Borrowings Under Revolving Credit Facility	9 Months Ended
Dec. 25, 2022
Borrowings Under Revolving Credit Facility
Borrowings Under Revolving Credit Facility	Note 4. Borrowings Under Revolving Credit Facility On October 29, 2020, the Company entered into a Credit Agreement among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lender(s) party thereto from time to time, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank. Terms used, but not defined, in this and the following paragraphs of this Note 4 have the meanings set forth in the Credit Agreement (as defined below) or the related Guaranty and Security Agreement. This facility replaced a previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto (which included Wells) and Truist Bank (successor by merger to SunTrust Bank), as administrative agent. The discussion below is a summary and is qualified in its entirety by the actual terms of the Credit Agreement and related documents, including Amendment Nos. 1, 2, 3, and 4, and references below to the “Credit Agreement” include the Credit Agreement, together with such amendments, except in each case where otherwise indicated or the context otherwise requires. The Credit Agreement, as amended in Amendment No. 4 discussed below, now provides for a senior secured asset-based revolving credit facility of up to $105 million (the “Revolving Credit Facility”) with a $10 million Availability Block that is in effect at all times, which effectively limits the maximum borrowings under the Revolving Credit Facility to $95 million. The Revolving Credit Facility matures on April 29, 2025 and includes a $5.0 million letter of credit sublimit and provides for the issuance of Swingline Loans. The Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the Revolving Credit Facility to an aggregate commitment amount of up to $155 million with optional additional commitments from then existing Lenders or new commitments from additional lenders, although no Lender is obligated to increase its commitment. Availability is determined in accordance with the Borrowing Base, which is generally 85% of Eligible Accounts minus the Dilution Reserve, plus a calculated value of Eligible Inventory aged less than 181 days plus the lesser of an Aged Inventory Cap (currently $2,250,000 and which reduces over time to $2,000,000) and a calculated value of Inventory aged more than 180 days minus a calculated Reserve, as further detailed and set forth in the Credit Agreement. When the facility was initially established pursuant to the Credit Agreement, Borrowings accrued interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, (i) if the Fixed Charge Coverage Ratio was less than 1.10:1.00, then the LIBOR Rate plus 2.25% or (ii) if the Fixed Charge Coverage Ratio was greater than or equal to 1.10:1.00, then the LIBOR Rate plus 2.00%; (B) if a Base Rate Loan, (i) if the Fixed Charge Coverage Ratio was less than 1.10:1.00, then the Base Rate plus 1.25% or (ii) if the Fixed Charge Coverage Ratio was greater than or equal to 1.10:1.00, then the Base Rate plus 1.00%. Pursuant to Amendment No. 4, Borrowings now accrue interest from the applicable borrowing date: (A) if a SOFR Rate Loan, (i) at a per annum rate equal to the SOFR Rate plus a SOFR Adjustment of 10 basis points (to remain pricing neutral for transition from LIBOR to SOFR) plus the SOFR Rate Margin of 2.25% until the later of December 31, 2023 and meeting a Fixed Charge Coverage Ratio for the trailing twelve months of not less than 1.0 to 1.0, and (ii) thereafter, at a per annum rate equal to the SOFR Rate plus a SOFR Adjustment of 10 basis points (to remain pricing neutral for transition from LIBOR to SOFR) plus the SOFR Rate Margin of 1.75% if Excess Availability is greater than 30%, 2.00% if Excess Availability is at least 20% but less than or equal to 30%, and 2.25% if Excess Availability is less than 20% or (B) if a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 1.25% until the later of December 31, 2023 and meeting a Fixed Charge Coverage Ratio for the trailing twelve months of not less than 1.0 to 1.0, and (ii) thereafter, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 0.75% if Excess Availability is greater than 30%, of 1.00% if Excess Availability is at least 20% but less than or equal to 30%, and of 1.25% if Excess Availability is less than 20%. Excess Availability for these purposes is determined without giving effect to the $10 million Availability Block. The Company was previously required to pay a monthly Unused Line Fee on the average daily unused portion of