|9 Months Ended|
Sep. 30, 2019
|Debt Disclosure [Abstract]|
Note 6 – Long-Term Debt
Long-term debt consists of the following (in thousands):
Interest expense for all the Company’s debt arrangements, excluding the loss on early debt extinguishment and the amortization of debt issuance costs, other discounts and fees, was approximately $0.2 million and $0.2 million for the three months ended September 30, 2019 and 2018 and $0.6 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019, the Company had $1.7 million in standby letters of credit outstanding for certain restaurants. As of December 31, 2018, the Company had $1.3 million of cash collateralized letters of credit, which are recorded as a component of security deposits on the consolidated balance sheet as of December 31, 2018.
Bank of America, N.A. Credit Agreement
On May 15, 2019, the Company entered into a Credit Agreement with Bank of America, N.A (“Bank of America Credit Agreement”). The Bank of America Credit Agreement was replaced with the Goldman Sachs Credit Agreement described below on October 4, 2019. The Bank of America Credit Agreement provided for a secured revolving credit facility of $10.0 million and a $10.0 million term loan. The term loan was payable in quarterly installments, with the final payment due in May 2024. The revolving credit facility also matured in May 2024. In conjunction with entering into the Bank of America Credit Agreement, the Company incurred $0.4 million of debt issuance costs, which were capitalized and are recorded as a direct deduction to the long-term debt, net of current portion, on the consolidated balance sheets.
The Bank of America Credit Agreement contained several financial covenants, including (a) a maximum consolidated leverage ratio of (i) 4.75 to 1.00 as of the end of any fiscal quarter ending on or prior to June 30, 2020 and (ii) 4.50 to 1.00 as of the end of any fiscal quarter thereafter and (b) a minimum consolidated fixed charge coverage ratio of 1.35 to 1.00.
The Bank of America Credit Agreement had several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a comparable successor rate) or (b) a base rate equal to the greater of the prime rate, the federal funds rate plus 0.50% or the LIBOR rate for a one-month period plus 1.00%; provided that the base rate may not be less than zero. Loans under the Bank of America Credit Agreement bore interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 2.75% and 3.50% (for LIBOR rate loans) and 1.75% and 2.50% (for base rate loans).
The Bank of America Credit Agreement contained customary representations, warranties and conditions to borrowing including customary affirmative and negative covenants, which include covenants that limit or restrict the Company’s ability to incur indebtedness and other obligations, grant liens to secure obligations, make investments, merge or consolidate, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities of this size and type. As of September 30, 2019, the Company was in compliance with the covenants required by the Bank of America Credit Agreement.
On October 4, 2019, in conjunction with the acquisition of Kona Grill, the Company entered into a Credit and Guaranty Agreement with Goldman Sachs Bank USA (“Goldman Sachs Credit Agreement”), which replaced the Company’s Bank of America Credit Agreement. In the three and nine months ended September 30, 2019, the Company incurred $0.3 million of debt issuance costs related to the Goldman Sachs Credit Agreement, which were capitalized and are recorded as a direct deduction to the long-term debt, net of current portion, on the consolidated balance sheets. Refer to Note 19 – Subsequent Events for additional details regarding the acquisition and related financing.
In conjunction with entering into the Bank of America Credit Agreement on May 15, 2019, the Company prepaid the outstanding debt balances to early extinguish the $2.6 million of outstanding term loans with BankUnited, the $5.3 million of outstanding promissory notes with Anson Investments Master Fund LP, and the $1.0 million outstanding promissory note with 2235570 Ontario Limited. The Company recognized a $0.4 million loss on early debt extinguishment within other expenses, net on the consolidated statements of operations and comprehensive income (loss), primarily caused by the recognition of the unamortized discounts related to warrants issued with the promissory notes and the recognition of unamortized debt issuance costs related to the debt extinguished. Additionally, the Company prepaid the $1.2 million of outstanding cash advances due to the TOG Liquidation Trust, a related party. Please refer to Note 9 for additional details on transactions with related parties.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef