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DEBT | 3 Months Ended
--- | ---
Jun. 30, 2014
DEBT |
DEBT | NOTE 9 — DEBT
Debt obligations outstanding were classified as of: |  | June 30, 2014 |  | March 31, 2014 |
Credit Loan Note due November 2018 |  | $ | 4,073,148 |  | $ | — |
MDFA Series A Bonds due January 2021 |  | 1,500,386 |  | 3,559,375 |
MDFA Series B Bonds due January 2018 |  | — |  | 599,634 |
Obligations under capital leases |  | 10,925 |  | 10,762 |
Total Short-term debt |  | $ | 5,584,459 |  | $ | 4,169,771 |
Long-term debt, obligations under capital leases |  | 35,278 |  | 38,071 |
Total Debt |  | $ | 5,619,737 |  | $ | 4,207,842 |
Loan and Security Agreement On May 30, 2014, TechPrecision and Ranor entered into the LSA, with Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor. Payments under the LSA and Credit Loan Note are due in monthly installments with interest on the unpaid principal balance of the Credit Loan Note at an interest rate equal to 7.5% plus the greater of 3.3% or the six-month LIBOR interest rate, as described in the Credit Loan Note. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision. Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business or (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note. The restrictions of these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by written consent of Utica. Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would be an event of default, pursuant to which Utica may accelerate the repayment of the loan. In connection with the execution of the LSA, the Company paid approximately $0.24 million in fees and associated costs and utilized approximately $2.65 million to pay off, or complete a refinancing of, debt obligations owed to the Bank under the Loan Agreement. Additionally, the Company retained approximately $1.27 million for general corporate purposes. On January 16, 2014, we entered into a forbearance and modification agreement with the Bank, or the First Forbearance Agreement, in connection with the Loan Agreement. Under the First Forbearance Agreement, the Bank agreed to forbear from exercising certain of its rights and remedies arising as a result of the Company’s non-compliance with certain financial covenants under the Loan Agreement until March 31, 2014, or the First Forbearance Period. In consideration for the granting of the First Forbearance Agreement, we agreed to : (i) have paid in full all interest and fees accrued under the Loan Agreement and other related documents through December 31, 2013 (at such interest rate and in accordance with the terms therein); (ii) reimburse the Bank for appraisal costs in the amount of $11,240; (iii) an increase in the interest rate of 2% for the Series A Bonds and the Series B Bonds to 6.1% and 5.6%, respectively, during the First Forbearance Period; (iv) the application of $394,329 and $445,671 of the Company’s restricted cash collateral deposit of $840,000 to pay off certain obligations under the Loan Agreement described above and the Series B Bonds respectively and (v) pay a forbearance fee of 3% of the net outstanding balance due from the Obligors to the Bank, which amounts to $128,433 due in installments during the First Forbearance Period. On May 30, 2014, we and the Bank entered into a new forbearance and modification agreement, or the Second Forbearance Agreement. Under the Second Forbearance Agreement, the Bank has agreed to forbear from exercising certain of its rights and remedies arising as a result of the Company’s non-compliance with certain financial covenants under the Loan Agreement commencing retroactively on April 1, 2014 and extending until no later than June 30, 2014, or the Second Forbearance Period. During the Second Forbearance Period, we agreed to comply with the terms, covenants and provisions in the Loan Agreement and related documents, as amended by the Second Forbearance Agreement. The Second Forbearance Agreement amends the Loan Agreement to, among other things, prohibit the Company’s Leverage Ratio (as such term is defined in the Loan Agreement) to be greater than 1.75 to 1.0. We were not in compliance with the leverage ratio covenant at June 30, 2014 or March 31, 2014, as the actual leverage ratio was 4.3 to 1.0 and 3.8 to 1.0, respectively. We have entered into new forbearance and modification agreements subsequent to June 30, 2014, under which the Bank has agreed to forbear from exercising certain of its rights and remedies arising as a result of the Company’s non-compliance with certain financial covenants under the Loan Agreement extending until no later than September 30, 2014 (see Note 18). The Company is engaged in discussions with potential alternative financing sources to secure additional financing to, among other things, payoff the remaining obligation under the Series A Bonds. MDFA Series A and B Bonds On December 30, 2010, we completed a $6.2 million tax exempt bond financing with the Massachusetts Development Finance Authority, or the MDFA, pursuant to which the MDFA sold to the Bank MDFA Revenue Bonds, Ranor Issue, Series 2010A in the original aggregate principal amount of $4.25 million, or Series A Bonds, and MDFA Revenue Bonds, Ranor Issue, Series 2010B in the original aggregate principal amount of $1.95 million, or Series B Bonds together with the Series A Bonds, the Bonds. The proceeds of such sales were loaned to us under the terms of a Mortgage Loan and Security Agreement, dated as of December 1, 2010, by and among us, MDFA and the Bank (as Bond owner and Disbursing Agent), or the MLSA. The proceeds