Annual report pursuant to Section 13 and 15(d)

Note 6 - Debt

v3.8.0.1
Note 6 - Debt
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Debt Disclosure [Text Block]
6
.       
Debt
 
On
March 23, 2015,
the Company and its direct and indirect subsidiaries (the “Borrowers”) entered into a credit agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender (the “Lender”). The Chase Credit Agreement originally provided for a
$27.0
million Term Loan A, up to an
$8.0
million Term Loan B and a
$10.0
million revolving credit facility (the “Revolver”) and a maturity date of
March 23, 2020
,
collectively (the “Credit Facility”).
The Borrowers drew
$27.0
million under the Term Loan A to repay and terminate the previously existing Credit Facility under the credit agreement dated
November 30, 2012,
as amended, by and among the Company, its direct and indirect subsidiaries, Wells Fargo Bank, National Association, as administrative agent, and certain lenders party thereto. Term Loan B was unfunded at closing and beginning on
April 20, 2015,
the closing date of the acquisition of the assets of Ciscura, the Borrowers drew
$8.0
million on Term Loan B, in several installments, in accordance with the requirements of the asset purchase agreement governing the acquisition to fund the acquisition and associated expenses. The remaining available amount on Term Loan B expired on
March 23, 2016.
 
On
December 5, 2016,
the Company entered into a First Amendment to the Chase Credit Agreement to waive certain events of default then existing thereunder, as well as to make certain amendments to the Credit Facility, including but
not
limited to: (i) restructuring of the Credit Facility that effectively consolidated Term Loan A and Term Loan B into a new single term loan (the “Term Loan”) resulting in a new total drawn amount of
$32
million under the Term Loan with the approximately
$5
million excess over the current aggregate drawn amounts under Term Loan A and Term Loan B to be available to reduce the Company
’s drawings under the revolving credit line under the Credit Facility; (ii) extending the maturity date of the Term Loan and the revolving credit line to
December 5, 2021; (
iii) setting the quarterly mandatory principal payment due on the Term Loan to
$1.3
million due on the last business day of each fiscal quarter with any remaining unpaid and outstanding amount due at maturity; and (iv) amending the leverage ratio covenant to provide for the following schedule of maximum permitted ratios: (a) 
2.75
to
1.0
at any time on or after
December 
31,
2015
but prior to
March 
31,
2017,
(b) 
2.50
to
1.0
at any time on or after
March 
31,
2017
but prior to
March 
31,
2018
or (c) 
2.25
to
1.00
at any time on or after
March 
31,
2018.
 
On
March 22, 2017,
the Company entered into a Second Amendment to the Chase Credit Agreement to make certain amendments to the Credit Facility, including but
not
limited to: (i) amending the definition of "Fixed Charges" to increase the Company's ability to prepay its indebtedness under the Credit Facility without negatively impacting its financial covenants; and (ii) amending the leverage ratio covenant to provide for the following schedule of maximum permitted ratios: (a)
 
2.75
to
1.0
at any time on or after
December 
31,
2015
but prior to
March 
31,
2018,
(b) 
2.50
to
1.0
at any time on or after
March 
31,
2018
but prior to
March 
31,
2019
or (c) 
2.25
to
1.00
at any time on or after
March 
31,
2019.
 
As of
March 31, 2017,
t
he Company breached a financial covenant under its Credit Facility, which resulted in an event of default under the Credit Facility. Specifically, the Company was
not
in compliance with the leverage ratio covenant under the Credit Facility. The required maximum leverage ratio under the Credit Facility as of
March 31, 2017
was
2.75
compared to an actual ratio of
2.96.
The Company subsequently received a waiver from this breach from the Lender on
May 10, 2017,
which provided a limited, specific and
one
-time waiver from this breach but did
not
otherwise modify the terms of the Credit Facility.
No
fee was paid to the Lender in connection with this waiver.
 
