Alico, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Long-Term Debt and Lines of Credit

Long-Term Debt and Lines of Credit

12 Months Ended

Sep. 30, 2019

The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization at September 30, 2019 and September 30, 2018:



	September 30, 2019				September 30, 2018
(in thousands)	Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net

Long-term debt, net of current portion:
Met Fixed-Rate Term Loans	$	89,688	$	724	$	95,938	$	836
Met Variable-Rate Term Loans	43,844		334		46,719		385
Met Citree Term Loan	4,750		40		4,925		44
Pru Loans A & B	16,257		224		17,417		241
Pru Loan E	4,455		9		4,675		17
Pru Loan F	4,455		38		4,675		40
	163,449		1,369		174,349		1,563
Less current portion	5,338		—		5,275		—
Long-term debt	$	158,111	$	1,369	$	169,074	$	1,563

The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization at September 30, 2019 and September 30, 2018:



	September 30, 2019				September 30, 2018
(in thousands)	Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net

Lines of Credit:
RLOC	$	—	$	8	$	—	$	58
WCLC	—		—		2,685		78
Lines of Credit	$	—	$	8	$	2,685	$	136

Future maturities of long-term debt as of September 30, 2019 are as follows:



(in thousands)

Due within one year	$	5,338
Due between one and two years	14,990
Due between two and three years	10,755
Due between three and four years	10,755
Due between four and five years	10,755
Due beyond five years	110,856

Total future maturities	$	163,449

Interest costs expensed and capitalized were as follows:



(in thousands)	Fiscal Year Ended September 30,
	2019		2018		2017
Interest expense	$	7,180	$	8,561	$	9,141
Interest capitalized	1,019		933		294
Total	$	8,199	$	9,494	$	9,435

Debt

The Company's credit facilities consist of $125,000,000 in fixed interest rate term loans (“Met Fixed-Rate Term Loans”), $57,500,000 in variable interest rate term loans (“Met Variable-Rate Term Loans”), 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 real property. The security for the term loans and RLOC consists of approximately 38,200 gross acres of citrus groves and 5,800 gross acres of Ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.

The term loans, collectively, are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The Met Fixed-Rate Term Loans bear interest at 4.15% per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to 90 day LIBOR plus 165 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by Met beginning May 1, 2017 and is subject to further adjustment every two years thereafter until maturity. No adjustment was made at May 1, 2019. Interest on the term loans is payable quarterly. The interest rates on the Met Variable-Rate Term Loans were 3.91% per annum and 3.99% per annum as of September 30, 2019 and September 30, 2018, respectively.

The Company may prepay up to $8,750,000 of the Met Fixed-Rate Term Loan principal annually without penalty, and any such prepayments may be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment was made for calendar year 2015. During the first and second quarter of fiscal year 2018, the Company elected not to make its principal payment and utilized a portion of its 2015 prepayment to satisfy its principal payment requirements for such quarters. At September 30, 2019, the Company had $5,625,000 remaining available from its 2015 prepayment to reduce future mandatory principal payments should the Company elect to do so. The Met Variable-Rate Term Loans may be prepaid without penalty.

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 165 basis points, payable quarterly. The LIBOR spread was adjusted by the lender on May 1, 2017 and is subject to further adjustment every two years thereafter. No adjustment was made at May 1, 2019. In October 2019, the RLOC agreement was modified to extend the current maturity of November 1, 2019 to November 1, 2029. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit. The RLOC is available for funding general corporate needs. The variable interest rate was 3.91% and 3.99% per annum as of September 30, 2019 and September 30, 2018, respectively. Availability under the RLOC was $25,000,000 as of September 30, 2019.

The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate on the WCLC is based on the one month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's 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 variable interest rate was 3.85% and 3.85% per annum as of September 30, 2019 and September 30, 2018, respectively. The WCLC agreement was amended on September 20, 2018, and the primary terms of the amendment were an extension of the maturity to November 1, 2021. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately $69,540,000 and $57,015,000 as of September 30, 2019 and September 30, 2018, respectively.

