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

Quarterly report pursuant to Section 13 or 15(d)

DEBT

DEBT

6 Months Ended

Sep. 30, 2017

Our debt consisted of the following (in thousands):



	As of
	September 30, 2017			March 31, 2017
Convertible subordinated debt:
4.50% convertible subordinated notes	$	57,090		$	63,090
Unamortized debt issuance costs	(56		)	(263		)
Convertible subordinated debt, net of unamortized debt issuance costs	$	57,034		$	62,827



	As of
	September 30, 2017			March 31, 2017
Long-term debt:
Revolving credit agreement	$	23,525		$	18,500
Term loan agreement	50,000			50,000
Unamortized discount and debt issuance costs	(2,894		)	(3,472		)
Long-term debt, net of unamortized discount and debt issuance costs	$	70,631		$	65,028

Convertible Subordinated Debt

In the third quarter of fiscal 2013, we issued $70 million aggregate principal amount of 4.50% convertible subordinated notes (4.50% Notes) due November 15, 2017. These notes are convertible into shares of our common stock until November 14, 2017 at the option of the holders at a conversion rate of 75.896 shares per $1,000 principal amount, a conversion price of approximately $13.20 per share. The 4.50% notes require semi-annual interest payments paid on May 15 and November 15 of each year and have no early call provisions.

In the second quarter of fiscal 2018, we entered into private transactions with note holders to purchase an aggregate principal amount of $6.0 million of the 4.50% notes for $6.0 million of cash. In connection with these transactions, we recorded a loss on debt extinguishment of less than $0.1 million, which included a write-off of unamortized debt issuance costs related to the purchased notes.

Long-term Debt

Our 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”).

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 due to 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. As of September 30, 2017, our excess availability under the revolving credit agreement was $19.8 million.

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 one 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. 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 September 30, 2017, we had a $23.5 million outstanding balance on the revolving credit agreement at an interest rate of 5.39%.

Term loan agreement

The term loan agreement provides for a $50 million secured term loan which was drawn fully at the time we entered into the credit facility and $20 million of a senior secured delay draw term loan (“DDTL”). Borrowings under the DDTL are restricted to be used only to redeem our 4.50% convertible subordinated notes due November 15, 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.

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 September 30, 2017, our interest rate on the term loan was 8.74%.

The revolving credit agreement and the term loan agreement are collateralized by a pledge of substantially all of our assets and

contain certain financial covenants and customary events of default for such securities. Financial covenants include a 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 September 30, 2017, the Company was in violation of financial covenants applicable to the credit facility and, as a result, was in default under the terms of the related agreements. As further discussed in Note 12, on November 6, 2017, the Company and the lenders amended the terms of the credit facility agreements in order to, among other things, retroactively and prospectively modify the applicable financial covenants and, as a result, the covenant violations existing as of September 30, 2017 were cured. The amended credit facility agreements contains customary conditions to borrowings, events of default, restrictions, and positive and negative covenants, as more fully described in Note 12. Management’s current projections indicate, and management considers it probable, that the Company will be in compliance with covenants applicable under the amended credit facility, and be able to meet its obligations as they become due, for more than twelve months from the date these financial statements were filed. In the event the Company is unable to meet its projected results of operations, it may violate applicable covenants and result in a default under the revised credit facility agreements, which could adversely impact the Company’s ability to meet its obligations as they come due.

Debt Maturities

A summary of the scheduled maturities of principal for our outstanding debt as of September 30, 2017 is as follows (in thousands):



	Debt Maturity Due by Period
	Less than 1 Year		1 Year		2 Years		3 Years		4 Years		More than 5 Years		Total
4.50% convertible subordinated notes	$	57,090	$	—	$	—	$	—	$	—	$	—	$	57,090

Long-term debt:
Revolving credit agreement	—		—		—		—		23,525		—		23,525
Term loan agreement	1,875		2,500		2,500		2,500		40,625		—		50,000
Total long-term debt	$	1,875	$	2,500	$	2,500	$	2,500	$	64,150	$	—	$	73,525

Total debt	$	58,965	$	2,500	$	2,500	$	2,500	$	64,150	$	—	$	130,615