Debt and Hedging Instruments

12 Months Ended

Dec. 31, 2019


9.			Debt and Hedging Instruments

The Company’s debt consisted of the following:


	December 31, 2019		December 31, 2018
First Lien Term Loans	$	284,440	$	292,540
Second Lien Term Loans	89,887		89,887
Foreign debt	13,929		15,469
Finance lease obligations and other debt ⁽¹⁾	755		613
Total gross debt	389,011		398,509
Debt discount on Term Loans	(1,739)		(2,669)
Deferred issuance costs on Term Loans	(2,522)		(4,052)
Total debt	384,750		391,788
Less: Current portion	(5,800)		(5,687)
Total long-term debt	$	378,950	$	386,101

(1) Subsequent to January 1, 2019, the Company recognizes and measures new or modified leases in accordance with ASC 842. Prior to January 1, 2019, the Company recognized and measured leases in accordance with ASC 840, “Leases” and prior period results continue to be reported under the accounting standards in effect for those periods. See Note 10, “Leases” for further information.

Future annual maturities of long-term debt outstanding at December 31, 2019 are as follows:


2020	$	5,800
2021	284,051
2022	92,175
2023	2,270
2024	4,013
Thereafter	702
Total future annual maturities of long term debt outstanding	389,011
Less: Debt discounts on Term Loans	(1,739)
Less: Deferred issuance costs on Term Loans	(2,522)
Total debt	$	384,750

Senior Secured Credit Facilities

As of December 31, 2019, the Company’s U.S. credit facilities (the “Senior Secured Credit Facilities”) included (i) term loans in an aggregate principal amount of $310.0 million (“First Lien Term Loans”) maturing June 30, 2021, of which $284.4 million is outstanding, (ii) term loans in an aggregate principal amount of $110.0 million (“Second Lien Term Loans”) maturing June 30, 2022, of which $89.9 million is outstanding, and (iii) a revolving loan of up to $25.5 million (“Revolving Credit Facility”) maturing December 31, 2020. During 2019, the Company amended its Revolving Credit Facility to extend the maturity date to December 31, 2020. The amendment reduced the borrowing capacity from $30.0 million to $25.5 million. In connection with the amendment, the Company paid deferred financing costs of $0.3 million which have been recorded within other assets - net within the consolidated balance sheets. The unamortized amount of debt issuance costs as of December 31, 2019 were $2.5 million related to the First Lien Term Loans and Second Lien Term Loans and $0.5 million related to the Revolving Credit Facility. Debt issuance costs related to the First Lien Term Loans and Second Lien Term Loans are recorded in total long-term debt, and debt issuance costs related to the Revolving Credit Facility are recorded in other assets - net. These costs are amortized into interest expense over the life of the respective borrowings on a straight-line basis.

The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to $0.8 million, with the balance payable at maturity. At the Company’s election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus 0.50% or (c) the Eurocurrency rate applicable for an interest period of one month plus 1.00%, plus an applicable margin equal to (x) 3.50% in the case of the First Lien Term Loans, (y) 2.25% in the case of the Revolving Credit Facility or (z) 7.00% in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to London Interbank Offered Rate (“LIBOR”),

adjusted for statutory reserve requirements, plus an applicable margin equal to (x) 4.50% in the case of the First Lien Term Loans, (y) 3.25% in the case of the Revolving Credit Facility or (z) 8.00% in the case of the Second Lien Term Loans. Borrowings are subject to a floor of 1.00% in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s (an indirect wholly-owned subsidiary of the Company) consolidated first lien net leverage ratio. At December 31, 2019, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were 6.4% and 9.9%, respectively.

Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations (letters of credit in excess of $5.0 million) exceeds $10.0 million at the end of any fiscal quarter, Jason Incorporated and its Restricted Subsidiaries (as defined in the Senior Secured Credit Facilities) will be required to not exceed a consolidated first lien net leverage ratio of 4.25 to 1.00 as of December 31, 2019 (which will decrease to 4.00 to 1.00 on June 26, 2020 and thereafter). If such outstanding amounts do not exceed $10.0 million at the end of any fiscal quarter, no financial covenants are applicable. The consolidated first lien net leverage ratio at December 31, 2019 was 7.52 to 1.00; therefore, borrowings under the Revolving Credit Facility are limited to a total of $10.0 million, which includes letters of credit in excess of $5.0 million. At December 31, 2019, the Company had letters of credit outstanding of $3.6 million and had no outstanding borrowings under the Revolving Credit Facility.

