Note 7. Long-Term Debt and Lines of Credit

 

Refinancing on December 3, 2014

The Company refinanced its outstanding debt on December 3, 2014 in connection with the Orange-Co acquisition (see “Note 4” to the accompanying Condensed Combined Consolidated Financial Statements). The debt facilities include $113,125,000 in fixed rate term loans, $56,063,000 in variable rate term loans and a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”) and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

 

The term loans and RLOC are secured by approximately 38,700 gross acres of citrus groves and 14,000 gross acres of farmland. The WCLC is secured by current assets and certain other personal property owned by the Company.

 

The term loans are subject to quarterly principal payments of $2,281,250 and mature November 1, 2029. The fixed rate term loans bear interest at 4.15% per annum, and the variable rate term loans bear interest at a rate equal to 90 day LIBOR plus 150 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and every two years thereafter. Interest on the term loans is payable quarterly.

 

The Company may prepay up to $8,750,000 of the fixed rate term loan principal annually without penalty, and any such prepayments shall be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment has been made for the current fiscal year. The variable rate term loans may be prepaid without penalty.

 

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 150 basis points payable quarterly. The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and every two years thereafter. Outstanding principal, if any, is due at maturity on November 1, 2019. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line. The RLOC is available for funding general corporate needs.

 

The WCLC is a revolving credit facility and is available for funding working capital and general corporate needs. The interest rate on the WCLC is based on the one month LIBOR plus a spread. The spread is adjusted quarterly based on our debt service coverage ratio for the preceding quarter and can vary from 175 to 250 basis points. The rate is currently at LIBOR plus 175 basis points. The WCLC facility matures November 1, 2016.

 

The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on our debt service coverage ratio for the preceding quarter and can vary from 20 to 30 basis points.

 

The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company's behalf. As of June 30, 2015, there was $17,498,500 in outstanding letters of credit which correspondingly reduced our availability under the line of credit.

 

The Company capitalized approximately $2,834,000 of debt financing costs and recognized a loss on extinguishment of debt of approximately $585,000. Deferred financing costs are capitalized and amortized to interest expense over the applicable term of the loan. The capitalized deferred debt financing costs are included in other assets in the Condensed Combined Consolidated Balance Sheet as of June 30, 2015. The loss on extinguishment of debt is included in other income (expense), net in the Condensed Combined Consolidated Statement of Operations and Comprehensive Income for the nine months ended June 30, 2015.

 

The facilities above are subject to various covenants including the following financial covenants: (1) minimum debt service coverage ratio of 1.10 to 1.00, (2) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding year, (3) minimum current ratio of 1.50 to 1.00, (4) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (5) a limit on capital expenditures of $30,000,000 per fiscal year. The Company was in compliance with all covenants as of June 30, 2015.

 

Debt Prior to Refinancing

 

Prior to the December 3, 2014 refinancing, the Company had a $34,000,000 term loan and a $60,000,000 revolving line of credit (“Old RLOC”) with Rabo.

 

The term loan required quarterly payments of interest at a floating rate of one month LIBOR plus 225 basis points and quarterly principal payments of $500,000. The term loan was refinanced in connection with the Orange-Co acquisition.

 

The Old RLOC had an interest rate based on one month LIBOR plus a spread. The spread was determined based upon our debt service coverage ratio for the preceding fiscal year and could vary from 195 to 295 basis points. The rate was LIBOR plus 195 basis points at the date of the refinancing and September 30, 2014. Interest on the Old RLOC was payable quarterly. The Old RLOC was subject to an unused commitment fee of 20 basis points on the annual average unused availability. There was no balance outstanding at the time of the refinancing or September 30, 2014.

 

Debt financing costs incurred as a result of entry into the Rabo credit facility loan agreement, including appraisal fees, document stamps, legal costs and lender fees of approximately $1,202,000 were capitalized in fiscal year ended September 30, 2010 and were being amortized to interest expense over the term of the loan. The unamortized balance of the deferred financing costs at the time of December 3, 2014 refinancing were approximately $697,000 of which approximately $375,000 was written off and expensed as a loss on extinguishment of debt and approximately $301,000 will be amortized over the applicable terms of the new loans.

 

At September 30, 2014, the Company was in compliance with the financial debt covenants and terms of the Rabo loan agreement.

 

 

Silver Nip Citrus Debt

 

Silver Nip Citrus has various loans payable to Prudential Mortgage Capital Company, LLC (“Prudential”) as described below.

 

There are two fixed rate term loans with total outstanding balances of $25,930,000 and $27,550,000 at March 31, 2015 and June 30, 2014, respectively. Principal of $290,000 is payable quarterly. Interest accrues at 5.35% per annum and is also payable quarterly. The Company may prepay up to $5,000,000 of principal without penalty. The loans are secured by real estate in Collier, Hardee, Hendry, Highlands, Martin, Osceola and Polk Counties, Florida.

 

In connection with the purchase of 1,500 acres of citrus grove on September 4, 2014 (see “Note 4” to the Condensed Combined Consolidated Financial Statements) Silver Nip Citrus has a fixed rate term loan with Prudential with an outstanding balance of $5,445,000 as of March 31, 2015 that bears interest at the rate of 3.85% per annum. Principal in the amount of $55,000 is payable quarterly together with accrued interest. The loans are secured by real estate in Charlotte County, Florida.

 

Silver Nip Citrus also has a fixed rate term loan with Prudential with an outstanding balance of $5,445,000 at March 31, 2015 that bears interest at the rate of 3.45% per annum. The rate is subject to adjustment on September 1, 2019 and every five years thereafter until maturity. Principal of $55,000 is payable quarterly together with accrued interest. The loan is secured by real estate in Charlotte County, Florida.

 

Silver Nip Citrus had a $6,000,000 revolving line of credit with Prudential. Outstanding balances were $3,348,000 and $3,160,000 at March 31, 2015 and June 30, 2014, respectively. The interest rate on the line is based on the three month LIBOR rate plus 275 basis points. Interest is payable semi-annually with outstanding principal due at maturity.

 

The Silver Nip Citrus facilities are subject to a financial covenant requiring a current ratio of at least 2.00 to 1.00 measured at the end of each fiscal year. The Company was in compliance with all covenants related to the Silver Nip debt at March 31, 2015 and June 30, 2014.

 

The Silver Nip Citrus facilities are personally guaranteed by George Brokaw, Remy Trafelet and Clayton Wilson.

 

 

Modification of Credit Agreements

 

The Silver Nip Citrus line of credit with Prudential was paid in full and terminated on April 28, 2015. Rabo has agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus up to $7,000,000 on a revolving basis. These advances would be funded from either cash on hand or draws on the Company's WCLC.

 

Silver Nip has provided a $7,000,000 limited guaranty and security agreement granting Rabo a security interest in crops, accounts receivable, inventory and certain other assets.

 

This modification required the amendment of various Prudential and Rabo loan documents and mortgages.

 

Outstanding debt obligations under the Company's various loan agreements is presented in the tables below:

 

 

Debt Maturities

 

Maturities of the Company's outstanding debt as of June 30, 2015 were as follows:

 

 

 

Interest costs expensed and capitalized were as follows: