Note 6 - Revolving Line of Credit and Long-term Debt

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Debt Disclosure [Text Block]

6. Revolving Line of Credit and Long-term Debt

In connection with the acquisition of the Artegraft biologic graft business, we incurred debt in the amount of $65 million under a senior secured credit facility with a group of banks. This credit arrangement included a $25 million revolving credit line that was fully drawn at inception, as well as a $40 million five-year term loan. During the year ended December 31, 2020 we made scheduled principal payments on the term loan of $1.0 million, and repaid the revolving line of credit in full. During the six months ended June 30, 2021 we made scheduled principal payment on the term loan of $1.0 million and made optional prepayments of $15.0 million. Long term debt as of June 30, 2021 is as follows:

	June 30, 2021
	(in thousands)
Five-year term loan, net of unamortized debt issuance costs of $552	$	22,448
Less current portion		(3,000	)
Long-term debt, net	$	19,448

The loans bear interest at a rate per annum of, at our option, either (i) the Base Rate plus an applicable margin of from 1.25% to 1.75% depending on our consolidated leverage ratio, or (ii) the Eurodollar Rate plus an applicable margin of from 2.25% to 2.75% depending on our consolidated leverage ratio. Base Rate is defined in the credit agreement as a fluctuating rate per annum of the Federal Funds rate plus 0.5% or the prime rate of interest established from time to time by KeyBank National Association. At June 30, 2021 all outstanding borrowings were designated as Eurodollar loans and bore interest of 3.25%. We incurred debt issuance costs in connection with this credit arrangement of approximately $1.8 million. These costs were allocated between the revolving line of credit and the term loans, with the portion related to the revolving line of credit of $0.7 million recorded in other assets on our balance sheet, and the portion allocated to the term loan recorded as a deduction from the amount of the debt. All of these transaction costs are being amortized into interest expense on a straight-line basis as the result is not materially different from using the interest method, over the five-year term of the arrangement. This results in an effective interest rate of approximately 4.2%. During the six months ended June 30, 2021, in connection with making optional prepayments of $15.0 million on the term loan, we expensed a proportionate amount of the unamortized transaction costs in the amount of $0.3 million. Cash paid for interest during the six months ended June 30, 2021 was $0.7 million.

The term of the revolving line of credit is five years, with all outstanding amounts due on June 22, 2025. The term loan is repayable in increasing quarterly installments of $0.5 million to $1.0 million through March 31, 2025, with the remaining outstanding balance due on June 22, 2025. As of July 21, 2021, we had paid off the term loan in full and had no borrowings outstanding under our revolving line of credit.

We must comply with various financial and non-financial covenants, which are set forth in the Credit Agreement governing the credit facility. The primary financial covenant consists of a maximum consolidated leverage ratio. The lenders are entitled to accelerate repayment of the loans and terminate the revolving credit commitment upon the occurrence of any of various events of default as described in the Credit Agreement. We were in compliance with the covenants as of June 30, 2021. Borrowings under the secured credit facility are secured by 100% of the stock of our domestic subsidiaries, portions of the stock of certain of our foreign subsidiaries, and substantially all of our and our subsidiaries’ other property and assets, in each case subject to various exceptions.

We are required to make mandatory prepayments of the term loans and any revolving credit loans in various amounts if we have Excess Cash Flow (as defined in the Credit Agreement, and commencing in respect of our fiscal year ending December 31, 2021), if we make certain sales of assets outside the ordinary course of business above certain thresholds or if we suffer certain property loss events above certain thresholds. We may make optional prepayments of the term loans from time to time without premium or penalty.