8. Long-Term Debt

Long-term debt consists of the following:

 

		December 31,				January 2,
		2016				2016
		(in thousands)
Term loan payable with a payment of $0.675 million due quarterly. A lump sum payment of $253.8 million is due on February 15, 2022. Interest is payable quarterly at LIBOR or the prime plus an applicable margin. At December 31, 2016, the average rate is 1.00% plus a margin of 5.75%. (1)		$	263,975			$	—
Term loan payable with a payment of $0.5 million due quarterly. A lump sum payment of $186.0 million was due on September 22, 2021. Interest was payable quarterly at LIBOR or the prime plus an applicable margin. At January 2, 2016, the average rate was 1.00% plus a margin of 4.25%.			—				197,500
Fees, costs and original issue discount (2)			(16,102	)			(6,733	)
			247,873				190,767
Less current portion of long-term debt			—				(1,949	)
Long-term debt, less current portion		$	247,873			$	188,818

 

(1)

Effective on February 17, 2017, the Company amended and repriced this term loan. Terms of the repriced facility include a one percentage-point reduction in stated interest rate to LIBOR of 1.00% plus a margin of 4.75%. The amended term loan facility has quarterly payments of principal of $0.675 million, with a lump sum payment of $253.8 million due February 15, 2022, each of which remained unchanged from the prior facility (See Note 20.).

(2)	Fees, costs and original issue discount – represents third-party fees, lender fees, other debt-related costs, and original issue discount, recorded as a reduction of the carrying value of the debt pursuant to ASU 2015-03, and is amortized over the life of the debt instrument.

2016 Credit Agreement

See Note 20, “Subsequent Event” for information regarding an amendment to the term loan facility of the 2016 Credit Agreement, which resulted in a one percentage-point reduction in the stated interest rate for borrowings under this facility. All other significant terms, restrictions, and financial and other covenants under the 2016 Credit Agreement remain unchanged.

On February 16, 2016, we entered into the 2016 Credit Agreement, among us, the lending institutions identified in the 2016 Credit Agreement, and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent. The 2016 Credit Agreement establishes new senior secured credit facilities in an aggregate amount of $310.0 million, consisting of a $270.0 million Term B term loan facility maturing in February 2022 that will amortize on a basis of 1% annually during the six-year term, and a $40.0 million revolving credit facility maturing in February 2021 that includes a swing line facility and a letter of credit facility. Our obligations under the 2016 Credit Agreement are secured by substantially all of our assets as well as our direct and indirect subsidiaries’ assets. As of December 31, 2016, there were $0.3 million of letters of credit outstanding and $39.7 million available on the revolver.

Interest on all loans under the 2016 Credit Agreement is payable either quarterly or at the expiration of any LIBOR interest period applicable thereto. Borrowings under the term loans and the revolving credit facility accrue interest at a rate equal to, at our option, LIBOR (with a floor of 100 basis points in respect of the term loan), or a base rate (with a floor of 200 basis points in respect of the term loan) plus an applicable margin. The applicable margin was 575 basis points in the case of LIBOR and 475 basis points in the case of the base rate. However, subsequent to the repricing amendment as discussed in “Subsequent Event”, these rates have been decreased to 475 basis points in the case of LIBOR and 375 basis points in the case of the base rate. We pay quarterly fees on the unused portion of the revolving credit facility equal to 50 basis points per annum as well as a quarterly letter of credit fee at 575 basis points per annum plus a 12.5 basis point facing fee per annum on the face amount of any outstanding letters of credit.

 

The face value of the 2016 Credit Agreement at the time of issuance was $270 million of which $2.0 million has been repaid as scheduled debt repayments through December 31, 2016. In addition, we made a voluntary prepayment of $4.0 million on September 30, 2016, using internally generated cash on hand. We elected to apply the prepayment against upcoming required principal repayments in direct order of maturity, as permitted under the 2016 Credit Agreement, resulting in no required repayments of principal until the first quarter of 2018. As of December 31, 2016, the face value of debt outstanding under the 2016 Credit Agreement was $264.0 million, and accrued interest was $1.7 million.

