Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.8.0.1
Debt
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
Note 7 – Debt
 
Long-term debt consists of the following obligations as of: 
 
(in thousands)
 
March 31,
2018
 
December 31,
2017
 
Credit Agreement – revolver
 
$
12,105
 
$
5,658
 
Bridge Term Loan – term loan payable in quarterly installments of principal, plus interest through 2019
 
 
9,750
 
 
-
 
Credit Agreement – term loan payable in quarterly installments of principal, plus interest through 2021
 
 
16,885
 
 
17,635
 
Capital leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.9% to 5.3% through 2022
 
 
4,073
 
 
3,830
 
Total debt
 
 
42,813
 
 
27,123
 
Less - Current portion
 
 
(7,301)
 
 
(6,358)
 
Less - Debt issuance costs
 
 
(324)
 
 
(209)
 
Long-term debt
 
$
35,188
 
$
20,556
 
 
Credit Agreement
 
In 2016, a subsidiary of the Company, Limbach Facility Services LLC (“LFS”), entered into a new senior credit facility with multiple lenders (the “Credit Agreement”). The Credit Agreement consists of a $25.0 million revolving line of credit and a $24.0 million term loan, both with a maturity date of July 20, 2021. It is collateralized by substantially all 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 March 31, 2018, the interest rates in effect were 5.75% on the Credit Agreement term loan, 7.5% on the Credit Agreement Revolver and 7.0% on the Bridge Term Loan (as defined below).
 
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 was 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). The Company is required to remit an excess cash flow payment of $1.2 million, due and payable to the lenders on or before May 1, 2018. This amount was classified as current portion of long-term debt at March 31, 2018 and December 31, 2017. The Company may voluntarily prepay the loans at any time subject to the limitations set forth in the Credit Agreement.
 
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.
 
On January 12, 2018, LFS and LHLLC entered into the Second Amendment and Limited Waiver to the Credit Agreement (the “Second Amendment and Limited Waiver”) with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C issuer. The Second Amendment and Limited Waiver provides for a new term loan under the Credit Agreement in the aggregate principal amount of $10,000,000 (the “Bridge Term Loan”) to be used for the purpose of financing the repurchase (the “Repurchase”) of all of the Company’s remaining 280,000 shares of Class A Preferred Stock, including accrued but unpaid dividends, and the payment of certain fees and expenses associated therewith. The proceeds from the Bridge Term Loan were used to finance the Repurchase for an aggregate purchase price of $10.0 million, including accrued but unpaid dividends of $0.9 million, pursuant to the previously disclosed preferred stock purchase agreement, dated as of July 14, 2017, by and among the Company and 1347 Investors LLC (“1347 Investors”).
 
Loans under the Credit Agreement bear interest, at the Borrower’s option, at either Adjusted LIBOR (“Eurodollar”) or a base rate (“Base Rate”), in each case, plus an applicable margin. With respect to the Bridge Term Loan, from January 12, 2018 to, but excluding, the sixth month anniversary thereof, the applicable margin with respect to any Base Rate loan will be 4.00% per annum and with respect to any Eurodollar loan will be 5.00% per annum. From the six-month anniversary of January 12, 2018 to, but excluding, the 12-month anniversary thereof, the applicable margin with respect to any Base Rate loan will be 4.50% per annum and with respect to any Eurodollar loan will be 5.50% per annum. From the 12-month anniversary of January 12, 2018 and all times thereafter, the applicable margin with respect to any Base Rate loan will be 5.00% per annum and with respect to a Eurodollar loan will be 6.00% per annum.
 
The Borrower is required to make principal payments on the Bridge Term Loan in the amount of $250,000 on the last business day of March, June, September and December of each year, commencing March 31, 2018. The Bridge Term Loan will mature on April 12, 2019. The Bridge Term Loan is guaranteed by the same Guarantors and secured (on a pari passu basis) by the same Collateral as the existing Loans under the Credit Agreement.
 
On March 21, 2018, the Company, LFS and LHLLC entered into the Third Amendment to Credit Agreement (the “Third Amendment”) with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C Issuer. The Third Amendment provides for an increase in the amount that may be drawn against the Credit Agreement Revolver for the issuances of letters of credit from $5.0 million to $8.0 million, modifies the definition of EBITDA to include certain one-time costs and non-cash charges and joins the Company as a guarantor under the Credit Agreement and related loan documents.
 
The Credit Agreement requires that the Company comply with certain financial performance covenants including the following: (1) a senior leverage ratio not to exceed 2.75, (2) a fixed charge coverage ratio not less than 1.25 (1.15 at June 30, 2018) and (3) minimum tangible net worth of not less than $8.0 million, increased by 25% of net income for the Company’s immediately prior fiscal year, if any. As of March 31, 2018, the Company’s senior leverage ratio was 3.01, which exceeded the maximum of 2.75, and its fixed charge coverage ratio was 1.33. The lender has waived the event of default arising from this noncompliance as of March 31, 2018 and lowered the fixed charge coverage ratio for June 30, 2018, while reserving its rights with respect to covenant compliance in future quarters.  The Company believes that it will be in compliance with these covenants in future quarters. As a result of having obtained a waiver, management estimates no impact of this covenant violation on the Company’s financial condition and liquidity.
 
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 Credit Agreement, 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 applied to both the revolver and 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:
 
Level
 
Senior Leverage Ratio
 
Additional Margin for
Base Rate loans
 
Additional Margin for
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 $9.3 million of availability under its revolving credit facility at March 31, 2018.