Under the Senior Secured Credit Facilities, the Company is subject to mandatory excess cash flow prepayments if certain requirements are met. At December 31, 2019 and December 31, 2018, there was no required mandatory excess cash flow prepayment required under the Senior Secured Credit Facilities. Additionally, the Company is required to make mandatory prepayments resulting from non-ordinary course sales or other dispositions of assets, subject to certain exceptions and subject to customary reinvestment provisions. In connection with the August 30, 2019 sale of the North American fiber solutions business, the Company received net cash proceeds, as defined by the Senior Secured Credit Facilities, of $62.6 million, of which $57.6 million was remaining after permitted reinvestments as of December 31, 2019. The Company intends to continue to reinvest these net proceeds as permitted under the terms of the Senior Secured Credit Facilities. Permitted reinvestments include capital expenditures, repairs and maintenance and permitted acquisitions, if such reinvestments occur within twelve months following receipt of such net cash proceeds or within 180 days of a contractual commitment if such a commitment is made during the twelve month period. To the extent there are net cash proceeds that are not reinvested during the aforementioned period, a mandatory prepayment of debt is required.

In December 2019, the Company made a voluntary prepayment of $5.0 million on the First Lien Term Loans, utilizing the proceeds from the sale of the Metalex business and from the sale of a facility within the industrial segment. In connection with the payment, the Company wrote off immaterial amounts of previously unamortized debt discount and deferred financing costs, which were recorded as additional interest expense.

During 2017, the Company repurchased $20.0 million of Second Lien Term Loans for $16.8 million. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $2.4 million, which has been recorded within the consolidated statements of operations.

The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, limit or restrict the ability of Jason Incorporated and its Restricted Subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; pay dividends and make other payments in respect of capital stock; make acquisitions, investments, loans and advances; pay and modify the terms of certain indebtedness; engage in certain transactions with affiliates; enter into negative pledge clauses and clauses restricting subsidiary distributions; and change its line of business, in each case, subject to certain limited exceptions. To comply with these covenants, Jason Incorporated and its Restricted Subsidiaries are limited in the amount of cash that can be distributed to Jason Industries, Inc. in the form of dividends, loans or other distributions. These restrictions are triggered if Jason Incorporated and its Restricted Subsidiaries do not achieve a consolidated net leverage ratio that is equal to or less than 5.25 to 1.00 on a trailing twelve-month basis calculated in accordance with the provisions of the Credit Agreements. As of December 31, 2019, the consolidated net leverage ratio for Jason Incorporated and its Restricted Subsidiaries exceeded 5.25 to 1.00; therefore, it is not currently able to distribute cash to Jason Industries, Inc.

Foreign Debt

The Company has the following foreign debt obligations, including various overdraft facilities and term loans:


	December 31, 2019		December 31, 2018
Germany	$	13,413	$	15,002
India	516		467
Total foreign debt	$	13,929	$	15,469

These various foreign loans are comprised of individual outstanding obligations ranging from approximately $0.2 million to $7.7 million and $0.1 million to $9.3 million as of December 31, 2019 and December 31, 2018, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and/or maximum leverage ratio, among others. The Company was in compliance with these covenants as of December 31, 2019.

The foreign debt obligations in Germany primarily relate to term loans of $12.5 million at December 31, 2019 and $15.0 million at December 31, 2018. The German borrowings bear interest at fixed and variable rates ranging from 1.8% to 4.7% and are subject to repayment in varying amounts through 2025.

In the fourth quarter of 2017, the Company utilized $2.4 million of cash received from the sale of Acoustics Europe to retire foreign debt in Germany and incurred a $0.2 million prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.

Interest Rate Hedge Contracts

The Company is exposed to certain financial risks relating to fluctuations in interest rates. To manage exposure to such fluctuations, the Company entered into forward starting interest rate swap agreements (“Swaps”) in 2015 with notional values totaling $210.0 million at both December 31, 2019 and December 31, 2018. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately 2.08% prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the years ended December 31, 2019, 2018, and 2017 the Company recognized $0.9 million of interest income, $0.2 million of interest income, and $1.9 million of interest expense, respectively, related to the Swaps. Based on current interest rates, the Company expects to recognize interest expense of $0.3 million related to the Swaps in 2020.

The fair values of the Company’s Swaps are recorded on the consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was a net liability of $0.3 million at December 31, 2019 and a net asset of $1.9 million at December 31, 2018. See the amounts recorded on the consolidated balance sheets within the table below:


	December 31, 2019		December 31, 2018
Interest rate swaps:
Recorded in other current assets	$	—	$	1,325
Recorded in other assets - net	—		542
Recorded in other current liabilities	(260)		—

Total net asset derivatives designated as hedging instruments	$	(260)	$	1,867