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, 2020

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



	March 31,			December 31,
	2020			2019
Bank credit facility - term loan	$	102,050		$	120,800
Bank credit facility - revolver loans	174,206			152,000
Principal amount of long-term debt	276,256			272,800
Less debt issuance costs	(2,556		)	(2,789		)
Total long-term debt	273,700			270,011
Less current portion	(17,820		)	(16,883		)
Long-term debt, less current portion	$	255,880		$	253,128

We have a loan agreement with a group of banks to provide working capital support, letters of credit and to finance acquisitions. The loan agreement, which was amended in November 2019 and expires in January 2023, comprises 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, 2020 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, 2020 are as follows (in thousands):



2020	14,062
2021	21,563
2022	22,500
2023	43,925
Total	$	102,050

The maximum amount of credit available under the loan agreement for revolving loans and letters of credit as of March 31, 2020 was $350 million. 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, 2020 and $54 thousand letters of credit outstanding as of December 31, 2019.

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, 2020, the LIBOR base margin was 2.50% and the base rate base margin was 1.25%. The base margins increase or decrease in increments as our Total Funded Debt/EBITDA Ratio increases or decreases.

The loan agreement requires interest rate hedges on a portion of the outstanding term loan until February 6, 2021. We have executed compliant interest rate hedges. The amount of our debt with interest rate swap agreements was $145 million and $125 million as of March 31, 2020 and December 31, 2019, respectively.

After taking into account the impact of interest rate swap agreements, as of March 31, 2020, interest rates on portions of our outstanding debt ranged from 3.11% to 5.31%, and the effective interest rate on our aggregate outstanding debt was 4.06%.

Interest expense incurred on bank loan borrowings and interest rate hedges was approximately $3.4 million and $2.9 million for the three months ended March 31, 2020 and 2019, 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 and a minimum Fixed Charge Coverage Ratio. We were in compliance with required ratios and other terms and conditions as of March 31, 2020.