Note 9 - Debt

9 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

9

- Debt

Debt totaled $

21.6

 million at

October 31, 2018

, a net increase of $

5.8

 million since

January 

31,

2018.

Revolving lines North America

. 

On

September 20, 2018,

the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a new Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”), providing for a new

three

-year

$18

million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”). The Senior Credit Facility replaced the Company’s then existing

$15

million Credit and Security Agreement, dated

September 24, 2014,

among various subsidiaries of the Company and Bank of Montreal, as successor by assignment to BMO Harris Bank N.A., as amended (the “Prior Credit Agreement”).

The Company initially used borrowings under the new Senior Credit Facility to pay off outstanding amounts under the Prior Credit Agreement (which totaled approximately USD

$3,773,823

plus CAD

4,794,528

) and cash collateralize a letter of credit (USD

$154,500

). The Company expects to use additional borrowings under the new Senior Credit Agreement to fund future capital expenditures and on-going working capital needs, and for other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin.  The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility.  Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally be payable in arrears on the last day of each interest period.  Additionally, the Company is required to pay a

0.375%

per annum facility fee on the unused portion of the Senior Credit Facility.  The facility fee is payable quarterly in arrears.

Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on

September 20, 2021.

Subject to certain qualifications and exceptions, the Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties cannot allow capital expenditures to exceed 

$3

million annually (plus a limited carryover of unused amounts).

The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve consolidated net income (excluding the financial performance of the Company’s foreign subsidiaries

not

party to the Credit Agreement) before interest, taxes, depreciation, amortization and certain other adjustments (“EBITDA”) of at least

$1,807,000

for the period from

August 1, 2018

through

October 31, 2018; (

ii) the North America Loan Parties to achieve EBITDA of at least

$2,462,000

for the period from

August 1, 2018

through

January 31, 2019; (

iii) the North America Loan Parties to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries

not

party to the Credit Agreement) to be

not

less than

1.10

to

1.00

for the

nine

-month period ending

April 30, 2019

and for the quarter ending

July 31, 2019

and each quarter end thereafter on a trailing

four

-quarter basis; and (iv) the Company and its subsidiaries (including the Company’s foreign subsidiaries

not

party to the Credit Agreement) to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility of

not

less than

1.10

to

1.00

for the

nine

-month period ending

October 31, 2018

and for the quarter ending

January 31, 2019

and each quarter end thereafter on a trailing

four

-quarter basis. The Company was in compliance with this requirement as of  

October 31, 2018

.

The Senior Credit Facility contains customary events of default. If an event of default occurs and is continuing, then PNC

may

terminate all commitments to extend further credit and declare all amounts outstanding under the Senior Credit Facility due and payable immediately. In addition, if any of the North American Loan Parties or certain of their subsidiaries become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Senior Credit Facility will automatically become immediately due and payable. Borrowings under the Senior Credit Facility will bear interest at a rate of

2.00%

per annum in excess of the otherwise applicable rate while a bankruptcy event of default exists or, upon the lenders’ request, during the continuance of any other event of default.

As of

October 31, 2018,

the Company had borrowed an aggregate of

$13.7

million at

7.75%

and

5.78%,

with a weighted average rate of

6.45%,

 and had

$2.9

million available to them under the Senior Credit Facility. 

Revolving lines foreign

.

The Company also has credit arrangements used by its Middle Eastern subsidiaries. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On

October 31, 2018

, the Company was in compliance with the covenants under the credit arrangements. On

October 31, 2018

, interest rates were based on the Emirates Inter Bank Offered Rate (EIBOR) plu

s

3.5%

pe

r annum, with a minimum interest ra

te of

4.5%

per

annum. On

October 31, 2018

, the Company's interest rates ranged from

6.11%

to

6.14%,

with a weighted average rate of

6.14%,

and the Company could borrow

$9.1

 million

under these credit arrangements. On

October 31, 2018

,

$6.6

 mi

llion of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. On

October 31, 2018

, the Company had borrowed

$0.5

 milli

on, and had an addition

al

$2.1

 mill

ion available. The foreign revolving lines balances as of

October 31, 2018

 and

January 31, 2018,

were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Mortgages.

On

July 

28,

2016,

the Company borrowed

8.0

million CAD (approximately

$6.1

million at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the Company's manufacturing facility located in Alberta, Canada, that matures on

December 

23,

2042.

The interest rate is variable, currently a

t 

6.1%,

with mon

thly payments of

37

 thousand CAD (approximately

$28

thousand) for interest; and monthly payments of

27

thousand CAD (approximately

$20

thousand) for principal. Principal payments began

January 2018.

On

June 

19,

2012,

the Company borrowed

$1.8

million under a mortgage note secured by its manufacturing facility in Lebanon, Tennessee. The proceeds were used for payment of amounts borrowed. The loan bears interest at

4.5%

with monthly payments of

$13

thousand for both principal and interest and matures

July 

1,

2027.

On

June 

19,

2022,

and on the same day of each year thereafter, the interest rate shall adjust to the prime rate, provided that the applicable interest rate shall

not

adjust more than

2.0%

per annum and shall be subject to a ceiling of

18.0%

and a floor of

4.5%.

Capital Leases.

In

2017,

the Company obtained

three

capital leases for

1.1

million CAD (approximately

$0.8

million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest rates for these capital leases were from

4.0%

to

7.8%

per annum with monthly principal and interest payments of less than

$0.1

million. These leases mature from

April 

30,

2021

to

September 

29,

2022.