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Note 10 - Long Term Debt

9 Months Ended

Sep. 30, 2020

10.

Long Term Debt

As of September 30, 2020, and December 31, 2019, the Company’s borrowings were comprised of:

	September 30, 2020			December 31, 2019
	(in thousands)
Long-term debt:
Term loan	$	43,911		$	54,997
Revolver		450			-
Less: unamortized deferred financing costs		(885	)		(1,180	)
Total debt		43,476			53,817
Less: current installments		(3,200	)		(3,200	)
Less: excess cash flow sweep		-			(4,093	)
Current unamortized deferred financing costs		393			393
Long-term debt	$	40,669		$	46,917

On January 31, 2018, the Company entered into a financing agreement by and among the Company and certain subsidiaries of the Company as borrowers (collectively, the “Borrower”), certain subsidiaries of the Company as guarantors, various lenders from time to time (the “Lenders”), and Cerberus Business Finance, LLC, as collateral agent and administrative agent for the Lenders (the “Financing Agreement”).

The Financing Agreement provides for senior secured credit facilities comprised of a $64.0 million term loan and up to a $25.0 million revolving line of credit subject to available borrowing base. The revolving facility is available for use by the Company and its subsidiaries for general corporate and working capital needs, and other purposes to the extent permitted by the Financing Agreement. Borrowings available under the revolving line of credit are limited to a borrowing base derived from the Company’s eligible accounts receivable and inventory, as defined in the Financing Agreement. As of September 30, 2020, borrowings available under the revolving facility were $7.3 million.

The Financing Agreement contains certain restrictive covenants, including a requirement to maintain a maximum leverage ratio among other financial and non-financial covenants, as defined in the Financing Agreement. The Company was compliant with all covenants under the Financing Agreement as of September 30, 2020. The maximum permitted leverage is the ratio of total debt to consolidated EBITDA, as defined in the Financing Agreement with a maximum ratio of 3.25 as of June 30, 2020 and for all quarters thereafter until the maturity of the Financing Agreement in 2023. Due to the negative impact of the COVID-19 pandemic on the Company’s revenue and consolidated EBITDA, the gap between the leverage ratio and maximum permitted leverage has reduced. During the nine months ended September 30, 2020, the Company made an additional principal payment of $4.7 million on its term loan.

Based on the Company’s current operating plans, including actions taken to mitigate the negative impact of the COVID-19 pandemic on the Company’s business and financial condition, it expects that available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations, any costs associated with restructuring activities and capital expenditures. This assessment includes consideration of the Company’s best estimates of the impact of the COVID-19 pandemic on its financial results. If the negative impact of the COVID-19 pandemic is more significant than anticipated, it may impact the Company’s ability to comply with financial covenants in the future, which would require the Company to seek an amendment or waivers from its lenders, limit access to or require accelerated repayment of the existing credit facilities, or require the Company to pursue alternative financing. There are no assurances that any such alternative financing, if required, could be obtained at terms acceptable to the Company, or at all.

As of September 30, 2020, the weighted average interest rate, net of the impact of the Company’s interest rate swap, on its borrowings was 8.9%. The carrying value of the debt approximates fair value because the interest rate under the obligation approximates market rates of interest available to the Company for similar instruments.

On April 18, 2020, the Company entered into a promissory note with PNC Bank, National Association, which provided for a loan in the amount of $6.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). On April 23, 2020, the SBA, in consultation with the U.S. Department of the Treasury issued guidance regarding consideration of alternate available sources of liquidity and its impact on qualification for PPP loans. The Company reassessed its business plans and liquidity available under its existing credit facility and elected to repay all PPP funds. The PPP Loan was repaid in full on May 4, 2020.