Annual report pursuant to Section 13 and 15(d)

Note 9 - Long-Term Debt and Revolving Lines of Credit

v3.21.1
Note 9 - Long-Term Debt and Revolving Lines of Credit
12 Months Ended
Oct. 31, 2020
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 9. Long-Term Debt and Revolving Lines of Credit

 

Successor

 

As part of the Business Combination, the Predecessor’s Revolver, U.K. Revolver, Senior secured notes, and Seller notes (see Predecessor section below for a discussion of these agreements) were all extinguished and the Company entered into (i) a term loan agreement, dated December 6, 2018, among the Company, certain subsidiaries of the Company, Credit Suisse AG, Cayman Islands Branch as administrative agent and Credit Suisse Loan Funding LLC, Jefferies Finance LLC and Stifel Nicolaus & Company Incorporated LLC as joint lead arrangers and joint bookrunners, and the other Lenders party thereto and (the “Term Loan Agreement”) (ii) a Credit Agreement, dated December 6, 2018, among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner, the other Lenders party thereto, and the other parties thereto (“ABL Credit Agreement”). In addition, in order to finance the acquisition of Capital, the Company added $60.0 million of incremental term loans under the Term Loan Agreement in May 2019. Summarized terms of these facilities are included below.

 

Term Loan Agreement

 

Summarized terms of the Term Loan Agreement are as follows:

 

 

Provides for an original aggregate principal amount of $357.0 million. This amount was increased in May 2019 by $60.0 million in connection with the acquisition of Capital;

 

The initial term loans advanced will mature and be due and payable in full seven years after the Closing Date, with principal amortization payments in an annual amount equal to 5.00% of the original principal amount;

 

Borrowings under the Term Loan Agreement, will bear interest at either (1) an adjusted LIBOR rate or (2) an alternate base rate, plus an applicable margin of 6.00% or 5.00%, respectively;

 

The Term Loan Agreement is secured by (i) a first priority perfected lien in substantially all of the assets of the Company and certain of its subsidiaries that are loan parties thereunder to the extent not constituting ABL Credit Agreement priority collateral and (ii) a second priority perfected lien on substantially all ABL Credit Agreement priority collateral, in each case subject to customary exceptions and limitations;

 

The Term Loan Agreement includes certain non-financial covenants.

 

The outstanding balance under the Term Loan Agreement as of  October 31, 2020 was $381.2 million and as of that date, the Company was in compliance with all debt covenants. The Company’s interest on borrowings under the Term Loan Agreement bear interest using the London Inter-bank Offered Rate (LIBOR) as the base rate plus an applicable margin in line with the summarized terms of the Term Loan Agreement as described above.

 

Future maturities of the term loans for fiscal years ending October 31 and thereafter is as follows:

 

(in thousands)

       

2021

  $ 20,888  

2022

    20,888  

2023

    20,888  

2024

    20,888  

2025

    20,888  

Thereafter

    276,765  

Total

  $ 381,205  

 

ABL Credit Agreement

 

Summarized terms of the ABL Credit Agreement are as follows:

 

 

Borrowing availability in U.S. Dollars and GBP up to a maximum of $60.0 million;

 

Borrowing capacity available for standby letters of credit of up to $7.5 million and for swing loan borrowings of up to $7.5 million. Any issuance of letters of credit or making of a swingline loan will reduce the amount available under the ABL Facility;

 

All loans advanced will mature and be due and payable in full five years after the Closing Date;

 

Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement;

 

Borrowings in U.S. Dollars and GBP under the ABL Credit Agreement bear interest at either (1) an adjusted LIBOR rate or (2) a base rate, in each case plus an applicable margin currently set at 2.25% and 1.25%, respectively. The ABLE Credit Agreement is subject to two step-downs of 0.25% and 0.50% based on excess availability levels;

 

U.S. ABL Credit Agreement obligations are secured by (i) a perfected first priority security interest in substantially all personal property of the Company and certain of its subsidiaries that are loan parties thereunder consisting of all accounts receivable, inventory, cash, intercompany notes, books and records, chattel paper, deposit, securities and operating accounts and all other working capital assets and all documents, instruments and general intangibles related to the foregoing (the “U.S. ABL Priority Collateral”) and (ii) a perfected second priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations;

 

U.K. ABL Credit Agreement obligations are secured by (i) a perfected first-priority security interest in (A) the U.S. ABL Priority Collateral, (B) all of the stock (or other ownership interests) in, and held by, the U.K. borrower subsidiaries of the Company, and (C) all of the current and future assets and property of the U.K. subsidiaries of the Company that are loan parties thereunder, including a first-ranking floating charge over all current and future assets and property of each U.K. subsidiary of the Company that is a loan party thereunder; and (ii) a perfected, second-priority security interest in substantially all Term Loan Agreement priority collateral, in each case subject to customary exceptions and limitations; and

 

The ABL Credit Agreement also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants.