the Revolving Credit Facility at a per annum rate equal to 0.25%. Pursuant to Amendment No. 4, the Company is now required to pay a monthly Unused Line Fee based on the average quarterly revolver usage, at a per annum rate equal to 0.25% of the unused Revolving Credit Facility if usage is greater than 50%, and 0.50% of the unused Revolving Credit Facility if usage is less than 50%. The Credit Agreement contains one financial covenant, a 1:1 Fixed Charge Coverage Ratio, which was historically only tested if Excess Availability (generally, borrowing availability less the aggregate of trade payables and book overdrafts, each in excess of historical amounts), without giving effect to the $10 million Availability Block, is less than the greater of (a) 15% of the Maximum Revolver Amount and (b) $15,750,000. Pursuant to Amendment No. 3, as discussed below, the Company was relieved of any Fixed Charge Coverage Ratio testing through calendar year 2022, without regard to the amount of Excess Availability during that period. The covenant has been re-imposed pursuant to Amendment No. 4, however, but only if Excess Availability falls below that described above. In addition, the Credit Agreement contains provisions that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. As of December 25, 2022, borrowings under the Revolving Credit Facility totaled $61.6 million and, therefore, the Company had $33.4 million available for borrowing, subject to the Borrowing Base limitation and compliance with the other applicable terms referenced herein, and including the $10 million Availability Block discussed above. The Revolving Credit Facility has no lockbox arrangement associated with it and, therefore the outstanding balance is classified as a long-term liability on the Consolidated Balance Sheet as of December 25, 2022. Accordingly, borrowings from and repayments to the Company’s current line of credit are reflected on a gross basis in the cash flows from financing activities in the Consolidated Statements of Cash Flows. The Company is required to make certain prepayments under the Revolving Credit Facility under certain circumstances, including from net cash proceeds from certain asset dispositions in excess of certain thresholds. The Credit Agreement contains representations, warranties and affirmative covenants. The Credit Agreement also contains negative covenants and restrictions on, among other things: (i) Indebtedness, (ii) liens, (iii) fundamental changes, (iv) disposition of assets, (v) restricted payments (including certain restrictions on redemptions and dividends), (vi) investments and (vii) transactions with affiliates. The Credit Agreement also contains events of default, such as payment defaults, cross-defaults to other material indebtedness, misrepresentations, bankruptcy and insolvency, the occurrence of a Change of Control and the failure to observe the negative covenants and other covenants contained in the Credit Agreement and the other loan documents. Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under the Credit Agreement and other operating subsidiaries of the Company (collectively, the “Loan Parties”), and Wells, as Administrative Agent, the Obligations, which include the obligations under the Credit Agreement, are guaranteed by the Loan Parties, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’ (including both borrowers and guarantors) Accounts, Books, Chattel Paper, Deposit Accounts, General Intangibles, Inventory, Negotiable Collateral, Supporting Obligations, and all Money, Cash Equivalents or other assets that come into the possession, custody or control of the Agent or any Lender, and certain related assets, and the proceeds and products of any of the foregoing (the “Collateral”). The security interests in the Collateral are in favor of the Administrative Agent, for the benefit of the Lenders party to the Credit Agreement from time to time and any other holders of the Obligations. The Obligations secured also include certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products. On December 25, 2022, the interest rate applicable to borrowings under the Revolving Credit Facility was 6.67%. The weighted average interest rate on borrowings under the Company’s Revolving Credit Facility for the third quarter of fiscal year 2023 was 6.08%. Following an Event of Default, the Lenders may at their option increase the applicable per annum rate to a rate equal to two percentage points above the otherwise applicable rate and, with certain events of default, such increase is automatic. Amendment