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Note 11 - Long-term Debt

12 Months Ended

Dec. 31, 2022

11.

Long-Term Debt

As of December 31, 2022 and December 31, 2021, the Company’s borrowings were comprised of the following:

	December 31,			December 31,
(in thousands)	2022			2021
Long-term debt:
Term loan	$	34,814		$	38,000
Revolving line		12,850			11,450
Less: unamortized deferred financing costs		(840	)		(1,120	)
Total debt		46,824			48,330
Less: current installments		(4,091	)		(3,515	)
Current unamortized deferred financing costs		280			280
Long-term debt	$	43,013		$	45,095

The aggregate amounts of debt maturing during the next five years are as follows:

(in thousands)
2023	$	4,091
2024		4,000
2025		39,573
	$	47,664

On December 22, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank, (together, the “Lenders”). The Credit Agreement provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility (including a $10.0 million sub-facility for the issuance of letters of credit and a $10.0 million swingline loan sub-facility) (collectively, the “Credit Facility”). The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries; none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc. and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Credit Facility matures on December 22, 2025. Issuance costs of $1.4 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method. Available and unused borrowing capacity under the revolving line of credit was $2.9 million as of December 31, 2022 based on the Credit Agreement, as amended pursuant to the April 2022 Amendment and November 2022 Amendment as described below. Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement.

As part of the November 2022 Amendment, the Credit Facility’s LIBOR rate option was replaced with the Secured Overnight Financing Rate (“SOFR”). All references in this footnote to the LIBOR rate were changed to SOFR in connection with the November 2022 Amendment. Borrowings under the amended Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on SOFR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement, as amended (a “SOFR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). SOFR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50%. The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0%. The applicable interest rate margin varies from 2.0% per annum to 3.25% per annum for SOFR Loans, and from 1.5% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the Credit Agreement. Interest on SOFR Loans is payable in arrears on the last day of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to SOFR Loan breakage and redeployment costs in certain circumstances.

The effective interest rate on the Company’s borrowings for the years ended December 31, 2022 and 2021, was 5.0% and 3.3%, respectively, and the weighted average interest rate as of December 31, 2022 was 7.6%. 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.

Commencing on March 31, 2021, the outstanding term loans amortizes in equal quarterly installments equal to $0.5 million per quarter on such date and during each of the next three quarters thereafter, $0.75 million per quarter during the next eight quarters thereafter and $1.0 million per quarter thereafter, with a balloon payment at maturity. Furthermore, within ninety days after the end of the Company’s fiscal year, the term loans may be permanently reduced pursuant to certain mandatory prepayment events including an annual “excess cash flow sweep” of 50% of the consolidated excess cash flow, as defined in the agreement; provided that, in any fiscal year, any voluntary prepayments of the term loans shall be credited against the Company’s “excess cash flow” prepayment obligations on a dollar-for-dollar basis for such fiscal year. As of December 31, 2022, the current portion of long-term debt includes an excess cash flow sweep of $1.1 million to be paid by March 31, 2023. Amounts outstanding under the revolving credit facility can be repaid at any time but are due in full at maturity.

The Credit Agreement, as amended, includes customary affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock. The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement, as amended, also includes customary events of default.

The April 28, 2022 Amendment, among other things modified the financial covenant relating to the consolidated net leverage ratio, and consented to the Biostage Settlement, including without limitation the receipt by the Company of convertible preferred stock in Biostage, and the securities issuable upon conversion thereof, as partial payment for Biostage’s indemnification obligations in connection with the Biostage Settlement. (See Note 15). In consideration for the April 28, 2022 Amendment, the Company paid fees of $0.2 million to the Lenders and Administrative Agent.

The November 8, 2022 Amendment, among other things, modified the financial covenant relating to the consolidated net leverage ratio, and the definition of Consolidated EBITDA used in the calculation of certain financial covenants, including to exclude non-cash inventory charges related to the Company’s decision to discontinue non-strategic products. In consideration for the November 2022 Amendment, the Company paid fees of $0.2 million to the Lenders and Administrative Agent.

The Company was in compliance with the covenants of the Credit Agreement, as amended, as of December 31, 2022.

The Company monitors interest rate risk attributable to both its outstanding and forecasted debt obligations by the use of cash flow sensitivity analysis which estimates the expected impact of changes in interest rates on the Company’s future cash flows.