Note 5 - PNC Credit Facility

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

5

– PNC Credit Facility

2014

PNC Credit Facility

In

September

2014,

the Company entered into an Amended and Restated Revolving Credit and Security Agreement (the

"2014

Credit Agreement") with PNC Bank, National Association ("PNC") which provides for a

five

-year

$30

million senior secured revolving credit facility which replaced a prior revolving credit facility and term loan with PNC that totaled

$16

million (the

"2012

Credit Agreement"). The

2014

Credit Agreement allows the Company to borrow up to

85%

of eligible receivables and up to

75%

of the appraised value of trucks and equipment. Under the

2014

Credit Agreement, there are no required principal payments until maturity and the Company has the option to pay variable interest rate based on (i)

1,

2

or

3

month LIBOR plus an applicable margin ranging from

4.50%

to

5.50%

for LIBOR Rate Loans or (ii) interest at PNC Base Rate plus an applicable margin of

3.00%

to

4.00%

for Domestic Rate Loans. Interest is calculated monthly and added to the principal balance of the loan. Additionally, the Company incurs an unused credit line fee of

0.375%.

The revolving credit facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on

April

30,

2018.

Effective

February

27,

2015,

the Company

entered into a Consent and First Amendment (the “First Amendment”) with respect to the

2014

Credit Agreement. The First Amendment, among other things, (i) modified certain financial covenants, and (ii) consented to a

$100,000

principal prepayment by the Company to a

third

party bank. Effective

March

29,

2015,

the Company entered into a

second

amendment to the

2014

Credit Agreement with PNC to increase the Company’s leverage ratio, as defined from

2.75

to

1

to

3.50

to

1

and to exclude certain capital expenditures from the calculation of the fixed charge ratio. In

July

and

October

2015,

the Company entered into a

third

and

fourth

amendment, respectively, to the

2014

Credit Agreement with PNC.  The amendments were made to administrative terms of the agreement and did not modify any terms of the financial covenants.

Effective

December

31,

2015,

the Company entered into a

fifth

amendment to the

2014

Credit Agreement. The

fifth

amendment, among other things, (i) increased the then applicable margin for Domestic Rate Loans and LIBOR Rate Loans by

25

basis points (ii) adjusted the Company’s leverage ratio, as defined, to

4.25

to

1.00

as of

December

31,

2015,

4.50

to

1.00

as of

March

31,

2016,

and

3.50

to

1.00

as of

June

30,

2016

and each quarter thereafter, and (iii) limited capital expenditures, as defined to an aggregate amount of

$7,800,000

during the period commencing

October

1,

2015

through

June

30,

2016.

On

March

29,

2016,

the Company entered into a Sixth Amendment (the “Sixth Amendment”) to the

2014

Credit Agreement. The Sixth Amendment, among other things, (i) reduced the revolving line of credit commitment from

$40

million back to its original

$30

million, (ii) reset the fixed charge coverage ratio to build to a trailing

four

quarters beginning with the quarter ended

December

31,

2015,

(iii) added a new covenant which established a minimum monthly availability requirement for the period of

March

2016

through

March

2017

ranging from

$1.5

million to

$8.0

million, (iv) converted the leverage and fixed charge coverage ratios to springing covenants which would only be triggered upon failure to meet the new availability covenant until it expires in

March

2017;

thereafter they will be individually tested quarterly, (v) increased the then applicable margin for Domestic Rate Loans and LIBOR Rate Loans by

175

basis points, and (vi) reinstated a full cash dominion requirement.

On

August

10,

2016,

the Company entered into a Seventh Amendment to the

2014

Credit Agreement that among other things; (i) reset and extended the minimum monthly availability covenant from the date of amendment through

June

30,

2017

at amounts ranging from

$658,000

to

$3.5

million, (ii) extended the period of time that the leverage ratio and fixed charge coverage ratio are springing covenants through

July

1,

2017;

(iii) provided for a

0.5%

monthly reduction in the advance rate on the appraised value of equipment to

80%

through

February

2017,

and (iv) included an amendment fee of

$200,000.

     

On

October

4,

2016,

the Company entered into an Eighth Amendment to the

2014

Credit Agreement that among other things; (i) reset the minimum monthly availability covenant to

$500,000

from

September

1,

2016

through

November

30,

2016

and

$1

million thereafter; and (ii) reset the leverage ratio for each quarterly period as follows:

Fiscal Quarter Ending:	Maximum Leverage Ratio
March 31, 2017	5.50	:	1.00
June 30, 2017	4.50	:	1.00
September 30, 2017	4.50	:	1.00
December 31, 2017	7.00	:	1.00
March 31, 2018	5.50	:	1.00
June 30, 2018	5.00	:	1.00
September 30, 2018	5.00	:	1.00
December 31, 2018	5.00	:	1.00
March 31, 2019	3.50	:	1.00
June 30, 2019 and each fiscal quarter thereafter	3.50	:	1.00