 

The outstanding balance under the ABL Credit Agreement as of  October 31, 2020 was $1.7 million and as of that date, the Company was in compliance with all debt covenants.

 

Predecessor

 

In connection with the Business Combination, the Company repaid its existing credit facilities and the Seller Notes discussed below in full and replaced them with the Term Loan Agreement and the ABL Credit Agreement discussed previously. The Company also incurred an aggregate of $16.4 million of costs related to the extinguishment of its existing debts, including the write-off of unamortized borrowing costs and an early extinguishment fee paid to its lenders. The amount has been reflected as debt extinguishment costs in the Predecessor’s consolidated statements of operations for the period ended December 5, 2018.

 

 

Revolving line of credit

 

The Predecessor had a revolving loan agreement (the "Revolver"). Summarized terms of the Revolver were as follows:

 

 

Maximum borrowing capacity of $65.0 million with a maturity date of September 8, 2022;

 

Borrowings bear interest at the LIBOR rate plus an applicable margin that resets quarterly and is (a) 2.00%, (b) 2.25% or (c) 2.50% if the quarterly average excess availability is (a) at least 66.67%, (b) less than 66.67% and at least 33.33% and (c) less than 33.33%, respectively;

 

Interest is due monthly and the outstanding principal balance was due upon maturity;

 

On October 2, 2017, $35.0 million of the Revolver balance was transferred to a 3-month line of credit with a separate LIBOR interest rate; and

 

Required Predecessor to maintain a maximum ratio of total fixed charges.

 

U.K. Revolver

 

The Predecessor had a revolving loan agreement (the “U.K. Revolver”) associated with the acquisition of Camfaud in November 2016. The U.K. Revolver had a maximum borrowing capacity of approximately $28.0 million and bore interest at LIBOR plus 2.00%. The U.K. Revolver required the Predecessor maintain a maximum ratio of total fixed charges.

 

 

Senior secured notes

 

In August 2014, the Predecessor issued $140.0 million in senior secured notes through a high-yield bond offering under SEC Rule 144A (“Senior Notes”). In November 2016, the Predecessor issued additional senior secured notes of $40.0 million as an incremental borrowing with the same terms and form as the original Senior Notes.

 

Summarized terms of the Senior Notes were as follows:

 

 

Maturity date on September 1, 2021. Principal due upon maturity.

 

Interest rate of 10.375% per annum, payments due every March 1 and September 1 commencing March 1, 2015

 

The Senior Notes were secured by substantially all of the assets of the Company and contain various non-financial covenants.

 

 

Seller notes

 

In connection with the acquisitions of the Camfaud and Reilly in November 2016 and July 2017, respectively, the Predecessor entered into separate loan agreements with the former owners of the Camfaud and Reilly for $6.2 million and $1.9 million, respectively (collectively, the “Seller Notes”). The Seller Note with respect to Camfaud bore interest at 5.0% per annum and all principal plus accrued interest was due upon the earlier of; (1) 6 months after the U.K. Revolver is repaid in full, (2) 42 months after the acquisition date ( May 2020) or (3) the date on which the Predecessor suffers an insolvency event. The Seller Note with respect to Reilly bore interest at 5.0% per annum and all principal plus accrued interest are due three years after the acquisition date ( July 2020). The Seller Notes were unsecured.

 

The table below is a summary of the composition of the Company’s long-term debt balances at October 31, 2020 and 2019.

 

   

October 31,

   

October 31,

 

(in thousands)

 

2020

   

2019

 

Short term portion of term loan

  $ 20,888     $ 20,888  

Long term portion of term loan

    360,317       381,206  

Total term loan

    381,205       402,094  

Less unamortized deferred financing costs

    (16,411 )     (20,268 )

Total debt

  $ 364,794     $ 381,826