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Long-Term Debt and Notes Payable

6 Months Ended

Jul. 31, 2013

Long-Term Debt and Notes Payable [Abstract]

6. Long-Term Debt and Notes Payable

Long-term debt and notes payable consisted of the following (in thousands):


	July 31, 2013			January 31, 2013
Revolving line of credit	$	—		$	4,000
Other equipment notes		269			383

		269			4,383
Less current portion		(130	)		(145	)

Long-term debt	$	139		$	4,238

In August 2012, the Company entered into an amended credit agreement with First Victoria Bank (the “Bank”) that provided for borrowings of up to $50.0 million on a revolving basis through August 31, 2015 (the “Revolving Credit Facility”).

Amounts available for borrowing under the Revolving Credit Facility were determined by a borrowing base. The borrowing base was computed based upon certain outstanding accounts receivable, certain portions of the Company’s lease pool and certain lease pool assets that had been purchased with proceeds from the Revolving Credit Facility. The Revolving Credit Facility was collateralized by essentially all of the Company’s domestic assets. Interest was payable monthly at the greater of the prime rate or 3.25%. As of July 31, 2013, the applicable rate was 3.25%. Up to $10.0 million of available borrowings under the Revolving Credit Facility may be utilized to secure letters of credit. As of July 31, 2013, there were outstanding stand-by letters of credit totaling approximately $622,000. The Revolving Credit Facility contained certain financial covenants that require, among other things, the Company to maintain a debt to shareholders’ equity ratio of no more than 0.7 to 1.0, maintain a current assets to current liabilities ratio of not less than 1.25 to 1.0; and have quarterly earnings before interest, taxes, depreciation and amortization (“EBITDA”) of not less than $2.0 million. The Revolving Credit Facility also provided that the Company could not incur or maintain indebtedness in excess of $10.0 million without the prior written consent of the Bank, except for borrowings related to the Revolving Credit Facility. The Company could also guaranty up to $5.0 million of subsidiary debt without the Bank’s prior consent. The Company was in compliance with each of these provisions as of and for the six months ended July 31, 2013. The Company’s average borrowings under the Revolving Credit Facility for the six months ended July 31, 2013 and 2012 were approximately $3,715,000 and $15,756,000, respectively.

On August 2, 2013, the Company entered into a $50.0 million, three-year revolving credit facility, as described below (the “Credit Agreement”). The Credit Agreement replaced the Revolving Credit Facility with First Victoria National Bank. The Credit Agreement is a three-year, secured revolving facility in the maximum principal amount of $50.0 million, among the Company, as borrower, HSBC Bank USA, N.A., as administrative agent and several banks and other financial institutions from time to time parties thereto (initially consisting of HSBC Bank USA, N.A., and First Victoria National Bank) as lenders.

Amounts available for borrowing under the Credit Agreement are determined by a borrowing base. The borrowing base is determined primarily based upon the appraised value of the Company’s domestic lease pool equipment and certain accounts receivable. The Credit Agreement is collateralized by essentially all of the Company’s domestic assets (other than real estate) and 65% of the capital stock of Mitcham Holdings, Ltd., a foreign holding company that holds the capital stock of the Company’s foreign subsidiaries.

The Credit Agreement provides interest at a base rate, or for Eurodollar borrowings, in both cases plus an applicable margin. As of August 2, 2013, the base rate margin was 150 basis points and the Eurodollar margin was 250 basis points. The Company has agreed to pay a commitment fee on the unused portion of the Credit Agreement of 0.375% to 0.5%. Up to $10.0 million of available borrowings under the Credit Agreement may be utilized to secure letters of credit. The Credit Agreement contains certain financial covenants that require, among other things, that the Company maintain a leverage ratio, which is calculated at the end of each quarter, of no greater than 2.00 to 1.00 on a trailing four quarter basis and a fixed charge coverage ratio, which also is calculated at the end of each quarter, of no less than 1.25 to 1.00 on a trailing four quarter basis. In addition, should adjusted EBITDA, as defined in the Credit Agreement, for any trailing four quarter period be less than $22.0 million, the ratio of capital expenditures to adjusted EBITDA for that four quarter period may not be greater than 1.0 to 1.0. The Credit Agreement also includes restrictions on additional indebtedness in excess of $5.0 million.

The Credit Agreement contains customary representations, warranties, conditions precedent to credit extensions, affirmative and negative covenants and events of default. The negative covenants include restrictions on liens, additional indebtedness in excess of $5.0 million, acquisitions, fundamental changes, dispositions of property, restricted payments, transactions with affiliates and lines of business. The events of default include a change in control provision.

From time to time, certain subsidiaries have entered into notes payable to finance the purchase of certain equipment, which are secured by the equipment purchased.