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Debt

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Debt

9. DEBT

Canadian Credit Facilities

Our Canadian subsidiaries have maintained credit facilities with Bank of Montreal since October 2009. In June 2011, our wholly owned subsidiary Pioneer Electrogroup Canada Inc. (“PECI”) entered into a letter loan agreement with Bank of Montreal (the “Canadian Facilities”) that replaced and superseded all of our businesses’ prior financing arrangements with the bank.

Our Canadian Facilities originally provided for up to $22.0 million Canadian dollars (“CAD”) (approximately $15.9 million expressed in U.S. dollars) consisting of a $10.0 million CAD demand revolving credit facility (“Facility A”) to finance ongoing operations, a $2.0 million CAD term credit facility (“Facility B”) that financed a plant expansion, and a $10.0 million CAD term credit facility (“Facility C”) that financed a business acquisition and the purchase and expansion of its manufacturing facilities.

The Canadian Facilities require us to comply on a consolidated Canadian basis with various financial covenants, including maintaining a minimum fixed charge coverage ratio, a maximum funded debt to EBITDA ratio and a limitation on funded debt as a percent of capitalization.

Facility A is subject to margin criteria and borrowings bear interest at Bank of Montreal’s prime rate plus 0.50% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 0.50% per annum or LIBOR plus 2.00% per annum on amounts borrowed in U.S. dollars.

Borrowings under Facility B bear interest at Bank of Montreal’s prime rate plus 1.00% per annum with principal repayments becoming due on a five year amortization schedule.

Borrowings under Facility C are repayable according to a five year principal amortization schedule and bear interest at the following rates: if the funded debt to EBITDA ratio is equal to or greater than 2.00, Bank of Montreal’s prime rate plus 1.25% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 1.25% per annum or LIBOR plus 2.50% per annum on amounts borrowed in U.S. dollars; or, if the funded debt to EBITDA ratio is less than 2.00, Bank of Montreal‘s prime rate plus 1.00% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 1.00% per annum or LIBOR plus 2.25% per annum on amounts borrowed in U.S. dollars. In addition, Facility C is subject to a standby fee which is calculated monthly using the unused portion of the facility at either 0.625% per annum if the funded debt to EBITDA ratio is equal to or greater than 2.00 or 0.5625% per annum if the funded debt to EBITDA ratio is less than 2.00.

On April 29, 2016, PECI entered into an Amended and Restated Credit Agreement to extend the maturity date of our Canadian credit facilities with the Bank of Montreal until July 31, 2017. This Amended and Restated Credit Agreement amends and restates the existing loan letter agreement and replaces and supersedes the waiver that was to expire on April 30, 2016. This Amended and Restated Credit Agreement also modifies our Canadian credit facilities as follows:

	●	Facility A is a $7.0 million CAD demand revolving credit facility (reduced from $10.0 million CAD). The interest rate on Facility A is modified to Bank of Montreal’s prime rate plus 0.75% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 0.75% per annum or LIBOR plus 2.25% per annum on amounts borrowed in U.S. dollars.
	●	Facility B – quarterly principal repayments after April 30, 2016 were reduced to $47,128.88 CAD, with a bullet payment of $141,386.56 CAD due on July 31, 2017. The interest rate on Facility B was modified to Bank of Montreal’s prime rate plus 1.25% per annum.
	●	Facility C – quarterly principal repayments after June 30, 2016 were reduced to $36,000 CAD, with a bullet payment of $496,000 CAD due on July 31, 2017. The interest rate on Facility C was modified to Bank of Montreal’s prime rate plus 1.50% per annum on amounts borrowed in Canadian dollars, or its U.S. base rate plus 1.50% per annum or LIBOR plus 2.75% per annum on amounts borrowed in U.S. dollars.
	●	The financial covenant testing is modified so that testing will be performed on the consolidated financial statements of the Company. The financial covenants were changed to require certain minimum working capital ratios, minimum EBITDA levels and effective tangible net worth levels for each fiscal quarter. The Company passed all financial covenant testing for the period ended and as of March 31, 2016. Additionally, defaults relating to the breach of certain financial covenants under the loan letter agreement existing as of December 31, 2015 were waived by the Bank of Montreal, subject to the satisfaction of certain conditions precedent set forth in the Amended and Restated Credit Agreement.

As of March 31, 2016, we had approximately $5.8 million in U.S. dollar equivalents outstanding under our Canadian Credit Facilities. Our borrowings consisted of approximately $4.7 million outstanding under Facility A, $0.4 million outstanding under Facility B and $0.7 million outstanding under Facility C.

United States Credit Facilities

On December 2, 2014, the U.S. Facilities were amended in order to provide a $5.0 million term loan facility (Facility B) that was used for the acquisition of Titan. The term loan facility has principal repayments becoming due on a five year amortization schedule.

