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Note 7 - Long-term Debt

3 Months Ended

Mar. 31, 2023

7.	Long-Term Debt

As of March 31, 2023 and December 31, 2022, the Company’s borrowings were as follows:

	March 31,			December 31,
(in thousands)	2023			2022
Long-term debt:
Term loan	$	32,973		$	34,814
Revolving line		11,850			12,850
Less: unamortized deferred financing costs		(770	)		(840	)
Total debt		44,053			46,824
Less: current portion of long-term debt		(3,250	)		(4,091	)
Current unamortized deferred financing costs		280			280
Long-term debt	$	41,083		$	43,013

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”). All commitments and obligations under the Credit Agreement previously held by Silicon Valley Bank have now been assumed by Silicon Valley Bridge Bank, N. A. 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 $10.5 million as of March 31, 2023 based on the Credit Agreement, as amended, pursuant to the April 2022 Amendment and November 2022 Amendment (both described below). Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement.

Borrowings under the amended Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“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 borrowings for the three months ended March 31, 2023 and 2022, was 7.9 % and 3.1%, respectively, and the weighted average interest rate as of March 31, 2023, net of the effect of the Company’s interest rate swaps, was 8.0%. 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.

The term loans amortize in quarterly installments of $0.75 million per quarter for each of the next three quarters and $1.0 million per quarter during the next seven quarters 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 included an excess cash flow sweep of $1.1 million which was paid on 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.

On April 28, 2022, the Company entered into an amendment to the Credit Agreement (the “April 2022 Amendment”) pursuant to which the Lenders and administrative agent, among other things, modified the financial covenant relating to the consolidated net leverage ratio, and consented to the Biostage Settlement (as defined below), including without limitation the receipt by the Company of convertible preferred stock in Biostage Inc. (“Biostage”) and the securities issuable upon conversion thereof, as partial payment for Biostage’s indemnification obligations in connection with the Biostage Settlement. See Note 14 for information regarding the Biostage Settlement. In consideration for the April 2022 Amendment, the Company paid fees of $0.2 million to the Lenders and administrative agent.

On November 8, 2022, the Company entered into a subsequent amendment to the Credit Agreement (the “November 2022 Amendment”) pursuant to which, among other things the Lenders and administrative agent 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 March 31, 2023.