Note 6. Notes Payable and Line of Credit

Notes payable consist of the following (in thousands):

	December 31, 2014		September 30, 2015
Senior secured notes due July 1, 2018, net of discount of $1,944 and $1,530 as of December 31, 2014 and September 30, 2015 respectively, with stated interest of 12.125%	$	223,056	$	223,470
Senior secured notes due July 1, 2018, including a premium of $3,592 and $2,812 as of December 31, 2014 and September 30, 2015 respectively, with stated interest of 12.125%		103,592		102,812
		326,648		326,282
Less: current portion		—		—
Notes payable, net of current portion	$	326,648	$	326,282

On June 23, 2011 the Company issued $225.0 million of its 12.125% senior secured notes due July 1, 2018 (the “Notes”) at a discount of $3.9 million. The Notes issued on June 23, 2011 carry a stated interest rate of 12.125%, with an effective rate of 12.50%. On June 13, 2013, the Company issued an additional $100.0 million of Notes through a subsidiary (the “Tack-On Notes”) as a “tack-on” under and pursuant to the indenture under which the Company issued the Notes. The Tack-On Notes were offered at 105% of their principal amount for an effective interest rate of 10.81%. Interest is payable semi-annually each January 1 and July 1 on the Notes.

The Notes are secured by: (i) a first-priority lien on substantially all of the Company’s existing and future domestic plant, property, assets and equipment including tangible and intangible assets, other than the assets that secure the Company’s credit facility (the “Credit Facility”) with PNC Bank, National Association (“PNC Bank”), on a first-priority basis, (ii) a first-priority lien on 100% of the capital stock of the Company’s existing and future material U.S. subsidiaries and non-voting stock of the Company’s existing and future material non-U.S. subsidiaries and 66% of all voting stock of the Company’s existing and future material non-U.S. subsidiaries and (iii) a second-priority lien on the Company’s accounts receivable, unbilled revenue on completed contracts and inventory that secure the Credit Facility on a first-priority basis, subject, in each case, to certain exceptions and permitted liens.

The Notes: (i) are general senior secured obligations; (ii) are guaranteed by the Company’s existing and future wholly owned material domestic subsidiaries; (iii) rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated; (iv) are senior in right of payment to any of the Company’s existing and future subordinated indebtedness; (v) are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries; and (vi) are effectively junior to all obligations under the Credit Facility to the extent of the value of the collateral securing the Credit Facility on a first priority basis.

The Company may currently redeem some or all of the Notes at a premium that will decrease over time plus accrued and unpaid interest.

The terms of the Indenture require the Company to meet certain ratio tests giving effect to anticipated transactions, including borrowing debt and making restricted payments prior to entering these transactions. These ratio tests are, as defined per the Indenture, a Fixed Charge Coverage Ratio of at least 2.00 to 1.00 (which was 0.52 to 1.00 at September 30, 2015) and a Total Leverage Ratio not greater than 2.50 to 1.00 (which was 15.22 to 1.00 at September 30, 2015). The holders of the Notes granted a waiver to these covenants in conjunction with the issuance of the Tack-On Notes, and the Company has not entered into any other transaction that requires it to meet these tests as of September 30, 2015. Had the Company been required to meet these ratio tests as of September 30, 2015, the Company would not have met the Fixed Charge Coverage Ratio or the Total Leverage Ratio.

The amount the Company can borrow under its Credit Facility at any given time is based upon a formula calculating the Company’s borrowing base that takes into account, among other things, eligible billed accounts receivable and up to $10.0 million of eligible inventory, which results in a borrowing availability of less than the maximum commitment of the Credit Facility to the extent that the Company’s borrowing base is less than the maximum commitment of the Credit Facility. The Company’s borrowing base and availability for additional borrowings under the Credit Facility as of September 30, 2014 each totaled $22.9 million. The Company’s borrowing base and availability for additional borrowings under the Credit Facility each totaled $24.2 million as of September 30, 2015.

The Credit Facility contains customary events of default (including cross-default) provisions and covenants related to the Company’s operations that prohibit, among other things, making investments and acquisitions in excess of specified amounts, incurring additional indebtedness in excess of specified amounts, creating liens against the Company’s assets, prepaying subordinated indebtedness and engaging in certain mergers or combinations without the prior written consent of the lenders. The Credit Facility also limits the Company’s ability to make certain distributions or dividends.

Under the terms of the Credit Facility, the Company must maintain a Fixed Charge Coverage Ratio equal to at least 1.25 to 1.00 (which ratio was 0.57 to 1.00 at September 30, 2015) and a Leverage Ratio no greater than 5.00 to 1.00 (which ratio was 13.06 to 1.00 at September 30, 2015) during such time as a Triggering Event is continuing. Prior to August 12, 2015, a “Triggering Event” was defined to occur when the Company’s undrawn availability (measured as of the last date of each month) on the Credit Facility had failed to equal at least $10.0 million for two consecutive months and would continue until undrawn availability equaled $20.0 million for at least three consecutive months. As of August 12, 2015, the Company executed the Sixth Amendment to the agreement governing the Credit Facility (the “Amendment”) which amended the definition of a Triggering Event and the calculation methodology used to determine the Company’s minimum undrawn availability. Pursuant to the Amendment, the Company’s minimum undrawn availability changed from a fixed amount of $10.0 million to the lesser of $10.0 million and 25% of the Company’s available collateral securing the Credit Facility. The Amendment also modified the minimum amount of availability required to end a Triggering Event from a fixed $20.0 million to the lesser of $20.0 million and 50% of the Company’s available collateral.

The Company is only required to maintain such ratios at such time that a Triggering Event is in existence. Failure to comply with such ratios during the existence of a Triggering Event constitutes an Event of Default (as defined therein) under the Credit Facility. Had the Company been required to meet these ratio tests as of September 30, 2015, the Company would not have met the Fixed Charge Coverage Ratio or the Leverage Ratio.

Pursuant to the terms of the Credit Facility, PNC Bank may utilize the Company’s cash deposits at PNC Bank to offset amounts borrowed under the Credit Facility.