Debt and Interest Rate Swap |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt and Interest Rate Swap | Debt and Interest Rate Swap Debt
The carrying amount of the Company’s long-term debt consists of the following:
As of September 30, 2021 and December 31, 2020, the weighted average effective interest rate on aggregate debt was approximately 3.1% and 4.4%, respectively.
During each of the three months ended September 30, 2021 and 2020, the Company recognized total amortization of debt discount and debt issuance costs of $0.2 million and $0.5 million, respectively, to interest expense. During each of the nine months ended September 30, 2021 and 2020, the Company recognized total amortization of debt discount and debt issuance costs of $1.2 million and $1.0 million, respectively, to interest expense.
The approximate aggregate fair value of the term loans outstanding as of September 30, 2021 and December 31, 2020 was $330.7 million and $376.1 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy.
As of September 30, 2021, aggregate future payments of principal are as follows:
Initial Term Loan and Revolving Facility under June 23, 2021 Credit Agreement
On June 23, 2021, the Company entered into a Credit Agreement (the “June 23, 2021 Credit Agreement”), by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million and a senior secured revolving credit facility, or the “Revolving Facility,” in an aggregate principal amount of up to $100.0 million. The proceeds of the Initial Term Loan under the
June 23, 2021 Credit Agreement were used (i) to repay in full all outstanding indebtedness under that certain Credit Agreement dated May 12, 2017, by and among the Company, MUFG Bank Ltd., as administrative agent and MUFG Union Bank, N.A., as collateral agent and the lenders from time to time party thereto (as amended by Amendment No. 1, dated July 31, 2020 and as further amended, amended and restated, waived, supplemented or otherwise modified from time to time, the “May 12, 2017 Credit Agreement”) and (ii) to pay fees and expenses incurred in connection therewith. The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries. As of September 30, 2021, the Revolving Facility was undrawn.
The June 23, 2021 Credit Agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of consolidated EBITDA, plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the June 23, 2021 Credit Agreement or new lenders.
Under the June 23, 2021 Credit Agreement, the Initial Term Loan bears interest, at the Company’s option, at a per annum rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25% or (ii) an adjusted LIBOR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%. Loans under the Revolving Facility initially bear interest, at a per annum rate equal to either (i) a base rate (as calculated above) plus an applicable margin of 0.00%, or (ii) an adjusted LIBOR rate (as calculated above) plus an applicable margin of 1.00%. Following delivery of financial statements for the Company’s fiscal quarter ending June 30, 2021, the applicable margin for loans under the Revolving Facility will range from 0.00% to 0.75% in the case of base rate loans and 1.00% to 1.75% in the case of LIBOR rate loans, in each case, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. The Company is required to pay commitment fees ranging from 0.175% to 0.25% per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement, with the balance payable on the maturity date. The June 23, 2021 Credit Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.
The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the June 23, 2021 Credit Agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the June 23, 2021 Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months following the closing date of the June 23, 2021 Credit Agreement. The Initial Term Loan under the June 23, 2021 Credit Agreement will mature on June 23, 2028, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan under the June 23, 2021 Credit Agreement must be repaid. The Revolving Facility will mature on June 23, 2026, at which time all outstanding principal and accrued and unpaid interest under the Revolving Facility must be repaid. The Company is also obligated to pay fees customary for a credit facility of this size and type.
The Company’s obligations under the June 23, 2021 Credit Agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the June 23, 2021 Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a Security Agreement, dated as of June 23, 2021, by and among the Company, the subsidiary guarantors from time to time party thereto, and Wells Fargo Bank, National Association, as collateral agent.
The June 23, 2021 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions set forth in the June 23, 2021 Credit Agreement. The Revolving Facility also prohibits the Company from having a secured net leverage ratio in excess of 3.50:1.00 (subject to a temporary increase to 3.75:1.00 following the consummation of certain material permitted acquisitions) as of the last day of any fiscal quarter of the Company (commencing with the fiscal quarter ending September 30, 2021) if the aggregate borrowings under the Revolving Facility exceed 1% of the aggregate commitments thereunder (subject to certain exceptions set forth in the June 23, 2021 Credit Agreement) as of such date. As of September 30, 2021, the Company was in compliance with such covenants. The June 23, 2021 Credit Agreement
also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the June 23, 2021 Credit Agreement and may exercise certain other rights and remedies provided for under the June 23, 2021 Credit Agreement, the other loan documents and applicable law.
