|6 Months Ended|
Sep. 30, 2018
|Debt Disclosure [Abstract]|
A summary of debt is as follows (amounts in thousands):
(1) Amounts shown are net of discount, bank issuance costs and other indirect issuance costs of $12.8 million and $13.3 million as of September 30, 2018 and March 31, 2018, respectively which reduce the Term Loan Credit Agreement (as defined herein) balance.
(2) Amount shown is net of discount of $0.1 million at September 30, 2018.
(3) Amounts are shown net of discounts of $0.4 million and $0.5 million at September 30, 2018 and March 31, 2018, respectively.
The line item “Interest expense” on the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2018 and 2017, consists of the following (amounts in thousands):
Term Loan Credit Agreement
On April 28, 2017, the Company entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among the Company, KEC (together with the Company, the “Borrowers”), Bank of America, N.A. as the Administrative Agent and Collateral Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and bookrunner and various other lenders thereto from time to time.
The Term Loan Credit Agreement provides for a $345.0 million term loan facility. In addition, the Borrowers may request incremental term loan commitments in an aggregate amount not to exceed $50.0 million (together with the initial $345.0 million term loan, the “Term Loans”). The proceeds were used, together with cash on hand, to fund the redemption of all of KEMET’s outstanding 10.5% Senior Notes, which were called for redemption on April 28, 2017. The Term Loans were issued at a price of 97.0% (with an original issue discount of 300 basis points). At the Company’s election, the Term Loans may be made as either Base Rate Term Loans or LIBO Rate Term Loans (each as defined in the Term Loan Credit Agreement). The applicable margin for Term Loans is 5.0% for Base Rate Term Loans and 6.0% for LIBO Rate Term Loans. All LIBO Rate Term Loans are subject to a pre-margin floor of 1.0%. The Term Loan Credit Agreement contains customary covenants and events of default.
The Company also entered into the Term Loan Security Agreement dated as of April 28, 2017 (the “Security Agreement”), by and among the Company, KEC and certain other subsidiaries of the Company and Bank of America, N.A., as collateral agent, pursuant to which the Company’s obligations under the Term Loan Credit Agreement are secured by a pledge of 65% of the outstanding voting stock of certain first-tier subsidiaries organized in Italy, Japan, Mexico and Singapore, and a second lien pledge on the collateral securing KEMET’s revolving credit facility. The obligations of the Company under the Term Loan Credit Agreement are guaranteed by certain of its subsidiaries, including KRC Trade Corporation, KEMET Services Corporation, KEMET Blue Powder Corporation and The Forest Electric Company. The Term Loans mature April 28, 2024, and may be extended in accordance with the Term Loan Credit Agreement. The Company may prepay loans under the Term Loan Credit Agreement at any time, subject to certain notice requirements and certain prepayment premiums during the first two years. On a quarterly basis, the Company must repay 1.25% of the aggregate principal amount on the initial $345.0 million term loan, or $4.3 million; payments began on September 29, 2017.
The Company currently pays interest on the Term Loan Credit Agreement on a monthly basis due to favorable LIBO rates, and as such, had only two days and three days of interest payable related to the Term Loan Credit Agreement included in the line item “Accrued expenses” on the Condensed Consolidated Balance Sheets as of September 30, 2018 and March 31, 2018, respectively. Interest payable related to the Term Loan Credit Agreement was $0.1 million and $0.2 million as of September 30, 2018 and March 31, 2018, respectively.
Revolving Line of Credit
In connection with the closing of the Term Loan Credit Agreement, KEC also entered into Amendment No. 9 to Loan and Security Agreement, Waiver and Consent, dated as of April 28, 2017, by and among KEC, the other borrowers named therein, the financial institutions party thereto as lenders and Bank of America, N.A., as agent for the lenders (the “Loan Amendment”), which amended the Loan and Security Agreement dated as of September 30, 2010 by and among KEC, the other borrowers named therein, the financial institutions party thereto as lenders and Bank of America, N.A. as agent for the lenders (the “Loan Agreement”). The Loan Amendment increases the facility amount to $75.0 million and provides KEC with lower applicable interest rate margins and the ability to complete the refinancing. As part of the overall refinancing, KEC also repaid all amounts outstanding under the Loan Agreement.
As of September 30, 2018, there were no borrowings under the revolving line of credit, and the Company’s available borrowing capacity, which is based on factors including outstanding eligible accounts receivable, inventory and equipment collateral, under the Loan Agreement was $75.0 million.
In September 2018, the Company entered into an agreement with a customer (the “Customer”) pursuant to which the Customer agreed to make advances to the Company in amounts up to $36.0 million (the “Advance”). The Company will use the Advance to fund the purchase of production equipment and to make other investments and improvements in its business and operations (the “Investment”) in order to increase overall capacity to produce various electronic components of the type and part as may be sold by the Company to the Customer from time to time. The Company retains all rights to the production equipment purchased with the funds from the Advance. The Advance from the Customer will be made in quarterly installments (an “Installment”) over an expected period of 18 to 24 months starting in September 2018, with the amount of each Installment based on the costs and expenses that have been incurred, or are reasonably expected to be incurred or committed to be incurred, by the Company in connection with the Investment during the quarter applicable to such Installment.
The Advance will be repaid beginning on the date that production from the Investment is sufficient to meet the Company's obligations under the agreement with the Customer. Repayments will be made on a quarterly basis as determined by a calculation that generally takes into account the number of components purchased by the Customer during the quarter. Repayments based on the calculation will continue until either the Advance is repaid in full, or December 31, 2038. The Company is not required to make any quarterly repayment in an amount that exceeds $0.9 million. If the Customer does not purchase a number of components that would require full repayment of the Advance by December 31, 2038, then the Advance shall be deemed repaid in full. Additionally, if the Customer does not purchase a number of components that would require a payment on the Advance for a period of 16 consecutive quarters, the Advance shall be deemed repaid in full.
An initial advance payment of $0.5 million was paid by the Customer to the Company on September 7, 2018. Since the debt is non-interest bearing, we have recorded a debt discount in the amount of $0.1 million. This discount will be amortized over the expected life of the Advance through interest expense.
In January 2017, KEMET’s wholly-owned subsidiary, KEMET Electronics Portugal, S.A., received the first part of an interest free loan from the Portuguese Government in the amount of EUR 2.2 million (or $2.5 million) to be used for fixed asset purchases. In July 2017, KEMET Electronics Portugal, S.A. received the second part of the loan in the amount of EUR 0.3 million (or $0.3 million). The loan has a total term of eight years ending February 1, 2025. The loan will be repaid through semi-annual payments beginning on August 1, 2019. The first payment will be in the amount of EUR 0.2 million (or $0.2 million) beginning on August 1, 2019 and the remaining payments will be in the amount of EUR 0.2 million (or $0.2 million). Since the debt is non-interest bearing, the Company has recorded a debt discount in the amount of EUR 0.6 million (or $0.7 million) with an offsetting reduction to fixed assets. This discount will be amortized over the life of the loan through interest expense. If certain conditions are met, such as increased headcount, increased revenue, and increased gross value added, a portion of the loan could be forgiven during fiscal year 2020.
In September 2017, TOKIN received a short term borrowing pursuant to an agreement with The 77 Bank Limited, located in Japan, in the amount of 350.0 million Yen (or $3.2 million). The interest rate for the borrowing is the Japanese Tokyo Interbank Offered Rate (“TIBOR”) plus 40 basis points. The loan was originally due in September 2018 and was extended to September 2019. The loan agreement automatically renews annually if both parties choose not to terminate or modify it.
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://www.xbrl.org/2003/role/presentationRef