LONG-TERM DEBT, SUBSEQUENT EVENT AND COMMON STOCK WARRANT LIABILITY |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LONG-TERM DEBT, SUBSEQUENT EVENT AND COMMON STOCK WARRANT LIABILITY |
LONG-TERM DEBT, SUBSEQUENT EVENT AND COMMON STOCK WARRANT LIABILITY
Long-Term Debt
Debt Refinancing. On February 2, 2018, the Company refinanced its existing outstanding First Lien Credit Facility and Second Lien Credit Facility (together, the "First Lien and Second Lien Credit Facilities") with the closing of $100 million of new senior secured notes due 2024 (the "Notes"). Accordingly, a portion of the previously expected current maturities under the First Lien and Second Lien Credit Facilities are reflected as long-term as of December 31, 2017. The current portion of long-term debt at that date reflects expected payments on the Notes during 2018.
Proceeds from the Notes offering were used to fully repay the First Lien and Second Lien Credit Facilities (including a 2% prepayment premium related to the Second Lien Credit Facility) and to fund other refinancing costs.
The Notes include a 2% original issue discount, quarterly interest payments at the greater of LIBOR or 1%, plus a margin rate of 700 basis points (increasing to 750 basis points under certain circumstances, as defined) and quarterly principal payments of $0.25 million. The Company is also required to redeem the Notes with any excess cash flow, as calculated annually and defined in the Notes, beginning with its annual results for the 2018 fiscal year. Management believes that no additional principal payments will be required during 2018 due to its capital expenditures, which reduce the excess cash flow, as defined.
The Notes are collateralized by substantially all of the Company's assets and guarantees by all of our subsidiaries. The Notes also contain representations and warranties, customary events of default, and positive, negative and financial covenants, including that the Company maintain compliance with a maximum total leverage ratio, which measures EBITDA against outstanding indebtedness (as defined). Mandatory prepayments of the Notes will be required upon the occurrence of certain events, including sales of certain assets.
The Company may redeem the Notes, in whole or in part, at any time at the applicable redemption price plus accrued and unpaid interest.
Prior Credit Facilities. On May 13, 2016, we entered into an amended and restated First Lien Credit Facility which included a First Term Loan of $45 million and Revolving Loan of $2 million, and an amended and restated Second Lien Credit Facility which included a term loan facility increase from $20 million to $55 million, of which the additional proceeds of $35 million were used primarily to complete our acquisition of Bronco Billy's.
The First Lien Credit Facility was due to mature in May 2019 and included quarterly principal payments as defined and interest based on the greater of the elected LIBOR (as defined) or 1.0%, plus a margin rate of 4.25%. The Second Lien Credit Facility was due to mature in November 2019 with all principal due at maturity, included interest at 13.5% and had a prepayment premium of 2% as of December 31, 2017.
The First Lien and Second Lien Credit Facilities contained customary representations and warranties, events of default, and positive and negative covenants, including limits on capital expenditures and the maintenance of specified financial covenants including a total leverage ratio, a first lien leverage ratio, and a fixed-charge coverage ratio. We were in compliance with our covenants as of December 31, 2017.
Long-term debt, related discounts and issuance costs consisted of the following:
Maturities of Long-Term Debt. Future maturities under the First Lien and Second Lien Credit Facilities ("Prior Facilities") and Notes follow (in thousands):
Common Stock Warrant Liability
As part of the Second Lien Credit Facility, on May 13, 2016, the Company granted the second lien lenders 1,006,568 warrants, representing 5% of the outstanding common equity of the Company at that time, as determined on a fully-diluted basis. The warrants have an exercise price of $1.67 (the average trading price of the Company's common stock during a 60-day period bracketing the completion of the financing) and expire on May 13, 2026. The warrants also provide the warrant holders with redemption rights, pre-emptive rights under certain circumstances to maintain their 5% ownership interest in the Company, piggyback registration rights and mandatory registration rights after two years. The redemption rights allow the warrant holders, at their option, to require the Company to repurchase all or a portion of all of the warrants in the event of: (i) the maturity of the Second Lien Credit Facility, (ii) an acceleration pursuant to the Second Lien Credit Facility, (iii) a refinancing, repayment or other transaction decreasing the aggregate principal amount of the Second Lien Facility debt outstanding as of May 13, 2016 by more than 50%, (iv) a liquidity event, as defined, or (v) the Company's insolvency. The repurchase value is the 21-day average price of the Company's stock at the time of the event, as defined, net of the warrant exercise price. If the redemption rights are exercised, the repurchase amount is payable by the Company in cash or through the issuance of an unsecured note with a four-year term and a minimum interest rate of 13.25%, as further defined. Although unsecured, the note would be guaranteed by the Company's subsidiaries. Alternatively, the second lien lenders may choose to have the Company register and sell the shares related to the warrants through a public stock offering.
The refinancing of the Second Lien Credit Facility on February 2, 2018 qualifies as a triggering event to require the Company to repurchase all or a portion of the warrants if elected by the warrant holders. At the refinance date and subsequently, the warrant holders did not exercise these redemption rights, although they continue to maintain these rights through the expiration of the warrants.
We measure the fair value of the warrants at each reporting period. The fair value at issuance of the warrants was $0.6 million, which was recorded as: (i) a liability due to the redemption feature, and (ii) a resulting discount to the Second Lien Credit Facility. The discount is amortized to interest expense during the term of the Second Lien Credit Facility which is 3.5 years. The Company recognized $1.4 million of expense during 2017, and $0.5 million of expense from May 13, 2016 to December 31, 2016 due to a change in the fair value of the warrants, which was reflected as part of "other" non-operating expense on the consolidated statements of operations.
Due to the variable terms regarding the timing of the settlement of the warrants, the Company utilized a "Monte Carlo" simulation approach, a mathematical technique used to model the probability of different outcomes, to measure the fair value of the warrants. At December 31, 2017, the simulation included the Company's stock price and the following assumptions: an expected contractual term of 3.84 years, an expected stock price volatility rate of 47.55%, an expected dividend yield of 0%, and an expected risk-free interest rate of 2.1%. The simulation included certain estimates by Company management regarding the estimated timing of the settlement of the warrants. Significant increases or decreases in those management estimates would result in a significantly higher or lower fair value measurement. The Company also utilized the Monte Carlo simulation approach for its valuation at December 31, 2016, which included the following assumptions: an expected contractual term of 3.38 years, an expected stock price volatility rate of 47.68%, an expected dividend yield of 0%, and an expected risk-free interest rate of 1.68%.
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