On
June 28, 2017,
the Company entered into a Third Amendment to the Chase Credit Agreement to make certain amendments to the Credit Facility, including but
not
limited to:
 
 
(i)
amendment of
the chart within the definition of “Applicable Rate” in Section
1.01
of the Chase Credit Agreement to read as follows:
 
Leverage
Ratio
CBFR
Spread
Eurodollar
Spread
Commitment
Fee Rate
Level I
< 1.5:1.0
- 1.00%
2.00%
0.25%
Level II
< 2.0:1.0 to 1.0 but
>
 1.5:1.0
-0.75%
2.25%
0.25%
Level III
< 2.5:1.0 to 1.0 but 
>
 2.0:1.0
- 0.50%
2.50%
0.25%
Level IV
< 3.0:1.0 to 1.0 but 
>
 2.5:1.0
0.00%
2.75%
0.25%
Level V
≥ 3.0:1.0
0.25%
3.00%
0.25%
 
and further amend
ment of the definition of “Applicable Rate” in Section
1.01
of the Chase Credit Agreement by adding the following to the end thereof: “The Applicable Rate will be set at Level V as of the Third Amendment Effective Date, and adjusted for the
first
time thereafter based on the financial statements required to be delivered hereunder for the fiscal quarter ending
June 30, 2017.”;
 
 
(ii)
amend
ment of the definition of “Fixed Charge Coverage Ratio” in Section
1.01
of the Chase Credit Agreement by adding the phrase “(it is acknowledged that, at all times, such unfinanced portion is either a deduction to EBITDA or, if unfinanced portion is ever interpreted to be a negative number, then
zero
)” to follow the phrase therein that reads “means, for any period, the ratio of (a) EBITDA minus the unfinanced portion of Capital Expenditures.”;
 
 
(iii)
amend
ment of clause (f)(ii) in the definition of “Permitted Acquisition” in Section
1.01
of the Chase Credit Agreement by (a) replacing the reference therein to
“$10,000,000”
with
“$5,000,000”
and (b) by replacing the reference therein to
“$25,000,000”
with
“$12,500,000.”;
 
 
(iv)
add
ition of the following definition of “Excess Cash Flow” to Section
1.01
of the Chase Credit Agreement as follows:
 
“Excess Cash Flow” means, for any fiscal year of the Company, (a) EBITDA for such fiscal year, minus (b) Capital Expenditures made or incurred during such fiscal year minus (c) Fixed Charges for such fiscal year.
 
 
(v)
amendment of
Section
2.08
(b) of the Chase Credit Agreement to read as follows:
 
(b) The Borrowers hereby unconditionally agree that the Term A Loans and the Term B Loans shall be replaced and refinanced in full as of the First Amendment Effective Date with a Term Loan in an aggregate amount equal to
$32,000,000
made under Section
2.01
(d), the Borrowers acknowledge and agree that the principal balance of such Term Loan as of the Third Amendment Effective Date is
$30,665,999.98,
and the Borrowers hereby unconditionally promise to pay to the Lender the principal amount of the Term Loans made under Section
2.01
(d) after the Third Amendment Effective Date as follows: (i) on
June 30, 2017,
September 30, 2017
and
December 31, 2017
in principal installments each in the amount of
$577,500
(as adjusted from time to time pursuant to Section
2.09
(d) or
2.16
(b)), (ii) commencing with the last Business Day of
March, 2018
and on the last Business Day of each
March,
June,
September
and
December
thereafter, in consecutive quarterly principal installments each in the amount of
$766,650
(as adjusted from time to time pursuant to Section
2.09
(d) or
2.16
(b)) and (iii) to the extent
not
previously paid, all unpaid Term Loans shall be paid in full in cash by the Borrowers on the Term Maturity Date.
 
