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

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

3 Months Ended

Mar. 31, 2019

Long-term debt consisted of the following (in thousands):



	March 31,			December 31,
	2019			2018
Bank credit facility - term loan	$	78,300		$	80,800
Bank credit facility - revolver loans	198,848			81,934
Principal amount of long-term debt	277,148			162,734
Less debt issuance costs	(2,001		)	(2,135		)
Total long-term debt	275,147			160,599
Less current portion	(9,466		)	(9,466		)
Long-term debt, net of current portion	$	265,681		$	151,133

We have a loan agreement with a group of banks to provide working capital, letters of credit and acquisition financing. The loan agreement, which was amended in January 2018 and expires in January 2023, has a term loan facility and a revolving loan facility. The revolving loan facility provides for revolving loans and letters of credit. Financing costs associated with the loan agreement amendment of approximately $1.5 million were capitalized and are being amortized over the five-year life of the loan. The fair value of outstanding debt as of March 31, 2019 under our bank loan facilities approximates its carrying value using Level 2 inputs based on market data on companies with a corporate rating similar to ours that have recently priced credit facilities.

Our required term loan payments after March 31, 2019 are as follows (in thousands):



2019	$	7,500
2020	11,875
2021	14,375
2022	15,000
2023	29,550
Total	$	78,300

The maximum amount of credit available to us under the loan agreement for revolving loans and letters of credit as of March 31, 2019 was $300 million. Subject to the terms of the loan agreement, we may borrow and repay the revolving loan borrowings as our cash flows require or permit. We pay an unused commitment fee and fees on letters of credit that are issued. We had no letters of credit outstanding as of March 31, 2019 and $57 thousand in letters of credit outstanding as of December 31, 2018.

Under the loan agreement we may elect to increase the maximum availability of the term loan facility, the revolving loan facility, or both facilities, up to an aggregate additional amount of $100 million.

We pay interest on the term loan borrowings and revolving loan borrowings at LIBOR plus a base margin or at a base rate (typically the prime rate) plus a base margin. As of March 31, 2019, the LIBOR base margin was 1.75% and the base rate base margin was 0.50%. The base margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases, respectively.

The loan agreement requires us to have interest rate hedges on a portion of the outstanding term loan for the first three years after the January 2018 amendment date of the agreement. We executed interest rate swap agreements in February 2019 and February 2018. The notional amount of the interest rate swap agreements was $125 million and $50 million as of March 31, 2019 and December 31, 2018, respectively.

After taking into account the impact of interest rate swap agreements, as of March 31, 2019, interest rates on portions of our outstanding debt ranged from 4.23% to 6.00%, and the effective interest rate on our aggregate outstanding debt was 4.41%.

Interest expense incurred on bank loan borrowings and interest rate hedges was approximately $2.9 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively.

The loan agreement contains collateral requirements to secure our loan agreement obligations, restrictive covenants, a limit on annual dividends, and other affirmative and negative covenants, conditions, and limitations. Restrictive covenants include a maximum Total Funded Debt/EBITDA Ratio, which decreases over time, and a minimum Fixed Charge Coverage Ratio. We were in compliance with required ratios and other terms and conditions at March 31, 2019.