Annual report pursuant to Section 13 and 15(d)

Debt

v3.8.0.1
Debt
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
Note 10 – Debt
 
Long-term debt consists of the following obligations as of December 31:
 
(in thousands)
 
2017
 
2016
 
Credit Agreement – revolver
 
$
5,658
 
$
-
 
Credit Agreement – term loan payable in quarterly installments of principal, plus interest through 2021
 
 
17,635
 
 
22,500
 
State of Ohio loan- payable in monthly installments of principal, plus interest at 3% through 2017
 
 
-
 
 
33
 
Capital leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.9% to 5.3% through 2022
 
 
3,830
 
 
3,719
 
Total debt
 
 
27,123
 
 
26,252
 
Less - Current portion
 
 
(6,358)
 
 
(4,476)
 
Less - Debt issuance costs
 
 
(209)
 
 
(269)
 
Long-term debt
 
$
20,556
 
$
21,507
 
 
As of December 31, 2017, the scheduled contractual repayments on long-term debt and capital leases are as follows:
 
(in thousands)
 
Year ending
December 31
 
2018
 
$
6,358
 
2019
 
 
4,847
 
2020
 
 
4,402
 
2021
 
 
11,512
 
2022
 
 
4
 
Total
 
$
27,123
 
 
Successor
 
Credit Agreement
 
In conjunction with the completion of the Business Combination, all amounts outstanding under the Company’s previous senior credit facility were paid in full and a subsidiary of the Company, Limbach Facility Services LLC (“LFS”), entered into a senior credit facility with multiple lenders (the “Credit Agreement”). This senior credit facility consists of a $25.0 million revolving line of credit (“Credit Agreement Revolver”) and a $24.0 million term loan (“Credit Agreement Term Loan”), both with a maturity date of July 20, 2021. It is collateralized by substantially all of the assets of LFS and its subsidiaries. Principal payments of $750,000 on the term loan are due quarterly through June 30, 2018. Principal payments of $900,000 are due at the end of subsequent quarters through maturity of the loan, with any remaining amounts due at maturity. Outstanding borrowings on both the term loan and the revolving line of credit bear interest at either the Base Rate (as defined in the Credit Agreement) or LIBOR (as defined in the Credit Agreement), plus the applicable additional margin, payable monthly. At December 31, 2017, the interest rates in effect were 5.62% on the term loan and 7.50% on the revolver.
 
The Credit Agreement includes restrictions on, among other things and subject to certain exceptions, the Company and its subsidiaries’ ability to incur additional indebtedness, pay dividends or make other distributions, redeem or purchase capital stock, make investments and loans and enter into certain transactions, including selling assets, engaging in mergers or acquisitions and entering into transactions with affiliates.
 
The Credit Agreement requires that the Company comply with certain financial performance covenants including with respect to total leverage, senior leverage, fixed charges and tangible net worth. As of December 31, 2017 and 2016, the Company was in compliance with all covenants under the Credit Agreement.
 
Mandatory prepayments are required upon the occurrence of certain events, including, among other things and subject to certain exceptions, equity issuances, changes of control of the Company, certain debt issuances, assets sales and excess cash flow. Commencing with the fiscal year ended December 31, 2017, the Company is required to remit an amount equal to 50% of the excess cash flow (as defined in the Credit Agreement) of the Company, which percentage will be reduced based on the Senior Leverage Ratio (as defined therein). Effective December 31, 2017, the Company was required to remit an excess cash flow payment of $1.6 million, due and payable to the lenders on or before May 1, 2018.  This amount was reclassified from long-term debt to the current portion of long-term debt at December 31, 2017. The Company may voluntarily prepay the loans at any time subject to the limitations set forth in the Credit Agreement.
 
The equity interests of the Company’s subsidiaries have been pledged as security for the obligations under the Credit Agreement. The Credit Agreement includes customary events of default, including, among other items, payment defaults, cross-defaults to other indebtedness, a change of control default, and events of default with respect to certain material agreements. Additionally, with respect to the Company, an event of default occurs if the Company’s securities cease to be registered with the SEC pursuant to Section 12(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). In case of an event of default, the administrative agent would be entitled to, among other things, accelerated payment of amounts due under the new senior credit facility, foreclose on the equity of the Company’s subsidiaries, and exercise all rights of a secured creditor on behalf of the lenders.
 
The additional margin applicable to both the Credit Agreement Revolver and Credit Agreement Term Loan is determined based on levels achieved under the Company’s Senior Leverage Ratio covenant, which reflects the ratio of indebtedness divided by EBITDA for the most recently ended four quarters.
 
