Invacare 2014 Annual Report Download - page 54

I-50
stock, acquisitions, transactions with affiliates, and capital expenditures. There also were financial covenants that required the
Company to maintain a maximum leverage ratio (consolidated funded indebtedness to consolidated EBITDA, each as defined in
the Amended and Restated Credit Agreement, as amended) and a minimum interest coverage ratio (consolidated EBITDA to
consolidated interest charges, each as defined in the Amended and Restated Credit Agreement, as amended). The Company
incurred $351,000 in fees in the first quarter of 2014 which were capitalized and are being amortized through October, 2015. In
addition, as a result of reducing the capacity of the facility from $250,000,000 to $100,000,000 in the Amended and Restated
Credit Agreement, the Company wrote-off $1,070,000 in previously capitalized fees in the first quarter of 2014, which was reflected
in the expense of the North America / HME segment.
On September 30, 2014, the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the
"Amendment") which provided the Company with additional flexibility on its financial covenants through the duration of the
Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement, as amended by the Amendment, among
other things, provided for the following:
• An increase in the maximum leverage ratio for the first three quarters of 2014 and a ratio of 3.50 to 1.00 as of
December 31, 2014. The quarterly minimum interest coverage ratio remained 3.5 to 1.00 in the Amended and Restated
Credit Agreement.
• In calculating the Company’s EBITDA for purposes of determining the leverage and interest coverage ratios, the
Amended and Restated Credit Agreement allowed the Company to add back to EBITDA up to $20,000,000 for one-
time cash restructuring charges incurred after May 30, 2013, which was an incremental increase of $5,000,000 from
the terms of the Company's prior credit agreement. The Amendment on September 30, 2014 allowed for an additional
add back to EBITDA for warranty expense accrued up to $10,000,000 and subtraction of related cash payments when
made in future periods.
• A decrease in the aggregate principal amount of the revolving credit facility to $100,000,000 from $250,000,000
through the maturity date of the facility in October 2015, as well as reductions in the facility’s swing line loan,
optional currency and foreign-borrower sublimits.
• Reductions in the allowances under the facility for capital expenditures (down to $25,000,000 annually), dividends,
other indebtedness and liens.
• An increase of 25 basis points in the margin applicable to determining the interest rate on borrowings under the
revolving credit facility.
The Amended and Restated Credit Agreement also provided for the issuance of swing line loans with borrowings under the
Credit Agreement bearing interest, at the Company's election, at (i) the London Inter-Bank Offer Rate (“LIBOR”) plus a margin;
or (ii) a Base Rate Option plus a margin. The applicable margin, as of December 31, 2014, was 2.00% per annum for LIBOR loans
and 1.00% for the Base Rate Option loans based on the Company's leverage ratio. In addition to interest, the Company was required
to pay commitment fees on the unused portion of the Credit Agreement. The commitment fee rate, as of December 31, 2014, was
0.30% per annum. Like the interest rate spreads, the commitment fee was subject to adjustment based on the Company's leverage
ratio. As of December 31, 2014, the obligations of the borrowers under the Credit Agreement were secured by substantially all of
the Company's U.S. assets and were guaranteed by substantially all of the Company's material domestic and foreign subsidiaries.
As of December 31, 2014, the Company's leverage ratio was 1.59 and the Company's interest coverage ratio was 7.02
compared to a leverage ratio of 2.30 and an interest coverage ratio of 7.51 as of December 31, 2013. The December 31, 2014
leverage ratio reflects a net positive adjustment to adjusted EBITDA (as defined in the Amended and Restated Credit Agreement)
of $8,228,000 as permitted under the provision of the Amendment allowing for the add back of warranty expense accruals up to
$10,000,000 and the subtraction of related cash payments when paid. This net positive adjustment was comprised of warranty
expense of $9,256,000 offset by cash payments of $1,028,000 related to the three specific product issues accrued for in the third
quarter of 2014. As of December 31, 2014, the Company was in compliance with all covenant requirements and, under the most
restrictive covenant of the Amended and Restated Credit Agreement, the Company had the capacity to borrow up to an additional
$35,303,000.
On January 16, 2015, the Company entered into a Revolving Credit and Security Agreement (the “New Credit Agreement”).
The proceeds of the New Credit Agreement were used to repay approximately $17,000,000 in aggregate principal amount of
borrowings and terminate the Amended and Restated Credit Agreement, which was scheduled to mature in October 2015. As
determined pursuant to the borrowing base formula, the Company’s initial aggregate borrowing base as of January 15, 2015 under
the Credit Facility of the New Credit Agreement was approximately $76,000,000, with aggregate borrowing availability of
approximately $57,000,000, taking into account the $10,000,000 minimum availability reserve, then outstanding letters of credit