DEBT

6 Months Ended

Jun. 28, 2020

DEBT

On July 16, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provided for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded. The Company may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or London Interbank Offered Rate ("LIBOR") plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of June 28, 2020.

On February 3, 2020, the Company borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition. On April 6, 2020, the Company borrowed the remaining $4.0 million on the Term Loan and the proceeds were used to pay down the Revolving Facility.

Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, the Company entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments. As of June 28, 2020, the Company had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against the Revolving Facility. The Company has no history of default, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any disputes that might arise in the future would not materially affect the Company's consolidated financial statements. Accordingly, no liability has been recorded in respect to these arrangements as of June 28, 2020.

Line of Credit

At June 28, 2020 and December 29, 2019, $10.3 million and $20.3 million, respectively, was outstanding on the revolving facilities. Average daily balance for the thirteen week periods ended June 28, 2020 and June 30, 2019 was $13.0 million and $14.9 million, respectively. Average daily balance for the twenty-six week periods ended June 28, 2020 and June 30, 2019 was $16.1 million and $12.5 million, respectively.

Borrowings under the revolving facilities consisted of and bore interest at:


	June 28, 2020						December 29, 2019
Base Rate	$	255,483	4.25	%	$	2,844,957	5.25	%
LIBOR	10,000,000		2.17	%	17,500,000		3.26	%


Total	$	10,255,483			$	20,344,957

Long-Term Debt

Long-term debt consists of and bore interest at:


	June 28, 2020						December 29, 2019
Base Rate	$	4,675,000	4.25	%	$	7,500,000	5.25	%
Fixed rate	25,000,000		2.39	%	—		—	%



Long-term debt	$	29,675,000			$	7,500,000

Cash Flow Hedge

In April 2020, the Company entered into a pay-fixed/receive-floating interest rate swap agreement with BMO that reduces the floating interest rate component on the Term Loan obligation. The $25.0 million notional amount was effective on June 3, 2020 and designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate that terminates on June 1, 2023. In accordance with cash flow hedge accounting treatment, the Company has determined that the hedge is perfectly effective using the change-in-variable-cash-flow method.

The unrealized loss associated with the change in the fair value of the effective portion of the hedging instrument is recorded in accumulated other comprehensive loss. The Company expects to reclassify the interest rate swap from accumulated other comprehensive loss against interest expense in the same period in which the hedge transaction affects earnings. Hedge effectiveness is tested quarterly. As of June 28, 2020, the instrument was perfectly effective and no amounts were reclassed from accumulated other comprehensive loss into income in the thirteen and twenty-six week periods ended June 28, 2020 and June 30, 2019. See Note 8 for location on the balance sheet.