TopBuild Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt

Long-Term Debt

6 Months Ended

Jun. 30, 2017

4. LONG-TERM DEBT

On May 5, 2017, we and the Guarantors entered into a New Credit Agreement with the Lenders. All obligations under the New Credit Agreement are guaranteed by the Guarantors, and all obligations under the New Credit Agreement, including the guarantees of those obligations, are secured by substantially all of the assets of us and the Guarantors.

Interest payable on borrowings under the New Credit Agreement is based on an applicable margin rate plus, at our option, either:

A base rate determined by reference to the highest of either (i) the federal funds rate plus 0.50 percent, (ii) Bank of America’s “prime rate,” or (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

A LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowings.

The applicable margin rate is determined based on our Total Leverage Ratio. In the case of base rate borrowings, the applicable margin rate ranges from 0.00 percent to 1.50 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent.

We are required to pay commitment fees to the Lenders in respect of any unutilized commitments. The commitment fees range from 0.15 percent to 0.275 percent per annum, depending on our Total Leverage Ratio. We must also pay customary fees on outstanding letters of credit.

We used a portion of the proceeds from the term loan under the New Credit Agreement to repay all amounts outstanding under the Old Credit Agreement. The remaining proceeds may be used to fund our 2017 Repurchase program, to make additional acquisitions, or for general operating purposes. Upon executing the New Credit Agreement, we terminated the Old Credit Agreement and all associated agreements and instruments.

In conjunction with the New Credit Agreement, we recognized a loss on extinguishment of debt of $1.1 million for the three and six months ended June 30, 2017, which is reflected under the caption, “Loss on extinguishment of debt” in our Condensed Consolidated Statements of Operations. The following table outlines the key terms of our New Credit Agreement compared to the Old Credit Agreement, dollars in thousands:


	New Credit Agreement			Old Credit Agreement
Senior secured term loan facility (original borrowing) (a)	$	250,000		$	200,000
Additional term loan capacity under delayed draw feature (b)	$	100,000		$	—

Additional term loan and/or revolver capacity available under incremental facility (c)	$	200,000		$	100,000

Revolving Facility	$	250,000		$	125,000
Sublimit for issuance of letters of credit under Revolving Facility (d)	$	100,000		$	100,000
Sublimit for swingline loans under Revolving Facility (d)	$	20,000		$	15,000

Interest rate as of June 30, 2017		2.596	%		N/A
Scheduled maturity date (e)		5/05/2022			6/30/2020

(a)

The New Credit Agreement provides for a term loan limit of $350.0 million; $250.0 million was drawn on May 5, 2017.

(b)

We can access $100.0 million through a delayed draw term loan on the New Credit Agreement until May 5, 2018. We have not determined the timing or amounts of our delayed draws, if any.

(c)

Additional borrowing capacity is available under the incremental facility, subject to certain terms and conditions (including existing or new lenders providing commitments in respect of such additional borrowing capacity).

(d)

Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

(e)

The scheduled maturity date of the Old Credit Agreement is shown for information only as the Old Credit Agreement has been fully repaid and terminated.

Borrowings under the New Credit Agreement are prepayable at the Company’s option without premium or penalty. The Company is required to make prepayments with the net cash proceeds of certain asset sales and certain extraordinary receipts.

The following table sets forth our remaining principal payments for our outstanding term loan balance as of June 30, 2017, in thousands:


	Future Principal
	Payments
Schedule of Debt Maturity by Years:
2017	$	6,250
2018		12,500
2019		15,625
2020		18,750
2021		21,875
2022		175,000
Total principal maturities	$	250,000

The following table reconciles the principal balance of our long-term debt to our Condensed Consolidated Balance Sheets, in thousands:


	As of
	June 30,		December 31,
	2017		2016
Current portion of long-term debt	$	12,500	$	20,000
Long-term portion of long-term debt		237,500		160,000
Unamortized debt issuance costs		(2,078)		(1,200)
Long-term debt	$	247,922	$	178,800

The Company has outstanding standby letters of credit that secure our financial obligations related to our workers’ compensation, general insurance, and auto liability programs. These standby letters of credit reduce the availability under the Revolving Facility. The following table summarizes our availability under the Revolving Facility, in thousands:


	As of
	June 30,		December 31,
	2017		2016
Revolving Facility	$	250,000	$	125,000
Less: standby letters of credit		(49,080)		(49,080)
Capacity under Revolving Facility	$	200,920	$	75,920

The New Credit Agreement contains certain covenants that limit, among other things, the ability of the Company to incur additional indebtedness or liens; to make certain investments or loans; to make certain restricted payments; to enter into consolidations, mergers, sales of material assets, and other fundamental changes; to transact with affiliates; to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends; or to make certain accounting changes. The New Credit Agreement contains customary affirmative covenants and events of default.

The New Credit Agreement requires us to maintain a Net Leverage Ratio and minimum FCCR throughout the term of the agreement. The following table sets forth the maximum Net Leverage Ratios and minimum FCCR:


Quarter Ending	Maximum Net Leverage Ratio	Minimum FCCR
September 30, 2017	3.50:1.00	1.25:1.00
December 31, 2017 through September 30, 2018	3.25:1.00	1.25:1.00
December 31, 2018 and each quarter thereafter	3.00:1.00	1.25:1.00

The following table outlines the key financial covenants effective for the period covered by this report:


	As of
	June 30,	December 31,
	2017	2016 (a)
Maximum Net Leverage Ratio	3.50:1.00	3.00:1.00
Minimum FCCR	1.25:1.00	1.10:1.00
Compliance as of period end	In Compliance	In Compliance

(a)

Financial ratios as of December 31, 2016 were subject to the Old Credit Agreement