No. 1 Pursuant to Amendment No. 1 to Credit Agreement dated July 12, 2021 (“Amendment No. 1”), between Tessco and Wells, Wells agreed to a 25-basis point reduction in certain otherwise applicable rates and fees over an agreed period, and the Company and Wells agreed to, among others, certain changes related to the LIBOR rate option to simplify day-to-day management of the Revolving Credit Facility. These terms have since been further amended and, pursuant to Amendment No. 4 (as defined below), these interest rate terms have been superseded, with the methodology for determining the Applicable Margin now as discussed above. Amendment No. 2 In anticipation of TESSCO Reno Holding, LLC (“Reno Holding”) entering into the Real Estate Note of Reno Holding (the “Note”), as discussed further in Note 5, the Company, TESSCO Inc. and our other operating subsidiaries, and Wells, entered into Amendment No. 2 to Credit Agreement and Consent dated December 29, 2021 (“Amendment No. 2”). Pursuant to Amendment No. 2, and subject to its terms and conditions, among other things, Wells consented to the Note, without requiring that Reno Holding become a borrower or guarantor under the Credit Agreement. Amendment No. 3 On January 5, 2022, at the Company’s request, the Company and its operating subsidiaries, and Wells, entered into Amendment No. 3 to Credit Agreement and Amendment No. 1 to Guaranty and Security Agreement (“Amendment No. 3”), subject to the terms and conditions of which Wells agreed to increase the Commitment under the Revolving Credit Facility from $75 million to $80 million. Among the terms and conditions, the Company agreed to revert to the interest rate margins originally provided for under the terms of the Revolving Credit Facility (and which margins had previously been modified pursuant to Amendment No. 1 to Credit Agreement), as well as change to the methodology for determining the Applicable Margin, as discussed above, and agreed to a $10 million Availability Block for calendar year 2022, but was relieved of any Fixed Charge Coverage Ratio testing for the same period without regard to the amount of Excess Availability during that period. Amendment No. 3 further provided that a $15 million Excess Availability requirement would be imposed as of January 1, 2023, unless a Fixed Charge Coverage Ratio of 1:1 is achieved. The Company did not meet the Fixed Charge Covenant Ratio, and as a result, availability under the Revolving Credit Facility for the remainder of calendar 2022 (subject to Amendment No. 4, discussed below) was $70 million after accounting for the Availability Block and was scheduled to reduce to $65 million on January 1, 2023 upon the scheduled expiration of the Availability Block and re-imposition of the Excess Availability requirement, in each case subject to the Borrowing Base limitations and compliance with the other terms. Amendment No. 4 On December 8, 2022, the Company and Wells entered into Amendment No. 4 to Credit Agreement (“Amendment No. 4”) under which the Commitment under the pre-existing Revolving Credit Facility was increased from $80 million to $105 million, among other things. Amendment No. 4 amended and restated the original Credit Agreement in its entirety. Availability is still determined in accordance with a Borrowing Base formula and, pursuant to the terms of Amendment No. 4, the $10 million Availability Block has been continued beyond calendar year-end 2022, indefinitely. As a result, the outstanding balance cannot exceed $95 million at any time. The maturity date has been extended to April 29, 2025. As discussed above, the 1:1 Fixed Charge Coverage Ratio covenant was re-imposed and is now tested pursuant to Amendment No. 4, but only if Excess Availability falls below the threshold discussed above. In addition, Amendment No. 4 provided for a change from a LIBOR-based primary rate to one based on SOFR, as well as changes to the methodology for determining the Applicable Margin and the imposition of a $42 million Inventory Cap as a Borrowing Base component. Amendment No. 4 also changed the financial predicates for applicability of the Minimum Fixed Charge Coverage Ratio and Cash Dominion Period, taking into consideration the increase in Commitment. In addition, the Company agreed that in no event will the mortgage on its Hunt Valley, Maryland property be released prior to December 31, 2023, and only if the Fixed Charge Coverage Ratio thereafter is at least 1.10 to 1.00 for six consecutive months and Excess Availability is at least $22.5 million for thirty consecutive days.