The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $350.2 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.4%, which represents a Level 2 fair value measurement. The debt discount of $0.9 million and debt issuance costs of $2.9 million associated with the Initial Term Loan under the June 23, 2021 Credit Agreement are being amortized to interest expense using the effective interest method over its seven-year term. Debt issuance costs of $0.4 million associated with the Revolving Facility are being amortized to interest expense over its five-year term.
Initial Term Loan under May 12, 2017 Credit Agreement
On May 12, 2017, the Company entered into the May 12, 2017 Credit Agreement in connection with the acquisition of Exar Corporation. The May 12, 2017 Credit Agreement provided for an initial secured term B loan facility, or the “Initial Term Loan under the May 12, 2017 Credit Agreement,” in an aggregate principal amount of $425.0 million. The May 12, 2017 Credit Agreement permitted the Company to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to $160.0 million, plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans were subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders.
Loans under the May 12, 2017 Credit Agreement bore interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a - - or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75%, in each case, plus an applicable margin of 2.50% in the case of LIBOR rate loans and 1.50% in the case of base rate loans. Commencing on September 30, 2017, the Initial Term Loan under the May 12, 2017 Credit Agreement amortized in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the May 12, 2017 Credit Agreement, with the balance payable on the maturity date. The Initial Term Loan under the May 12, 2017 Credit Agreement had a term of seven years and was scheduled to mature on May 12, 2024, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan under the May 12, 2017 Credit Agreement was due.
The Company was required to make mandatory prepayments of the outstanding principal amount of term loans under the May 12, 2017 Credit Agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company had the right to prepay its term loans under the May 12, 2017 Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months of the loan term. On June 23, 2021, the Company exercised its right to prepay the Initial Term Loan under the May 12, 2017 Credit Agreement and repaid the outstanding principal amount of the Initial Term Loan under the May 12, 2017 Credit Agreement, plus accrued and unpaid interest in full with the proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement.
Incremental Term Loan under May 12, 2017 Credit Agreement, As Amended
In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, the Company entered into an incremental term loan agreement with certain lenders that amended the May 12, 2017 Credit Agreement and provided for a secured incremental term loan facility in an aggregate principal amount of $350.0 million (the “Incremental Term Loan”).
The Incremental Term Loan bore interest, at the Company’s option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25% per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25% per annum.
Commencing on July 31, 2020, the Incremental Term Loan amortized in quarterly installments of principal equal to (i) 1.25% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the first through fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the
ninth through the eleventh full fiscal quarters of the Company after July 31, 2020. The Incremental Term Loan had a term of three years and was scheduled to mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the Incremental Term Loan was due. On June 23, 2021, the Company exercised its right to prepay the Incremental Term Loan and repaid the outstanding principal amount of the Incremental Term Loan, plus accrued and unpaid interest in full with the proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement.
In connection with the settlement of the indebtedness under the May 12, 2017 Credit Agreement, in the nine months ended September 30, 2021, the Company recognized an aggregate loss on debt extinguishment of $5.2 million consisting of unamortized debt issuance costs and discounts.
Interest Rate Swap In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its initial term loan for fixed interest payments bearing an interest rate of 1.74685% through the expiration of the swap in October 2020. The Company’s then outstanding initial term loan was still subject to a 2.5% fixed applicable margin during the term of the loan. The interest rate swap was designated as a cash flow hedge of a portion of floating rate interest payments on the initial term loan and effectively fixed the interest rate on a substantial portion of the Company’s then outstanding long-term debt at approximately 4.25% until the expiration of the swap in October 2020. Accordingly, the Company applied cash flow hedge accounting to the interest rate swap and it was recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, were reported in other comprehensive income (loss) until expiration of the swap. The increase in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and nine months ended September 30, 2020 was $0.1 million and $0.03 million.
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