| Debt Financing |
Note 8 —
Debt Financing
Credit Facility — Avidbank
The Company amended
its revolving credit facility with Avidbank pursuant to a Seventh Amendment to Amended and Restated Loan Agreement, dated as of
April 5, 2018. The amended revolving maturity date was April 21, 2020. The facility provided for up to $2.2 million in financing
against eligible receivables and was subject to meeting certain covenants including an asset coverage ratio test for up to twenty
months. The material terms of the amended revolving credit facility were as follows:
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The interest rate for all advances was the then in effect prime rate plus 2.5% and is subject to a minimum interest payment requirement per six-month period of $10,000. |
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Interest was paid monthly in arrears. |
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The loan period was from April 5, 2018 through April 21, 2020 at which time any outstanding advances, and accrued and unpaid interest thereon, would be due and payable. |
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The obligations of Optex Systems, Inc. to Avidbank were secured by a first lien on all of its assets (including intellectual property assets should it have any in the future) in favor of Avidbank. |
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The facility contained customary events of default. Upon the occurrence of an event of default that remained uncured after any applicable cure period, Avidbank’s commitment to make further advances would terminate, and Avidbank would also be entitled to pursue other remedies against Optex Systems, Inc. and the pledged collateral. |
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Pursuant to a guaranty executed by Optex Systems Holdings in favor of Avidbank, Optex Systems Holdings had guaranteed all obligations of Optex Systems, Inc. to Avidbank. |
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On April 21, 2018 and each anniversary thereof for so long as the Revolving Facility was in effect, the Company would pay a facility fee equal to one half of one percent (0.5%) of the Revolving Line. |
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The Company could maintain accounts at third party banks so long as the total in those other bank accounts does not exceed 20% of the total on deposit at Avidbank, and it would remit to Avidbank monthly statements for all of those accounts within 30 days of the end of each month. |
In order to meet the
security requirement under the lease, we entered into a letter of credit with Avidbank on October 17, 2016 in the amount of $250,000,
which expires on October 17, 2019 and is renewable by us for successive one year periods unless the bank notifies us no later than
60 days prior to the end of the initial or any extended term that it shall not renew the letter of credit. Effective as of October
31, 2019 the letter of credit was reduced to $125,000 pursuant to the lease terms.
As of September 29,
2019, the outstanding principal balance on the line of credit was $250 thousand. For the year ended September 29, 2019 the total
interest expense against the outstanding line of credit balance was $23 thousand. On April 16, 2020, the Company terminated its
facility with Avidbank and entered into a new facility with BBVA USA.
Credit Facility
— BBVA, USA
On April 16, 2020,
Optex Systems Holdings, Inc. and its subsidiary, Optex Systems, Inc. (the “Borrower”) entered into a line of credit
facility (the “Facility”) with BBVA, USA (“BBVA”) The substantive terms are as follows:
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The principal amount of the Facility is $2.25 million. The Facility matures on April 15, 2022. The interest rate is variable based on BBVA’s Prime Rate plus a margin of -0.250%, initially set at 3% at loan origination, and all accrued and unpaid interest is payable monthly in arrears starting on May 15, 2020; and the principal amount is due in full with all accrued and unpaid interest and any other fees on April 15, 2022. |
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There are commercially standard covenants including, but not limited to, covenants regarding maintenance of corporate existence, not incurring other indebtedness except trade debt, not changing more than 25% stock ownership of Borrower, and a Fixed Charge Coverage Ratio of 1.25:1, with the Fixed Charge Coverage Ratio defined as (earnings before taxes, amortization, depreciation, amortization and rent expense less cash taxes, distribution, dividends and fair value of warrants) divided by (current maturities on long term debt plus interest expense plus rent expense). As of September 27, 2020, the Company was in compliance with the covenants. |
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The Facility contains commercially standard events of default including, but not limited to, not making payments when due; incurring a judgment of $10,000 or more not covered by insurance; not maintaining collateral and the like. |
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The Facility is secured by a first lien on all of the assets of Borrower. |
The outstanding balance on the BBVA facility
was $377 thousand as of September 27, 2020. For the year ended September 27, 2020, the total interest expense against the outstanding
line of credit balance was $19 thousand.
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