Borrowings Under Revolving Credit Facility

9 Months Ended

Dec. 25, 2022

Borrowings Under Revolving Credit Facility

Borrowings Under Revolving Credit Facility

Note 4. Borrowings Under Revolving Credit Facility

On October 29, 2020, the Company entered into a Credit Agreement among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lender(s) party thereto from time to time, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank. Terms used, but not defined, in this and the following paragraphs of this Note 4 have the meanings set forth in the Credit Agreement (as defined below) or the related Guaranty and Security Agreement. This facility replaced a previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto (which included Wells) and Truist Bank (successor by merger to SunTrust Bank), as administrative agent. The discussion below is a summary and is qualified in its entirety by the actual terms of the Credit Agreement and related documents, including Amendment Nos. 1, 2, 3, and 4, and references below to the “Credit Agreement” include the Credit Agreement, together with such amendments, except in each case where otherwise indicated or the context otherwise requires.

The Credit Agreement, as amended in Amendment No. 4 discussed below, now provides for a senior secured asset-based revolving credit facility of up to $105 million (the “Revolving Credit Facility”) with a $10 million Availability Block that is in effect at all times, which effectively limits the maximum borrowings under the Revolving Credit Facility to $95 million. The Revolving Credit Facility matures on April 29, 2025 and includes a $5.0 million letter of credit sublimit and provides for the issuance of Swingline Loans. The Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the Revolving Credit Facility to an aggregate commitment amount of up to $155 million with optional additional commitments from then existing Lenders or new commitments from additional lenders, although no Lender is obligated to increase its commitment. Availability is determined in accordance with the Borrowing Base, which is generally 85% of Eligible Accounts minus the Dilution Reserve, plus a calculated value of Eligible Inventory aged less than 181 days plus the lesser of an Aged Inventory Cap (currently $2,250,000 and which reduces over time to $2,000,000) and a calculated value of Inventory aged more than 180 days minus a calculated Reserve, as further detailed and set forth in the Credit Agreement.

When the facility was initially established pursuant to the Credit Agreement, Borrowings accrued interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, (i) if the Fixed Charge Coverage Ratio was less than 1.10:1.00, then the LIBOR Rate plus 2.25% or (ii) if the Fixed Charge Coverage Ratio was greater than or equal to 1.10:1.00, then the LIBOR Rate plus 2.00%; (B) if a Base Rate Loan, (i) if the Fixed Charge Coverage Ratio

was less than 1.10:1.00, then the Base Rate plus 1.25% or (ii) if the Fixed Charge Coverage Ratio was greater than or equal to 1.10:1.00, then the Base Rate plus 1.00%.

Pursuant to Amendment No. 4, Borrowings now accrue interest from the applicable borrowing date: (A) if a SOFR Rate Loan, (i) at a per annum rate equal to the SOFR Rate plus a SOFR Adjustment of 10 basis points (to remain pricing neutral for transition from LIBOR to SOFR) plus the SOFR Rate Margin of 2.25% until the later of December 31, 2023 and meeting a Fixed Charge Coverage Ratio for the trailing twelve months of not less than 1.0 to 1.0, and (ii) thereafter, at a per annum rate equal to the SOFR Rate plus a SOFR Adjustment of 10 basis points (to remain pricing neutral for transition from LIBOR to SOFR) plus the SOFR Rate Margin of 1.75% if Excess Availability is greater than 30%, 2.00% if Excess Availability is at least 20% but less than or equal to 30%, and 2.25% if Excess Availability is less than 20% or (B) if a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 1.25% until the later of December 31, 2023 and meeting a Fixed Charge Coverage Ratio for the trailing twelve months of not less than 1.0 to 1.0, and (ii) thereafter, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 0.75% if Excess Availability is greater than 30%, of 1.00% if Excess Availability is at least 20% but less than or equal to 30%, and of 1.25% if Excess Availability is less than 20%. Excess Availability for these purposes is determined without giving effect to the $10 million Availability Block.