 
(vi)
amendment of
Section
2.09
(d) of the Chase Credit Agreement to read as follows:
 
(d) All prepayments required to be made pursuant to Section
2.09
(c) shall be applied,
first
to prepay the Term Loans (and in the event Term Loans of more than
one
Class shall be outstanding at the time, shall be allocated among the Term Loans pro rata based on the aggregate principal amounts of outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be applied to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse order of maturity (with any prepayments applied
first
to the payment at final maturity),
second
to prepay the Revolving Loans without a corresponding reduction in the Revolving Commitment and
third
to cash collateralize outstanding LC Exposure. Within each such category, such prepayments shall be applied
first
to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities (beginning with the earliest to mature).
 
All prepayments required to be made pursuant to Section
2.09
(f) shall be applied,
first
to prepay the Revolving Loans without a corresponding reduction in the Revolving Commitment,
second
to prepay the Term Loans (and in the event Term Loans of more than
one
Class shall be outstanding at the time, shall be allocated among the Term Loans pro rata based on the aggregate principal amounts of outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be applied to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse order of maturity (with any prepayments applied
first
to the payment at final maturity), and
third
to cash collateralize outstanding LC Exposure. Within each such category, such prepayments shall be applied
first
to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities (beginning with the earliest to mature).
 
 
(vii)
add
ition of a new Section
2.09
(f) to the Chase Credit Agreement as follows:
 
(f) Until the latest of the Revolving Credit Maturity Date, the Term A Maturity Date, the Term B Maturity Date or the Term Maturity Date, as the case
may
be, the Borrowers shall prepay the Obligations as set forth in Section
2.09
(d) on the date that is
ten
days after the earlier of (i) the date on which the Company
’s annual audited financial statements for the immediately preceding fiscal year are delivered pursuant to Section
5.01
or (ii) the date on which such annual audited financial statements were required to be delivered pursuant to Section
5.01,
in an amount equal to: (I)
seventy-five
percent (
75%
) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if the Company’s Leverage Ratio is greater than or equal to
2.5
to
1.0
for the immediately preceding fiscal year, (II)
fifty
percent (
50%
) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if the Company’s Leverage Ratio is less than
2.5
to
1.0
but greater than or equal to
2.0
to
1.0
for the immediately preceding fiscal year, or (III)
zero
percent (
0%
) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if the Company’s Leverage Ratio is less than
2.0
to
1.0
for the immediately preceding fiscal year. Each Excess Cash Flow prepayment shall be accompanied by a certificate signed by a Financial Officer of the Company certifying the manner in which Excess Cash Flow and the resulting prepayment was calculated, which certificate shall be in form and substance satisfactory to the Lender.
 
 
(viii)
amend
ment of Section
6.04
(c) of the Chase Credit Agreement by replacing the reference therein to
“$5,000,000”
with
“$2,500,000.”;
 
 
(ix)
amendment of
Sections
6.12
(a) and (b) of the Chase Credit Agreement to read as follows:
 
(a)
Leverage Ratio
. The Borrowers will
not
permit the Leverage Ratio to exceed (i)
4.0
to
1.0
at any time on or after the Effective Date but prior to
December 31, 2017, (
ii)
3.75
to
1.0
at any time on or after
December 31, 2017
but prior to
June 30, 2018, (
iii)
3.50
to
1.0
at any time on or after
June 30, 2018
but prior to
December 31, 2018,
or (iv)
3.00
to
1.00
at any time on or after
December 31, 2018.
 
(b)
Fixed Charge Coverage Ratio
. The Borrowers will
not
permit the Fixed Charge Coverage Ratio to be less than (i)
1.15:1.0
at any time on or after the Effective Date but prior to
March 31, 2018,
or (ii)
1.25:1.0
at any time on or after
March 31, 2018.
 
As of Decembe
r
31,
2017,
the Company was in compliance with all such covenants.
 
