Note 6: Long-term Debt

On June 2, 2015, the Company and its operating subsidiary, The Tile Shop, LLC, entered into a credit agreement with Fifth Third Bank, Bank of America, N.A., and Huntington National Bank (as amended, the “Credit Agreement”). On December 9, 2016, the Credit Agreement was amended to permit an additional New Markets Tax Credit Financing arrangement and on February 10, 2017, the Credit Agreement was amended to permit the Company to make certain dividend payments. The Credit Agreement provides the Company with a $125.0 million senior secured credit facility, comprised of a five-year $50.0 million term loan and a $75.0 million revolving line of credit. The Credit Agreement is secured by virtually all of the assets of the Company, including but not limited to, inventory, receivables, equipment and real property. Borrowings pursuant to the Credit Agreement bear interest at either a base rate or a LIBOR-based rate, at the option of the Company. The LIBOR-based rate will range from LIBOR plus 1.50% to 2.00%, depending on The Tile Shop’s leverage ratio. The base rate is equal to the greatest of: (a) the Federal funds rate plus 0.50%, (b) the Fifth Third Bank “prime rate,” and (c) the Eurodollar rate plus 1.00%, in each case plus 0.50% to 1.00% depending on The Tile Shop’s leverage ratio. At March 31, 2017 the base interest rate was 4.50% and the LIBOR-based interest rate was 2.48%. Borrowings outstanding consisted of $10.0 million on the revolving line of credit and $16.5 million on the term loan as of March 31, 2017. There was $65.0 million available for borrowing on the revolving line of credit as of March 31, 2017. The Company can elect to prepay the term loan without incurring a penalty. Additional borrowings pursuant to the Credit Agreement may be used to support the Company’s growth and for working capital purposes. The Company incurred $1.0 million of debt issuance costs in connection with the Credit Agreement. These costs were capitalized as other current and other noncurrent assets, and will be amortized over the five-year life of the Credit Agreement. The term loan requires quarterly principal payments as follows (in thousands):



Period
June 30, 2017	$	1,250
September 30, 2017 to June 30, 2018		1,875
September 30, 2018 to March 31, 2020		2,500

The Credit Agreement contains customary events of default, conditions to borrowings, and restrictive covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions, incur additional debt, incur liens, make investments, or enter into transactions with affiliates on other than terms that could be obtained in an arm’s length transaction. The Credit Agreement also includes financial and other covenants including covenants to maintain certain fixed charge coverage ratios and rent adjusted leverage ratios. The Company was in compliance with the covenants as of March 31, 2017.

We have a standby letter of credit outstanding related to our workers compensation insurance policy. As of March 31, 2017 and 2016, the standby letter of credit totaled $1.1 million and $0.9 million, respectively.

Long-term debt consisted of the following at March 31, 2017 and December 31, 2016 (in thousands):


	March 31, 2017				December 31, 2016
			Unamortized				Unamortized
			Debt Issuance				Debt Issuance
	Principal		Costs		Principal		Costs
Term note payable - interest at 2.48% and 2.27% at March 31, 2017 and December 31, 2016, respectively	$	16,471	$	(82)	$	17,721	$	(114)
Commercial bank credit facility		10,000		-		10,000		-
Variable interest rate bonds (0.99% and 0.89% at March 31, 2017 and December 31, 2016), which mature April 1, 2023, collateralized by buildings and equipment		805		-		805		-
Total debt obligations		27,276		(82)		28,526		(114)
Less: current portion		6,975		(53)		6,350		(64)
Debt obligations, net of current portion	$	20,301	$	(29)	$	22,176	$	(50)