The Company was previously required to pay a monthly Unused Line Fee on the average daily unused portion of the Revolving Credit Facility at a per annum rate equal to 0.25%. Pursuant to Amendment No. 4, the Company is now required to pay a monthly Unused Line Fee based on the average quarterly revolver usage, at a per annum rate equal to 0.25% of the unused Revolving Credit Facility if usage is greater than 50%, and 0.50% of the unused Revolving Credit Facility if usage is less than 50%.

The Credit Agreement contains one financial covenant, a 1:1 Fixed Charge Coverage Ratio, which was historically only tested if Excess Availability (generally, borrowing availability less the aggregate of trade payables and book overdrafts, each in excess of historical amounts), without giving effect to the $10 million Availability Block, is less than the greater of (a) 15% of the Maximum Revolver Amount and (b) $15,750,000. Pursuant to Amendment No. 3, as discussed below, the Company was relieved of any Fixed Charge Coverage Ratio testing through calendar year 2022, without regard to the amount of Excess Availability during that period. The covenant has been re-imposed pursuant to Amendment No. 4, however, but only if Excess Availability falls below that described above. In addition, the Credit Agreement contains provisions that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters.

As of December 25, 2022, borrowings under the Revolving Credit Facility totaled $61.6 million and, therefore, the Company had $33.4 million available for borrowing, subject to the Borrowing Base limitation and compliance with the other applicable terms referenced herein, and including the $10 million Availability Block discussed above. The Revolving Credit Facility has no lockbox arrangement associated with it and, therefore the outstanding balance is classified as a long-term liability on the Consolidated Balance Sheet as of December 25, 2022. Accordingly, borrowings from and repayments to the Company’s current line of credit are reflected on a gross basis in the cash flows from financing activities in the Consolidated Statements of Cash Flows.

The Company is required to make certain prepayments under the Revolving Credit Facility under certain circumstances, including from net cash proceeds from certain asset dispositions in excess of certain thresholds.

The Credit Agreement contains representations, warranties and affirmative covenants. The Credit Agreement also contains negative covenants and restrictions on, among other things: (i) Indebtedness, (ii) liens, (iii) fundamental changes, (iv) disposition of assets, (v) restricted payments (including certain restrictions on

redemptions and dividends), (vi) investments and (vii) transactions with affiliates. The Credit Agreement also contains events of default, such as payment defaults, cross-defaults to other material indebtedness, misrepresentations, bankruptcy and insolvency, the occurrence of a Change of Control and the failure to observe the negative covenants and other covenants contained in the Credit Agreement and the other loan documents.

Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under the Credit Agreement and other operating subsidiaries of the Company (collectively, the “Loan Parties”), and Wells, as Administrative Agent, the Obligations, which include the obligations under the Credit Agreement, are guaranteed by the Loan Parties, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’ (including both borrowers and guarantors) Accounts, Books, Chattel Paper, Deposit Accounts, General Intangibles, Inventory, Negotiable Collateral, Supporting Obligations, and all Money, Cash Equivalents or other assets that come into the possession, custody or control of the Agent or any Lender, and certain related assets, and the proceeds and products of any of the foregoing (the “Collateral”). The security interests in the Collateral are in favor of the Administrative Agent, for the benefit of the Lenders party to the Credit Agreement from time to time and any other holders of the Obligations. The Obligations secured also include certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products.

On December 25, 2022, the interest rate applicable to borrowings under the Revolving Credit Facility was 6.67%. The weighted average interest rate on borrowings under the Company’s Revolving Credit Facility for the third quarter of fiscal year 2023 was 6.08%.

Following an Event of Default, the Lenders may at their option increase the applicable per annum rate to a rate equal to two percentage points above the otherwise applicable rate and, with certain events of default, such increase is automatic.