On

December

31,

2016,

the Company entered into a Ninth Amendment to the

2014

Credit Agreement that among other things, (i) decrease the borrowing of eligible equipment from

85%

to

75%

of the appraised net orderly liquidation value of Eligible Existing Equipment and (ii) commencing on

March

31,

2017

and measured as of the end of each fiscal quarter end thereafter, the Company will need to maintain a Fixed Charge Coverage Ratio of not less than

1.25

to

1.00

in respect of each compliance test date. For the purpose of this covenant, the Fixed Charge Coverage Ratio shall be determined on the basis of Adjusted EBITDA for the trailing

four

-quarter period ended on the applicable quarterly compliance test date. The Fixed Charge Coverage Ratio shall not be measured for the fiscal quarter ended

December

31,

2016.

On

March

31,

2017,

the Company entered into the Tenth Amendment to the

2014

Credit Agreement that among other things (i) required the Company to raise

$1.5

million in subordinated debt or post a letter of credit in favor of the bank by

March

31,

2017;

(ii) raise an additional

$1

million of subordinated debt by

May

15,

2017;

(iii) reduced the maturity date of the loan from

September

12,

2019

to

April

30,

2018;

(iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) change the calculation of fixed charge and leverage ratio from a trailing

four

-quarter basis to a quarterly build from the quarter ended

December

31,

2016.

On

March

31,

2017,

the Company’s largest shareholder posted a letter of credit in the amount of

$1.5

million in accordance with the terms of the Tenth Amendment. It is expected that the letter of credit will be converted into subordinated debt with a maturity dated on or about

April

15,

2022

with a stated interest rate of

12%

per annum.

As of

December

31,

2016,

the Company had an outstanding principal loan balance of

$23,180,514.

The interest rate at

December

31,

2016

ranged from

5.21%

to

5.27%

for the

$21,250,000

of outstanding LIBOR Rate Loans and

6.75%

for the

$1,930,514

of outstanding Domestic Rate Loans. As of

December

31,

2016,

approximately

$4.5

million was available under the revolving credit agreement. As of

December

31,

2016,

the Company was in compliance with its covenants.

As of

December

31,

2015,

the Company had an outstanding principal loan balance of

$20,706,241.

The interest rate at

December

31,

2015

ranged from

2.92%

to

3.01%

for the

$20,250,000

of outstanding LIBOR Rate Loans and

4.25%

for the

$456,241

of outstanding Domestic Rate Loans. As of

December

31,

2015,

approximately

$9.9

million was available under the revolving credit agreement.

Debt Issuance Costs

The Company has capitalized certain debt issuance costs incurred in connection with the PNC senior revolving credit facility discussed above

and these costs are being amortized to interest expense over the term of the credit facility using the effective interest method. As of

December

31,

2016

and

2015,

$170,746

and

$140,570,

respectively of unamortized debt issuance costs were included in Prepaid expenses and other current assets in the accompanying consolidated balance sheet. The remaining long-term portion of debt issuance costs of

$259,400

and

$392,300

is included in Other Assets in the accompanying consolidated balance sheet for

December

31,

2016

and

2015,

respectively. During the years ended

December

31,

2016

and

2015,

the Company amortized

$152,724

and

$125,404

of these costs to Interest Expense.

Interest Rate Swap

On

September

17,

2015,

the Company entered into an interest rate swap agreement with PNC which the Company designated as a fair value hedge against the variability in future interest payments related to its

2014

Credit Agreement. The terms of the interest rate swap agreement include an initial notional amount of

$10

million, a fixed payment rate of

1.88%

plus applicable a margin ranging from

4.50%

to

5.50%

paid by the Company and a floating payment rate equal to LIBOR plus applicable margin of

4.50%

to

5.50%

paid by PNC. The purpose of the swap agreement is to adjust the interest rate profile of the Company’s debt obligations and to achieve a targeted mix of floating and fixed rate debt.

The Company engaged a valuation expert firm to complete the value of the swap utilizing an income approach from a discounted cash flow model. The cash flows were discounted by the credit risk of the Company derived by industry and Company performance. As of

December

31,

2016

and

2015,

the discount rate was

13.40%

and

5.80%,

respectively.

During the years ended

December

31,

2016

and

2015,

the fair market value of the swap instrument decreased by

$72,000

and resulted in a decrease to the liability and a reduction in interest expense. During the year ended

December

31,

2015,

the fair market value of the swap increased by

$163,000

and resulted in an increase in the liability and additional interest expense. The interest rate swap liability is included in accounts payable and accrued liabilities on the Company’s balance sheet. As of

December

31,

2016

and

2015,

the interest rate swap liability was

$91,000

and

$163,000,

respectively.