|12 Months Ended|
Sep. 30, 2018
|Debt Disclosure [Abstract]|
The Company maintains various credit facilities from time to time to finance acquisitions, the purchase of real estate, construction equipment, asphalt plants and other fixed assets, and for general working capital purposes. Debt at September 30, 2018 and September 30, 2017 consisted of the following (in thousands):
Compass Credit Agreement
On June 30, 2017, Construction Partners Holdings, Inc. (“Construction Partners Holdings”), the Company’s wholly owned subsidiary, entered into a credit agreement with Compass Bank as agent, sole lead arranger and sole bookrunner (as amended, the “Compass Credit Agreement”), providing for a $50.0 million term loan (the “Compass Term Loan”) and a $30.0 million revolving credit facility (the “Compass Revolving Credit Facility”). The Compass Credit Agreement was used to refinance all existing long-term and short-term debt, as described below. In connection with the Scruggs Acquisition, the Company amended the Compass Credit Agreement on May 15, 2018 and borrowed an additional $22.0 million under the Compass Term Loan to fund a portion of the purchase price as disclosed in Note 5 - Business Acquisitions. The principal amount of the Compass Term Loan, including the additional borrowing, must be paid in quarterly installments of $3.6 million. All amounts borrowed under the Compass Credit Agreement mature on July 1, 2022.
Construction Partners Holdings’ obligations under the Compass Credit Agreement are guaranteed by the Company and all of Construction Partners Holdings’ direct and indirect subsidiaries and are secured by a first priority security interest in substantially all of the Company’s assets.
Under the Compass Credit Agreement, borrowings can be designated as base rate loans or Euro-Dollar Loans. The interest rate on base rate loans fluctuates and is equal to (i) the highest of: (a) the rate of interest in effect for such day as publicly announced from time to time by the Agent as its “prime rate,” (b) the federal funds rate plus 0.50% and (c) the quotient of the London Interbank Offered Rate (“LIBOR”) for deposits in U.S. dollars as obtained from Reuters, Bloomberg or another commercially available source designated by the Agent two Euro-Dollar Business Days (as defined in the Compass Credit Agreement) before the first day of the applicable interest period divided by 1.00 minus the Euro-Dollar Reserve Percentage (as defined in the Compass Credit Agreement) plus 1.0% for a one-month interest period, plus (ii) the applicable rate, which ranges from 2.0% to 2.25%. The interest rate for Euro-Dollar loans fluctuates and is equal to the sum of the applicable rate, which ranges from 2.0% to 2.25%, plus LIBOR for the interest period selected by the Agent. In order to economically hedge against changes in interest rates, on June 30, 2017, the Company entered into an interest rate swap agreement with a notional amount of $25.0 million, under which the Company pays a fixed percentage rate of 2.015% and receives a credit based on the applicable LIBOR rate. In connection with amendments to the Compass Credit Agreement and the additional borrowing on May 15, 2018, the Company entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million additional debt under the Compass Term Loan. Under this additional interest rate swap agreement, the Company pays a fixed percentage rate of 3.01% and receives a credit based on the applicable LIBOR rate. These interest rate swap agreements do not meet the criteria for hedge accounting treatment in accordance with GAAP. At September 30, 2018 and September 30, 2017, the aggregate notional value of these interest rate swap agreements was $28.7 million and $23.8 million, respectively, and the fair value was $0.3 million and $(0.2) million, respectively, which is included within other assets or other liabilities on the Company's Consolidated Balance Sheets.
Construction Partners Holdings must pay a commitment fee of 0.35% per annum on the aggregate unused revolving commitments under the Compass Credit Agreement, as well as fees with respect to any letters of credit issued under the Compass Credit Agreement.
The Compass Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Construction Partners Holdings’ ability to make acquisitions, make loans or advances, make capital expenditures and investments, create or incur indebtedness, create liens, wind up or dissolve, consolidate, merge or liquidate, or sell, transfer or dispose of assets. The Compass Credit Agreement requires Construction Partners Holdings to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.20 to 1.00. The Compass Credit Agreement also requires the Company to maintain a maximum consolidated leverage ratio of 2.00 to 1.00, subject to certain adjustments, as further described in the Compass Credit Agreement. The Compass Credit Agreement includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain changes of control, material money judgments and failure to maintain subsidiary guarantees. The Compass Credit Agreement prevents Construction Partners Holdings from paying dividends or otherwise distributing cash to the Company unless, after giving effect to such dividend, Construction Partners Holdings would be in compliance with the financial covenants and, at the time any such dividend is paid, no default or event of default exists or would result from the payment of such dividend. At September 30, 2018, the Company was in compliance with all covenants under the Compass Credit Agreement.