Amendment No. 1

Pursuant to Amendment No. 1 to Credit Agreement dated July 12, 2021 (“Amendment No. 1”), between Tessco and Wells, Wells agreed to a 25-basis point reduction in certain otherwise applicable rates and fees over an agreed period, and the Company and Wells agreed to, among others, certain changes related to the LIBOR rate option to simplify day-to-day management of the Revolving Credit Facility. These terms have since been further amended and, pursuant to Amendment No. 4 (as defined below), these interest rate terms have been superseded, with the methodology for determining the Applicable Margin now as discussed above.

Amendment No. 2

In anticipation of TESSCO Reno Holding, LLC (“Reno Holding”) entering into the Real Estate Note of Reno Holding (the “Note”), as discussed further in Note 5, the Company, TESSCO Inc. and our other operating subsidiaries, and Wells, entered into Amendment No. 2 to Credit Agreement and Consent dated December 29, 2021 (“Amendment No. 2”). Pursuant to Amendment No. 2, and subject to its terms and conditions, among other things, Wells consented to the Note, without requiring that Reno Holding become a borrower or guarantor under the Credit Agreement.

Amendment No. 3

On January 5, 2022, at the Company’s request, the Company and its operating subsidiaries, and Wells, entered into Amendment No. 3 to Credit Agreement and Amendment No. 1 to Guaranty and Security Agreement (“Amendment No. 3”), subject to the terms and conditions of which Wells agreed to increase the Commitment

under the Revolving Credit Facility from $75 million to $80 million. Among the terms and conditions, the Company agreed to revert to the interest rate margins originally provided for under the terms of the Revolving Credit Facility (and which margins had previously been modified pursuant to Amendment No. 1 to Credit Agreement), as well as change to the methodology for determining the Applicable Margin, as discussed above, and agreed to a $10 million Availability Block for calendar year 2022, but was relieved of any Fixed Charge Coverage Ratio testing for the same period without regard to the amount of Excess Availability during that period. Amendment No. 3 further provided that a $15 million Excess Availability requirement would be imposed as of January 1, 2023, unless a Fixed Charge Coverage Ratio of 1:1 is achieved. The Company did not meet the Fixed Charge Covenant Ratio, and as a result, availability under the Revolving Credit Facility for the remainder of calendar 2022 (subject to Amendment No. 4, discussed below) was $70 million after accounting for the Availability Block and was scheduled to reduce to $65 million on January 1, 2023 upon the scheduled expiration of the Availability Block and re-imposition of the Excess Availability requirement, in each case subject to the Borrowing Base limitations and compliance with the other terms.

Amendment No. 4

On December 8, 2022, the Company and Wells entered into Amendment No. 4 to Credit Agreement (“Amendment No. 4”) under which the Commitment under the pre-existing Revolving Credit Facility was increased from $80 million to $105 million, among other things. Amendment No. 4 amended and restated the original Credit Agreement in its entirety. Availability is still determined in accordance with a Borrowing Base formula and, pursuant to the terms of Amendment No. 4, the $10 million Availability Block has been continued beyond calendar year-end 2022, indefinitely. As a result, the outstanding balance cannot exceed $95 million at any time. The maturity date has been extended to April 29, 2025. As discussed above, the 1:1 Fixed Charge Coverage Ratio covenant was re-imposed and is now tested pursuant to Amendment No. 4, but only if Excess Availability falls below the threshold discussed above.

In addition, Amendment No. 4 provided for a change from a LIBOR-based primary rate to one based on SOFR, as well as changes to the methodology for determining the Applicable Margin and the imposition of a $42 million Inventory Cap as a Borrowing Base component. Amendment No. 4 also changed the financial predicates for applicability of the Minimum Fixed Charge Coverage Ratio and Cash Dominion Period, taking into consideration the increase in Commitment. In addition, the Company agreed that in no event will the mortgage on its Hunt Valley, Maryland property be released prior to December 31, 2023, and only if the Fixed Charge Coverage Ratio thereafter is at least 1.10 to 1.00 for six consecutive months and Excess Availability is at least $22.5 million for thirty consecutive days.