable to the Administrative Agents and Lenders. The Forbearance Agreement also implemented a new availability block with respect to the U.S. Revolving Loans portion of the A/R Credit Agreement, reducing availability from $32,500,000 to $28,000,000 and increasing the applicable margin for existing term and revolving loans, as well as increasing the commitment fees on any unused U.S. Revolving Loans. On March 13, 2020, the Company amended the Forbearance Agreement and entered into the First Amendment to the Forbearance Agreement (the “First Amended Forbearance Agreement”) with the Lenders. Pursuant to the terms of the First Amended Forbearance Agreement, the Company and Lenders agreed to modify certain terms of the Forbearance Agreement and extend the Forbearance Agreement through May 29, 2020. The modifications include (1) a reduction in the U.S. Revolving Loan to $25,000,000 with an availability block of $5,000,000 which can be borrowed with the approval of the lenders, (2) a change of interest rate to LIBOR plus 650 basis points, (3) forbearing compliance with the leverage covenant and fixed charge covenant through May 29, 2020, and (4) implementation of a capital expenditure spend limit of $3,500,000 from the effective date of the First Amended Forbearance Agreement through May 29, 2020. On April 24, 2020 the Company entered into a finance agreement with Leaf Capital Funding of $175,000 for equipment. The parties agreed to a fixed interest rate of 550 basis point and a term of 60 months. The amount outstanding at June 30, 2020 was $167,000 of which, $135,000 was classified as long term debt. On May 29, 2020, the Company amended the First Amended Forbearance Agreement and entered into the Second Amendment to the Forbearance Agreement (the “Second Amended Forbearance Agreement”) with the Lenders. The Second Amended Forbearance Agreement provided that the Company and the Lenders agreed to modify certain terms of the Amended Forbearance Agreement and extend the Forbearance Agreement through September 30, 2020. The modifications include (1) that the Company will maintain liquidity of not less than $5,000,000, to be measured twice monthly after the effective date, on every second and fourth Friday of each month during the forbearance period, (2) the Company shall maintain minimum year-to-date earnings before income tax, depreciation and amortization (“YTD-EBITDA”) of not less than $5,000,000, measured upon delivery of Company’s July 2020 financial statements and also upon delivery of Company’s August 2020 financial statements, with YTD-EBITDA determined based on consolidated EBITDA, (3) a change of interest rate to LIBOR rate plus 700 basis points with a LIBOR floor of 100 basis points, (4) on or before July 15, 2020 the Borrowers shall have obtained executed term sheets from involved parties and/or lenders, (5) on or before September 30, 2020, the Borrowers shall have closed on a new capital structure, (6) forbearing compliance with the leverage covenant and fixed charge covenant through September 30, 2020, and (7) implementation of a capital expenditure spend limit of $3,000,000 for the nine months ended September 30, 2020. Capitalized terms used in this paragraph but not defined shall have the meaning ascribed to such terms in the Seconded Amended Forbearance Agreement. As a result of non-compliance with the A/R Credit Agreement, the Company’s remaining borrowings under the A/R Credit Agreement, consisting of $36,000,000 under the revolving credit commitment and the term loan commitments, were classified as a current liability in the Company’s consolidated balance sheet as of June 30, 2020. As a result, the Company’s current liabilities exceeded its current assets by $12,345,000 as of June 30, 2020. If the Lenders were to call the loans or demand repayment of all existing borrowings, this could result in the Company being unable to meet its working capital obligations. The Company has unblocked maximum availability of $20,000,000 of variable rate revolving loans of which $0 is outstanding as of June 30, 2020. Bank Covenants The Company is required to meet certain financial covenants included in the A/R Credit Agreement with respect to leverage ratios, fixed charge ratios and capital expenditures. As of June 30, 2020, the Company was in default with its fixed charge coverage and leverage ratio covenants associated with the loans made under the A/R Credit Agreement as described above. As a result of this default the Company and the Administrative Agent on behalf of the Lenders entered into a Second Amended Forbearance Agreement to address the non-compliance and establish milestones for the Company related to restructuring of its existing debt. The Company has executed term sheets with new lenders to obtain financing to refinance the A/R Credit Agreement. Closing of the new financing is subject to normal closing conditions including completion of business and legal due diligence, asset appraisals, environmental reports, negotiated loan documents, and final credit committee approval. While the Company has executed term sheets, the Company will not have firm commitments until completion of all closing conditions and therefore there can be no assurances that the Company will be able to secure additional financing. As there can be no assurance that the Company will be able to close its new financing, substantial doubt exists as to the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The Company's consolidated financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty. Interest Rate Swaps The Company entered into two interest rate swap agreements that became effective January 18, 2018 and continue through January 2023, one of which was designated as a cash flow hedge for $25,000,000 of the $32,000,000 term loan to the Company mentioned above and the other designated as a cash flow hedge for $10,000,000 of the $13,000,000 term loan to the Subsidiary mentioned above. Under these agreements, the Company will pay a fixed rate of approximately 2.49% to the counterparty and receives 30 day LIBOR for both cash flow hedges. The fair value of the interest rate swap was a liability of $1,428,000 and $706,000 at June 30, 2020 and December 31, 2019, respectively. While the Company is exposed to credit loss on its interest rate swaps in the event of non-performance by the counterparty to the swap, management believes that such non-performance is unlikely to occur given the financial resources of the counterparty.

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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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