Quarterly report pursuant to Section 13 or 15(d)

Note 9 - Long Term Debt and Revolving Lines of Credit

v3.20.1
Note 9 - Long Term Debt and Revolving Lines of Credit
 3 Months Ended
Jan. 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 on 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
January 31, 2020
was
$396.9
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)
      
 
2020 (excluding the period from November 1, 2019 to January 31, 2020)
   $
15,666
  
2021
    
20,888
  
2022
    
20,888
  
2023
    
20,888
  
2024
    
20,888
  
Thereafter    
297,653
  
Total
   $
396,871
  
 
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 swingline 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 will 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 ABL 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 will be 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 will be 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
January 31, 2020
was
$38.7
million and as of that date, the Company was in compliance with all debt covenants.
 
Predecessor
 
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.
 
Over the period of
January 2016
through
September 2017,
the Predecessor repurchased and retired approximately
$26.0
million, in the aggregate, of principal of the Senior Notes.
 
In
September 2017,
the Predecessor completed an exchange of substantially all outstanding existing Senior Notes for newly issued senior secured notes (“New Senior Notes”). The terms of the New Senior Notes were identical to the Senior Notes except that the maturity date was extended to
September 1, 2023.
 
In conjunction with the acquisition of the O’Brien Companies (See Note
4
- Business Combinations) in
April 2018,
the Predecessor issued additional New Senior Notes with a principal amount of
$15.0
million at a
104
percent premium for a total purchase price of
$15.6
million. The
$0.6
million has been recorded by the Company as a debt premium and will be amortized over the life of the New Senior Notes using the effective interest method. 
 
Seller notes
 
In connection with the acquisitions of the Camfaud and Reilly Concrete Pumping Limited (“Reilly”) in
November 2016
and
July 2017,
respectively, the Predecessor entered into separate loan agreements with the former owners of 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.
 
In connection with the Business Combination, the Company repaid its existing credit facilities in full and replaced them with the Term Loan Agreement and the ABL Credit Agreement. 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 statement of income for the period ended
December 5, 2018.
 
The table below is a summary of the composition of the Company’s long-term debt balances at
January 31, 2020
and at
October 31, 2019
.
 
   
January 31,
    
October 31,
  
(in thousands)
  
2020
    
2019
  
Short term portion of term loan
   $
20,888
     $
20,888
  
Long term portion of term loan
    
375,983
      
381,206
  
Total term loan    
396,871
      
402,094
  
Less unamortized deferred financing costs
    
(19,284
 )    
(20,268
 )
Total debt
   $
377,587
     $
381,826