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Debt
 12 Months Ended
Jan. 31, 2012
Debt [Abstract]  
Debt

3. Debt

Outstanding balances (in thousands) for the Company’s long-term debt were as follows:

 

                 
    January 31,  

In thousands, except per share data

   2012     2011  

Revolving credit line

   $ 11,485     $ 6,496  

Other

     23       35  
   

 

 

    

 

 

  

Total debt

     11,508       6,531  

Less current portion

     5,497       12  
   

 

 

    

 

 

  

Non-current portion

   $ 6,011     $ 6,519  
   

 

 

    

 

 

  

On December 22, 2011 (the “Closing Date”), the Company and Virco Inc., a wholly owned subsidiary of the Company (“Virco” and, together with the Company, the “Borrowers”) entered into a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”). The Credit Agreement provides the Borrowers with a secured revolving line of credit (the “Revolving Credit Facility”) of up to $60,000,000, with seasonal adjustments to the credit limit and subject to borrowing base limitations, and includes a sub-limit of up to $3,000,000 for the issuance of letters of credit. The Revolving Credit Facility is an asset-based line of credit that is subject to a borrowing base limitation and generally provides for advances of up to 85% of eligible receivables, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus an amount ranging from $6,000,000 to $12,000,000 from March 1 through July 15 of each year, minus undrawn amounts of letters of credit and reserves. The Revolving Credit Facility is secured by substantially all of the Borrower’s personal property and certain of the Borrower’s real property. The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than December 22, 2014, and the Revolving Credit Facility is subject to certain prepayment penalties upon earlier termination of the Revolving Credit Facility. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions.

On the Closing Date, the Borrowers drew down approximately $9,800,000 under the Revolving Credit Facility to repay in full all indebtedness outstanding under its prior revolving facility governed by the Second Amended and Restated Credit Agreement dated as of March 12, 2008 (as amended, the “Prior Revolving Credit Agreement”) by and between the Company and Wells Fargo Bank, National Association (“Wells Fargo”), and to pay fees and expenses related to the Credit Agreement. The Company intends to utilize the Revolving Credit Facility for liquidity and working capital purposes.

 

The Revolving Credit Facility bears interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The applicable margin for Alternate Base Rate loans is a percentage within a range of 0.75% to 1.75%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 1.75% to 2.75%, in each case based on the EBITDA of the Borrowers at the end of each fiscal quarter, and may be increased at PNC’s option by 2.0% during the continuance of an event of default. Accrued interest with respect to principal amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans.

The Credit Agreement contains a covenant that forbids the Company from issuing dividends or making payments with respect to the Company’s capital stock, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, repurchase stock, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers, taken as a whole. The Credit Agreement also requires the Company to maintain certain financial covenants, including a minimum tangible net worth, minimum EBITDA amounts and a minimum fixed charge coverage ratio. In addition, there is a “clean down” provision that requires the Company to reduce borrowings under the line to less than $6,000,000 for a period of 60 days each fiscal year. The Company believes that normal operating cash flow will allow it to meet the “clean down” requirement with no adverse impact on the Company’s liquidity. The Company was in compliance with its covenants at January 31, 2012.

Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms, covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $250,000, subject to certain conditions, (vi) the failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of operations of any of the Borrowers’ manufacturing facilities for five consecutive days during the peak season or fifteen consecutive days during any other time, subject to certain conditions.

Pursuant to the Credit Agreement, substantially all of the Borrowers’ accounts receivable are automatically and promptly swept to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic liquidating nature of the Revolving Credit Facility, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC in its discretion. In addition, certain of the covenants and representations and warranties set forth in the Credit Agreement contain limited or no materiality thresholds, and many of the representations and warranties must be true and correct in all material respects upon each borrowing, which the Borrowers expect to occur on an ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to continue to make such representations and warranties on an ongoing basis.

The Company’s new line of credit with PNC is structured to provide seasonal credit availability during our peak summer season. The Company believes that this new facility will provide sufficient liquidity to meet its capital requirements in the next 12 months. Approximately $2,849,000 was available for borrowing as of January 31, 2012.

At January 31, 2011, the Company had outstanding borrowings of $6,496,000 pursuant to its Prior Revolving Credit Agreement with Wells Fargo Bank. The revolving line under its prior facility typically provided for advances of up to 80% on eligible accounts receivable and 20% — 60% on eligible inventory, subject to the specific terms of the facility. The advance rates fluctuated depending on the time of year and the types of assets. The interest rate was at prime or LIBOR plus 2.5%. The agreement had an unused commitment fee of 0.375%. Availability under the line was $11,116,000 at January 31, 2011.

Long-term debt repayments are approximately as follows (in thousands):

 

         
Year ending January 31,      

2013

   $ 5,497  

2014

     6,011  

2015

     —    

2016

     —    

2017

     —    

Thereafter

     —    

Management believes that the carrying value of debt approximated fair value at January 31, 2012 and 2011, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

The descriptions set forth herein of the Revolving Credit Agreement and Prior Revolving Credit Agreement are qualified in their entirety by the terms of such agreements, each of which has been filed with the Securities and Exchange Commission.