The following is a summary of the additional margin and commitment fees payable on the available revolving credit commitment:
 
 
 
 
 
Additional Margin for
 
Additional Margin for
 
 
 
Level
 
Senior Leverage Ratio
 
Base Rate loans
 
Libor Rate loans
 
Commitment Fee
 
I
 
Greater than or equal to 2.50 to 1.00
 
 
3.00
%
 
4.00
%
 
0.50
%
II
 
Less than 2.50 to 1.00, but greater than or equal to 2.00 to 1.00
 
 
2.75
%
 
3.75
%
 
0.50
%
III
 
Less than 2.00 to 1.00, but greater than or equal to 1.50 to 1.00
 
 
2.50
%
 
3.50
%
 
0.50
%
IV
 
Less than 1.50 to 1.00
 
 
2.25
%
 
3.25
%
 
0.50
%
 
The Company had $15.9 million of availability under its Credit Agreement Revolver at December 31, 2017.
 
Subordinated Debt
 
In conjunction with the completion of the Business Combination on July 20, 2016, the Company’s previous subordinated debt was paid in full and LFS entered into a new subordinated debt agreement. This subordinated debt agreement consisted of a $13.0 million loan with a maturity date of July 20, 2022 (the “Subordinated Loan”). Principal payments were not required prior to maturity. Outstanding borrowings bore interest at 16.0%, with 13.0% payable quarterly in cash, and the Company had the option either to pay the remaining 3.0% in cash or have it deferred and capitalized into the Subordinated Loan balance.
 
Upon a Conversion Event (defined as a prepayment of more than 75% of the original principal of the loans, an acceleration, a Change of Control or maturity), the Subordinated Loan holders could have elected to receive, in satisfaction of all or a portion of the outstanding principal of the Subordinated Loan (which constitutes the deferred interest portion of the loan), the number of shares of Limbach common stock equal to the deferred interest portion of the loan divided by $10.00 per share (the “Conversion Shares”). The Subordinated Loan holders could have further elected to be paid entirely in Limbach common stock or to receive a cash payment equal to the deferred interest portion of the loan being converted, plus shares of Limbach common stock determined by a formula equal to the Conversion Shares, minus the Liquidation Shares (defined as the portion of the deferred interest portion of the loan being converted, divided by the five-day weighted trading average of a share of Limbach common stock for the five business days preceding the trigger date). Upon a Conversion Event, the subordinated debt holders had registration rights with respect to such shares, including one demand registration right and usual and customary “piggy-back” registration rights, pursuant to a registration rights agreement.
 
Mandatory prepayments were required upon the occurrence of certain events, including, among other things and subject to certain exceptions, equity issuances, a change of control of the Company or its subsidiaries, certain debt issuances and asset sales.
 
On December 21, 2016, the Company voluntarily repaid all amounts outstanding under the Subordinated Loan, including deferred interest and a prepayment fee, totaling $15.3 million. Because this prepayment occurred prior to July 20, 2017, the prepayment fee was 3.0% as calculated on the principal amount of the loan plus all interest that would have been due on the loan if it had remained outstanding until July 20, 2017. The Subordinated Loan holders did not elect to receive any shares of Limbach common stock as noted above. The loss on the extinguishment of the Subordinated Loan recorded by the Company was $2.2 million, which is reflected as a separate line item in the Consolidated Statement of Operations for the year ended December 31, 2016.
 
Predecessor
 
Senior Credit Facility
 
The Predecessor had a senior credit facility with a single lender. The revolving credit facility permitted borrowings up to $30.0 million. In January 2016, the credit facility was increased to $35.0 million and the maturity date was extended to May 2018. It was collateralized by substantially all of the Company’s assets except for real property. The credit facility contained certain restrictive covenants, which, among other things, required the Company to maintain certain financial ratios. The credit facility also contained cross-default provisions related to the subordinated debt facility and the underwriting agreement with the Company’s surety. Also in January 2016, the term loan was converted into a “draw term” loan facility and the amount of the facility was increased to $7.5 million, of which $5.5 million was available to be drawn in increments not to exceed $2.0 million.
 
Subordinated Debt
 
The subordinated debt was unsecured and bore paid in kind interest at 13%. The subordinated debt contained similar covenants to the senior credit facility. This debt was held entirely by the majority owner of the Company. The Company was permitted to pay monthly on the subordinated interest as long as the Company exceeded certain tangible net worth and working capital baselines. The Company exceeded those thresholds but management elected to suspend interest payments. In January 2016, the maturity date of the principal and the paid in kind interest was extended to December 2018.