from the sale of the Series A Bonds were used to finance the Ranor facility acquisition and 19,500 sq. ft. expansion of Ranor’s manufacturing facility in Westminster, Massachusetts, and the proceeds from the sale of the Series B Bonds were used to finance acquisitions of qualifying manufacturing equipment installed at the Westminster facility. In connection with the Bond financing, we and the Bank entered into the International Swap and Derivatives Association, Inc. 2002 Master Agreement, dated December 30, 2010, or ISDA Master Agreement, pursuant to which the variable interest rates applicable to the Bonds were swapped for fixed interest rates of 4.14% on the Series A Bonds. Under the ISDA Master Agreement, we and the Bank entered into the swap transaction on January 3, 2011. The notional amount of the outstanding fair value interest rate swaps totaled $3.5 and $4.6 million on June 30, 2014 and March 31, 2014, respectively. In connection with the execution of the LSA described above, the Company paid down approximately $2.0 million of our obligation under the Series A Bonds owed to the Bank, and paid off the remaining balance ($576,419) of the Series B bonds in full. We also terminated the interest rate swap which hedged the cash flows of the Series B bonds. We paid a breakage fee of $29,448 for early termination of the interest rate swap for the Series B Bonds and recorded the amount as interest expense in our statement of operations. These derivative instruments, which are designated as cash flow hedges, are carried on our consolidated balance sheet at fair value with the effective portion of the gain or loss on the derivative reported in stockholders’ equity as a component of accumulated other comprehensive loss and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The Series A swaps will terminate on January 4, 2021. The fair value of the interest rate swaps contracts were measured using market based level 2 inputs. The method employed to calculate the values conforms to the industry convention for calculation of such values. The swap’s market value can be calculated any time by comparing the fixed rate set at the inception of the transaction and the “swap replacement rate,” which represents the market rate for an offsetting interest rate swap with the same Notional Amounts and final maturity date. The market value is then determined by calculating the present value interest differential between the contractual swap and the replacement swap. The termination value is the sum of the present value interest differential as described above plus the accrued interest due at termination. At June 30, 2014, we were in default and continue to be in default under the Loan Agreement with the Bank. Under the terms of the Third Forbearance Agreement, the Bank agreed to forbear from accelerating the principal payment in full until the forbearance termination date on July 31, 2014. The First Forbearance Agreement, the Second Forbearance Agreement and the Third Forbearance Agreement amend the Loan Agreement to, among other things, prohibit the Company’s Leverage Ratio (as such term is defined in the Loan Agreement) to be greater than 1.75 to 1.0. At June 30, 2014 and March 31, 2014, we were not in compliance with the leverage ratio coverage covenants under the Loan Agreement, and the Bank did not agree to waive our non-compliance with the covenants at June 30, 2014 or March 31, 2014, as the actual leverage ratio was 4.3 to 1 and 3.8 to 1.0, respectively. The Bank had the right to accelerate payment of the debt in full upon 60 days’ written notice. As a consequence, all amounts under the Loan Agreement, the Series A Bonds, the Series B Bonds, and the LSA, as applicable, are classified as a current liability at June 30, 2014 ($5.6 million) and March 31, 2014 ($4.2 million). Under the MLSA and related documents, the Westminster facility secures, and we further guarantee, Ranor’s obligations to the Bank and subsequent holders of the Series A Bonds. At June 30, 2014, the rate of interest on the Series A Bonds is 65% of the sum of one month LIBOR plus 5.75% for a period beginning on April 1, 2014, under the terms of the Second Forbearance Agreement. We continue to make monthly principal and interest payments with respect to the Series A Bonds. The Series A Bonds are redeemable pursuant to the MLSA prior to maturity, in whole or in part, on any payment date in accordance with the terms of the MLSA. Capital Lease: We entered into a new capital lease in April 2012 for certain office equipment. The lease term is for 63 months, bears interest at 6.0% and requires monthly payments of principal and interest of $860. This lease was amended in fiscal 2014 when we purchased another replacement copier at Ranor. The revised lease term was extended by nine months and will expire in March 2018. The amount of the lease recorded in property, plant and equipment, net as of June 30, 2014 and March 31, 2014 was $43,473 and $46,420, respectively. Obligations under the Credit Loan Note, Series A Bonds and Capital Lease are guaranteed by TechPrecision and Ranor. Collateral securing the Credit Loan Note, Series A Bonds, and Capital Lease comprises all personal property of TechPrecision and Ranor, including cash, accounts receivable, inventories, equipment, financial and intangible assets. The maturity schedule for all debt, including the capital lease: 2015: $5,584,459; 2016: $11,598; 2017: $12,313; 2018: $9,392; and 2019: $1,975.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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