In connection with the Scruggs Acquisition, the Company assumed $1.1 million of debt, representing loans used to finance equipment purchases and collateralized by the purchased equipment. These loans are reflected as other long-term debt in the table above at September 30, 2018. Assumed debt includes three zero-interest notes payable that were used to finance equipment purchases and are collateralized by the purchased equipment. The aggregate estimated fair value of these zero-interest loans at the acquisition date was $0.4 million, determined in accordance with the methodology described under "Fair Value Measurements" in Note 3 - Significant Accounting Policies, and are scheduled to be repaid via monthly payments with maturity dates between February 2020 and May 2020. The Company also assumed $0.7 million of debt in connection with the Scruggs Acquisition, representing loans used to finance equipment with fixed interest rates ranging from 4.50% - 5.95%. These notes payable require monthly payments and have maturity dates ranging from 2019 through 2023.
CIT Credit Facility (repaid in full and terminated June 30, 2017)
On December 12, 2014, the Company and its wholly owned subsidiaries entered a credit agreement with a consortium of six financial institutions represented by CIT Finance LLC acting as Administrative Agent and Collateral Agent (the “CIT Credit Facility”). The $76.0 million facility consisted of a $49.0 million term loan (the “CIT Term Loan”) and capacity for additional borrowings of $27.0 million to finance future purchases of certain fixed assets. In connection with incurring this debt, the Company recorded $2.3 million in deferred debt issuance costs, which were amortized to interest expense over the original term of the facility. At June 30, 2017, the remaining $0.9 million unamortized balance of deferred debt issuance costs was recorded as a loss on extinguishment of debt upon repayment of the loan in conjunction with the refinancing described above.
The CIT Credit Facility bore interest at an annual rate of 3-month LIBOR plus 3.5% and was subject to certain payment restrictions and a mandatory prepayment provision if the aggregate balance outstanding to any borrower exceeded defined limits. Principal on the CIT Term Loan was payable quarterly at 3.125% of aggregate gross borrowings, with a final payment of the outstanding principal amount on December 12, 2019. On June 30, 2017, the Company repaid all outstanding principal and interest in the amount of $32.0 million and terminated the CIT Credit Facility.
Capitala Term Loan (repaid in full and terminated June 30, 2017)
On December 12, 2014, the Company and certain of its subsidiaries entered into a second lien credit agreement with Capitala Finance Corp., which provided for a $12.5 million interest-only term loan (the “Capitala Term Loan”). In connection with incurring this debt, the Company recorded $1.4 million in deferred debt issuance costs, which were amortized to interest expense over the term of the Capitala Term Loan. At June 30, 2017, the remaining $0.7 million unamortized balance of deferred debt issuance costs was recorded as a loss on extinguishment of debt upon repayment of the loan in conjunction with the refinancing described above.
The Capitala Term Loan bore interest at an annual rate of 11.5%, with 100% of the outstanding principal amount due on June 12, 2020. On June 30, 2017, the Company repaid all outstanding principal and interest in the amount of $12.6 million and terminated the Capitala Term Loan.
Other Debt (repaid in full and terminated June 30, 2017)
During the fiscal year ended September 30, 2017, the Company repaid in full and terminated certain other term loans and revolving credit facilities. These loans were collateralized with the assets financed by the borrowings and included terms that varied for each facility, including interest rates ranging from 3.33% to 11.5% and maturities ranging from December 2016 through June 2020. On June 30, 2017, the Company repaid all outstanding principal and interest under these loans in the amount of $10.1 million, and terminated all related agreements.
The scheduled contractual repayment terms of long-term debt at September 30, 2018 were as follows:
Interest expense was $2.0 million and $4.1 million for the fiscal years ended September 30, 2018 and September 30, 2017, respectively. Amortization of deferred issuance costs and debt discounts included in interest expense was $0.1 million and $0.7 million for the fiscal years ended September 30, 2018 and September 30, 2017, respectively.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef