Quantum Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DEBT

DEBT

9 Months Ended

Dec. 31, 2016

Our debt consisted of the following (in thousands):



	As of
	December 31, 2016			March 31, 2016
Convertible subordinated debt, current:
4.50% convertible subordinated notes	$	64,590		$	70,000
Unamortized debt issuance costs	(371		)	(747		)
Convertible subordinated debt, current, net of unamortized debt issuance costs	$	64,219		$	69,253



	As of
	December 31, 2016			March 31, 2016
Long-term debt, current:
Credit agreement with Wells Fargo	$	—		$	3,000

Long-term debt:
Credit agreement with Wells Fargo	$	—		$	62,709
Revolving credit agreement	26,000			—
Term loan agreement	50,000			—
Unamortized discount and debt issuance costs	(3,761		)	—
Long-term debt, net of unamortized discount and debt issuance costs	$	72,239		$	62,709

Long-term Debt

On October 21, 2016 (“closing date”), we refinanced our credit agreement with Wells Fargo (as amended, the “WF credit agreement”) through the use of proceeds obtained from our term loan and revolving credit facility (“credit facility”). The credit facility includes a revolving credit and security agreement entered into with PNC Bank, National Association (“revolving credit agreement”) and a term loan credit and security agreement entered into with TCW Asset Management Company LLC (“term loan agreement”). In connection with the refinance, we recorded a loss on debt extinguishment of $0.1 million comprised of unamortized debt issuance costs related to the WF credit agreement.

On the closing date, we borrowed $50.0 million under the term loan agreement and $26.0 million under the revolving credit agreement. These borrowings were used to i) pay $60.3 million of the outstanding balance on the WF credit agreement and accrued interest, ii) fund $10.0 million towards a portion of a $20.0 million restricted reserve requirement under the revolving credit agreement with the remaining portion of the requirement funded with cash on hand, iii) pay $4.7 million of transaction fees and other expenses and iv) pay a $1.0 million refundable deposit to Wells Fargo to hold during the transfer of our existing letters of credit to the new credit facility. Transaction fees and other expenses incurred under the credit facility included $3.1 million of debt issuance costs, $1.0 million of debt discount and $0.6 million of loan commitment fees. The $20.0 million restricted reserve requirement is presented as restricted cash, long-term within the Condensed Consolidated Balance Sheets as of December 31, 2016.

Revolving credit agreement

Under the revolving credit agreement, we have the ability to borrow the lesser of $80 million or the amount of the monthly borrowing base, which is reduced by $1.0 million of the outstanding letters of credit. Our borrowing base is established monthly based on certain working capital asset balances. The revolving credit agreement also includes an uncommitted accordion in an amount up to $20 million. The revolving credit agreement matures on October 21, 2021.

Of the $4.7 million of transaction fees and other expenses, as discussed above, $1.9 million of debt issuance costs and $0.6 million of loan commitment fees were attributable to the revolving credit agreement. During the third quarter of fiscal 2017, debt issuance costs related to our revolving credit agreement were recorded as a reduction of its carrying amount to the extent outstanding borrowings are greater than the related unamortized fees and are amortized to interest expense over the term of the related agreement using the effective interest method. Loan commitment fees paid related to future borrowing capacity were recorded as an asset and are amortized ratably over the term of the revolving credit agreement.

Borrowings under the revolving credit agreement bear interest at a rate per annum equal to, at our option, either (a) the greatest of (i) the base rate, (ii) the Federal funds rate plus 0.50% and (iii) the LIBOR rate based upon an interest period of 1 month plus 1.0%, plus an applicable margin of 1.50%, or (b) the LIBOR rate plus an applicable margin of 2.50%. The base rate is defined in the revolving credit agreement. Additionally, we are required to pay a 0.375% commitment fee on undrawn amounts under the revolving credit agreement on a quarterly basis, which is recorded as interest expense in the period incurred. As of December 31, 2016, we had a $26.0 million outstanding balance on the line of credit at an interest rate of 3.31%.

Term loan agreement

The term loan agreement provides for $50 million of a senior secured term loan drawn on the closing date and $20 million of a senior secured delay draw term loan (“DDTL”). Borrowings under the DDTL are restricted to only be used to redeem our 4.50% convertible subordinated notes due November 15, 2017 (“4.50% notes”) and are available through December 31, 2017. The term loan agreement matures on October 21, 2021. The amount outstanding under the term loan is to be repaid on a quarterly basis in an amount equal to 1.25% of the original principal amount beginning on March 31, 2018, with any remaining principal balance due on the maturity of the term loan.

Of the $4.7 million of transaction fees and other expenses, as discussed above, $1.2 million of debt issuance costs and $1.0 million of debt discount were attributable to the term loan agreement. These fees were recorded as a reduction to the carrying amount of outstanding borrowings under the term loan agreement and amortized to interest expense over the term of the borrowing using the effective interest method.

Borrowings under the term loan agreement bear interest at a rate per annum equal to, at our option, either (a) the greatest of (i) 3.00%, (ii) the Federal funds rate plus 0.50%, (iii) the LIBOR rate based upon an interest period of 1 month plus 1.0% and (iv) the “prime rate” last quoted by the Wall Street Journal, plus a margin ranging from 6.00% to 7.25% based on the applicable senior net leverage ratio, or (b) the LIBOR rate plus 7.00% to 8.25% based on the applicable senior net leverage ratio. The senior net leverage ratio is defined in the term loan agreement. As of December 31, 2016, our interest rate on the term loan was 8.50%.

The term loan agreement and the revolving credit agreement contain customary affirmative and negative covenants, events of default and financial covenants including fixed charge coverage ratio, senior net leverage ratio and total leverage ratio. Additionally, the revolving credit agreement includes minimum liquidity requirements. There is a blanket lien on all of our assets under the revolving credit agreement and term loan agreement. As of December 31, 2016, and during the first nine months of fiscal 2017, we were in compliance with all covenants.

Convertible Subordinated Debt

In November 2016, we entered into private transactions with note holders to purchase an aggregate principal amount of $5.4 million of the 4.50% notes for $5.3 million of cash. In connection with these transactions, we recorded a gain on debt extinguishment of $0.1 million, which included a write-off of unamortized debt issuance costs related to the purchased notes.

Debt Maturities

A summary of the scheduled maturities for our principal outstanding debt as of December 31, 2016 follows (in thousands):



	Debt Maturity Due by Period
	Less than One Year		One Year		Two Years		Three Years		Four Years		More than Five years		Total
4.50% convertible subordinated notes	$	64,590	$	—	$	—	$	—	$	—	$	—	$	64,590

Long-term debt:
Revolving credit agreement	—		—		—		—		26,000		—		26,000
Term loan agreement	—		2,500		2,500		2,500		42,500		—		50,000
Total long-term debt	$	—	$	2,500	$	2,500	$	2,500	$	68,500	$	—	$	76,000