Simultaneous with the execution of Third Amendment, the Company entered into a Patent and Trademark Security Agreement, which replaces the Patent and Trademark Security Agreement entered
into on
March 23, 2015
at the time the Company entered into the original Chase Credit Agreement. The new Patent and Trademark Security Agreement was revised to make reference to the Third Amendment and the Company has provided the Lender with updated schedules listing the Company’s trademarks, patents, applications for trademarks and patents, and other intellectual properties owned or licensed.
 
As a result of the changes to the definition of
‘Leverage Ratio” and “Fixed Charge Coverage Ratio” within the Third Amendment, the Company will have increased flexibility. The change to the definition of “Applicable Rate” will effectively increase the Company’s interest rate under the Chase Credit Agreement by
50
basis points in the near term, while allowing for the Company to reduce that rate as its Leverage Ratio declines.
 
To secure repayment of the obligations of the Borrowers, each Borrower has granted to the Lender, for the benefit of various secured parties, a
first
priority security interest in substantially all of the personal property assets of each of the Borrowers. In addition, the Company has pledged the shares of InfuSystem Holdings USA, Inc. (“Holdings USA”) and Holdings USA has pledged the shares of each of InfuSystem, Inc. and First Biomedical, Inc. and the equity interests of IFC, LLC to the Lender, for the benefit of the secured parties, to further secure the obligations under the Chase Credit Agreement.
 
The availability under the Revolver is based upon the Borrowers
’ eligible accounts receivable and eligible inventory and is comprised as follows (in thousands):
 
   
December 31,
    
December 31,
  
   
2017
    
2016
  
Revolver:
                
Gross Availability
   $
10,000
     $
10,000
  
Outstanding Draws
    
-
      
-
  
Letter of Credit
    
(750
 )    
-
  
Landlord Reserves
    
(45
 )    
(45
 )
Availability on Revolver
   $
9,205
     $
9,955
  
 
The Company had approximate future maturities of loans as of
December 31, 2017
as follows (in thousands):
 
   
2018
    
2019
    
2020
    
2021
    
2022
    
Total
  
Term Loan
   $
3,067
     $
3,067
     $
3,067
     $
19,310
     $
-
     $
28,511
  
Unamortized value of debt issuance costs
    
(28
 )    
(30
 )    
(31
 )    
(31
 )    
-
      
(120
 )
Total
   $
3,039
     $
3,037
     $
3,036
     $
19,279
     $
-
     $
28,391
  
 
 
The following is a breakdown of the Company
’s current and long-term debt as of
December 31, 2017
and
December 31, 2016 (
in thousands):
 
December 31, 2017
 
December 31, 2016
 
                                                   
   
Current
Portion of
Long-Term
Debt
    
Long-Term
Debt
    
Total
      
Current
Portion of
Long-Term
Debt
    
Long-Term
Debt
    
Total
  
Term Loan
   $
3,067
     $
25,444
     $
28,511
  
Term Loans
   $
5,336
     $
26,664
     $
32,000
  
Unamortized value of debt issuance costs
   $
(28
 )   $
(92
 )    
(120
 )
Unamortized value of debt issuance costs
   $
(22
 )   $
(87
 )    
(109
 )
Revolver
    
-
      
-
      
-
  
Revolver
    
-
      
-
      
-
  
Total
   $
3,039
     $
25,352
     $
28,391
  
Total
   $
5,314
     $
26,577
     $
31,891
  
 
 
As of
December 31, 2017,
interest on the Credit Facility is payable at our option as a (i) Eurodollar Loan, which bears interest at a per annum rate equal to LIBOR Plus a margin ranging from
2.00%
to
3.00%
or (ii) CBFR Loan, which bears interest at a per annum rate equal to the greater of (a) the lender’s prime rate or (b) LIBOR for a
30
-day interest period plus
2.50%,
in each case, plus a margin ranging from -
1.00%
to
0.25%.
The actual rate at
December 31, 2017
was
4.32%
(LIBOR of
1.57%
plus
2.75%
).