The Company incurred third-party fees and costs totaling $1.5 million, and additional lender fees and discount of $14.6 million in the February 2016 refinancing. As a result of the voluntary prepayment of debt discussed above, we accelerated the amortization of lenders fees and discount relating to the term-loan portion of the 2016 Credit Agreement of $0.2 million, which is included in interest expense in the accompanying consolidated statement of operations for the year ended December 31, 2016.

With our adoption of ASU 2015-03, all debt-related fees, costs and original issue discount, including those related to the revolving credit portion of the facility, is classified as a reduction of the carrying value of long-term debt. The activity relating to third-party fees and costs, lender fees and discount for the year ended December 31, 2016, are as follows:

 

(in thousands)		Total
At beginning of year as of January 2, 2016		$	6,733
Amortization expense through refinancing			(128	)
At time of refinancing			6,605
Add: Fees, costs and OID relating to the 2016 Credit Agreement			16,148
Less: Debt extinguishment costs			(3,431	)
Less: Third-party fees and cost classified within SG&A			(627	)
Less: Amortization expense after refinancing			(2,368	)
Less: Accelerated amortization relating to debt prepayment			(225	)
At end of year as of December 31, 2016		$	16,102

Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated, and which reflects the effect on the effective interest rate as a result of the repricing discussed in “Subsequent Event” in this section, as of December 31, 2016, is as follows:

 

(in thousands)		Total
2017		$	2,855
2018			3,036
2019			3,195
2020			3,430
2021			3,185
2022			401
Total		$	16,102

As a result of the voluntary prepayment of $4.0 million as discussed above, our next scheduled repayment is not due until the first quarter of 2018. The contractual future maturities of long-term debt outstanding as of December 31, 2016, are as follows (at face value):

 

(in thousands)		Total
2017		$	—
2018			2,075
2019			2,700
2020			2,700
2021			2,700
2022			253,800
Total		$	263,975

The 2016 Credit Agreement contains a springing financial covenant. If we draw in excess of twenty percent (20%) of the revolving facility, which requires us to maintain a maximum total net leverage ratio (based on the ratio of total debt for borrowed money to EBITDA, each as defined in the 2016 Credit Agreement), and is tested quarterly based on the last four fiscal quarters and is set at levels as described in the 2016 Credit Agreement. As of December 31, 2016, no test is required as we have not exceeded 20% of our revolving capacity.

 

The 2016 Credit Agreement also contains a number of affirmative and restrictive covenants, including limitations on the incurrence of additional debt, liens on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, prepayments of certain debt and transactions with affiliates. The 2016 Credit Agreement also contains customary events of default. Upon the occurrence of an event of default, the amounts outstanding under the 2016 Credit Agreement may be accelerated and may become immediately due and payable.

2014 Credit Agreement

On September 22, 2014, we entered into the 2014 Credit Agreement, among us, the lending institutions identified in the 2014 Credit Agreement, and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent. The 2014 Credit Agreement established new senior secured credit facilities in an aggregate amount of $235.0 million, consisting of a $200.0 million Term B term loan facility that was to mature in seven years and amortize on a basis of 1% annually during the seven-year term, and a $35.0 million revolving credit facility that was to mature in five years that included a swing line facility and a letter of credit facility. Our obligations under the 2014 Credit Agreement were secured by substantially all of our assets as well as our subsidiaries’ assets. In connection with entering into the 2016 Credit Agreement, on February 16, 2016, we terminated the 2014 Credit Agreement.

Interest expense, net consisted of the following:

 

		Year Ended
		December 31,				January 2,				January 3,
		2016				2016				2015
(in thousands)
Long-term debt		$	17,351			$	10,562			$	4,841
Debt fees			296				269				240
Amortization of deferred financing costs and debt discount			2,721				1,014				945
Interest income			(105	)			(70	)			(37	)
Interest expense			20,263				11,775				5,989
Capitalized interest			(138	)			(70	)			(29	)
Interest expense, net		$	20,125			$	11,705			$	5,960