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 Alico's debt service coverage ratio for the preceding quarter and can vary from a minimum of 20 basis points to a maximum of 30 basis points. Commitment fees to date have been charged at 20 basis points.

There were no amounts outstanding on the WCLC at September 30, 2019. The WCLC agreement provides for Rabo to issue up to $2,000,000, reduced from $20,000,000 during fiscal year 2019, in letters of credit on the Company’s behalf. As of September 30, 2019, there was approximately $460,000 in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.

In 2014, the Company capitalized approximately $2,834,000 of debt financing costs related to the refinancing. These costs, together with approximately $339,000 of costs related to the retired debt, are being amortized to interest expense over the applicable terms of the loans. Additionally, approximately $133,000 and $123,000 of financing costs were incurred for the fiscal year ended September 30, 2019 and 2018, respectively, in connection with letters of credit. The costs incurred during fiscal year 2019 are included in other noncurrent assets and will be moved to deferred financing and amortized to interest expense over the applicable terms of the obligations upon completion of the modified agreements, which was in October 2019. All previous costs are included in deferred financing and being amortized to interest expense over the applicable terms of the obligations. The unamortized balance of deferred financing costs related to the financing above was approximately $1,066,000 and approximately $1,357,000 at September 30, 2019 and September 30, 2018, respectively.

These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of 1.10 to 1.00, (ii) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding years, or approximately $163,522,000 for the year ended September 30, 2019, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of September 30, 2019, the Company was in compliance with all of the financial covenants.

Credit facilities also include a Met Life term loan collateralized by 1,200 gross acres of citrus grove owned by Citree ("Met Citree Loan"). This is a $5,000,000 credit facility that bears interest at a fixed rate of 5.28% per annum. Principal and interest payments are made on a quarterly basis. At September 30, 2019 and 2018, there was an outstanding balance of $4,750,000 and $4,925,000, respectively. The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately $40,000 and $44,000 at September 30, 2019 and 2018, respectively.

Transition from LIBOR

The Company is currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates. Currently, the Company has debt instruments in place that reference LIBOR-based rates. The transition from LIBOR is estimated to take place in 2021 and management will continue to actively assess the related opportunities and risks involved in this transition.

Silver Nip Citrus Debt

There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum (“Pru Loans A & B”). Principal of $290,000 is payable quarterly, together with accrued interest. On February 15, 2015, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip Citrus”) made a prepayment of $750,000. In addition, the Company made prepayments of approximately $4,453,000 in the second fiscal quarter of 2018 with proceeds from the sale of certain properties, which were collateralized under these loans. The Company may prepay up to $5,000,000 of principal without penalty. As such, the Company exceeded the allowed $5,000,000 prepayment by approximately $203,000 and was required to make a premium payment of approximately $22,000. The loans are collateralized by approximately 5,700 of citrus groves in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, 2033, respectively.

Silver Nip Citrus entered into two additional fixed-rate term loans with Prudential to finance the acquisition of a 1,500 acre citrus grove on September 4, 2014. Each loan was in the original amount of $5,500,000. Principal of $55,000 per loan is payable quarterly, together with accrued interest. One loan bears interest at 3.85% per annum (“Pru Loan E”), while the other bears interest at 3.45% per annum (“Pru Loan F”). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. No adjustment was made at September 1, 2019. Both loans are collateralized by approximately 1,500 gross acres of citrus groves in Charlotte County, Florida. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.

In November 2019, the Company prepaid one of its fixed-rate term loans with Prudential in full in the amount of $4,455,000. As a result of this prepayment, the Company’s required annual principal payments will be reduced by $220,000 per annum.

The Silver Nip Citrus credit agreements are subject to a financial covenant whereby the consolidated current ratio requirement is 1.00 to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of September 30, 2019.

The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately $271,000 and $298,000 at September 30, 2019 and 2018, respectively.