The U.S. Facilities require us to comply with a two-step test of financial covenants. First, as measured on a consolidated basis, we must comply with a maximum funded debt to adjusted EBITDA ratio of (a) 3.15x for the quarter ended December 31, 2014 and the quarter ended March 31, 2015, (b) 3.25x for the quarter ended June 30, 2015, (c) 3.65x for the quarter ended September 30, 2015, and (d) 2.75x for the quarter ended December 31, 2015 and all testing periods thereafter. Secondly, if the funded debt to adjusted EBITDA tests above are met and our fixed charge coverage ratio is at or above 1.10x for the quarter ended December 31, 2014, and at or above 1.25x for all testing periods thereafter, then no further compliance tests are required.

Alternatively, we may comply with the financial covenant requirements of the U.S. Facilities if our U.S. operations maintain a maximum funded debt to capitalization ratio and various minimum fixed charge coverage ratios and maximum funded debt to adjusted EBITDA ratios which are set at different thresholds by time period. The U.S. Facilities also restrict our ability to incur indebtedness, create or incur liens, make investments, make distributions or dividends and enter into merger agreements or agreements for the sale of any or all our assets.

Borrowings under the demand revolving credit facility (Facility A) bear interest, at our option, at the bank’s prime rate plus 1.00% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.25% per annum on Eurodollar loans. Borrowings under the term loan facility (Facility B) bear interest, at our option, at the bank’s prime rate plus 1.25% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.50% per annum on Eurodollar loans.

Our obligations under the U.S. Facilities are guaranteed by all our wholly-owned U.S. subsidiaries. In addition, we and our wholly-owned U.S. subsidiaries granted a security interest in substantially all of our assets, including 65% of the shares of Pioneer Electrogroup Canada Inc. held by us, to secure our obligations for borrowed money under the U.S. Facilities.

On April 29, 2016 we entered into an Amended and Restated Credit Agreement to extend the maturity date of certain of our U.S. credit facilities with the Bank of Montreal until July 31, 2017 as described below. This Amended and Restated Credit Agreement amends and restates the existing credit agreement and replaces and supersedes the waiver that was to expire on April 30, 2016. This Amended and Restated Credit Agreement modifies our U.S. credit facilities as follows:

	●	Facility A is a $14.0 million demand revolving credit facility (increased from $10.0 million). Facility A continues to bear interest, at our option, at the bank’s prime rate plus 1.00% per annum on U.S. prime rate loans, or an adjusted LIBOR rate plus 2.25% per annum on Eurodollar loans and shall mature on July 31, 2017.
	●	Facility B is a $5.0 million term loan facility, of which $4,718,750 was outstanding as of April 29, 2016, with principal payments becoming due on a five year amortization schedule, as adjusted for the reduced quarterly principal repayments of 0.625%, or $31,250, from June 30, 2016 to December 31, 2016. The original amortization schedule will continue to apply to all quarterly principal payments made after December 31, 2016, with no change in the final maturity date of December 2, 2019.
	●	A new $100,000 revolving credit facility provided pursuant to a MasterCard is to be used to pay for and temporarily finance day-to-day business expenses of the Company and for no other purpose.
	●	The financial covenant testing is also modified so that testing will be performed on the consolidated financial statements of the Company. The financial covenants were changed to require certain minimum working capital ratios, minimum EBITDA levels and effective tangible net worth levels for each fiscal quarter. The Company passed all financial covenant testing for the period ended and as of March 31, 2016. Additionally, defaults relating to the breach of certain financial covenants under the original credit agreement existing as of December 31, 2015 were waived by the Bank of Montreal, subject to the satisfaction of certain conditions precedent set forth in the Amended and Restated Credit Agreement.

As of March 31, 2016, we had approximately $14.1 million outstanding under our U.S. Credit Facilities. Our borrowings consisted of approximately $9.4 million outstanding under Facility A, and $4.7 million outstanding under Facility B.

Nexus Promissory Note

On July 25, 2012, the Company’s Mexican subsidiary, Nexus Magneticos de Mexico, S. de R.L. de C.V. (“Nexus”), entered into a $1.65 million term loan agreement with GE CF Mexico, S.A. de C.V. (“GE Capital Mexico”). The term loan is payable in 60 consecutive monthly installments and bears interest, payable monthly, at a rate of 6.93% per annum. The obligations of Nexus under the term loan are secured by certain machinery and equipment located in Mexico and by a corporate guaranty by the Company. As of March 31, 2016 and December 31, 2015, there was approximately $0.2 million and $0.3 million outstanding, respectively, under the Nexus Promissory Note.

Long-term debt consists of the following (in thousands):

		March 31, 2016				December 31, 2015
Term credit facilities		$	5,794			$	5,942
Nexus promissory note			244				316
Capital lease obligations			6				7
Total debt			6,044				6,265
Less current portion			(795	)			(6,244	)
Total long-term debt		$	5,249			$	21

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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 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

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