SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. 42 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Debt Following is a summary of our outstanding balances and availability on credit facilities and long-term debt, exclusive of capital lease obligations (in thousands): Outstanding as of 8/31/2017 Remaining Availability Bank secured revolving credit facilities (1) $ 140,000 $ 197,040 Other debt obligations $ 706 N/A _____________________________ (1) Remaining availability is net of $10 million of outstanding stand-by letters of credit as of August 31, 2017. Our senior secured revolving credit facilities, which provide for revolving loans of $335 million and C$15 million, mature inApril 2021 pursuant to a credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto. Interest rates on outstanding indebtedness under the agreement are based, at our option, on either the London Interbank Offered Rate ("LIBOR"), or the Canadian equivalent, plus a spread of between 1.75% and 2.75%, with the amount of the spread based on a pricing grid tied to the Company’s leverage ratio, or the greater of (a) the prime rate, (b) the federal funds rate plus 0.50%, or (c) the daily rate equal to one-month LIBOR plus 1.75%, in each case plus a spread of between zero and 1.00% based on a pricing grid tied to the Company's leverage ratio. In addition, commitment fees are payable on the unused portion of the credit facilities at rates between 0.20% and 0.40% based on a pricing grid tied to our leverage ratio. We had borrowings outstanding under the credit facilities of $140 million and $180 million as of August 31, 2017 and 2016, respectively. The weighted average interest rate on amounts outstanding under this facility was 3.48% and 3.01% as of August 31, 2017 and 2016, respectively. We use the credit facilities to fundworking capital, capital expenditures, dividends, share repurchases, investments and acquisitions. The credit agreement contains various representations andwarranties, events of default and financial and other customary covenants which limit (subject to certain exceptions) our ability to, among other things, incur or suffer to exist certain liens, make investments, incur or guaranty additional indebtedness, enter into consolidations, mergers, acquisitions, and sales of assets, make distributions and other restricted payments, change the nature of our business, engage in transactions with affiliates and enter into restrictive agreements, including agreements that restrict the ability of our subsidiaries to make distributions. The financial covenants under the credit agreement include (a) a consolidated fixed charge coverage ratio, defined as the four-quarter rolling sum of consolidated adjusted EBITDAless defined maintenance capital expenditures divided by consolidated fixed charges; (b) a consolidated leverage ratio, defined as consolidated funded indebtedness divided by the sum of consolidated net worth and consolidated funded indebtedness; and (c) a consolidated asset coverage ratio, defined as the consolidated asset value of eligible assets divided by the consolidated funded indebtedness. As of August 31, 2017, we were in compliance with the financial covenants under the credit agreement. The consolidated fixed charge coverage ratio was required to be no less than 1.50 to 1.00 and was 3.16 to 1.00 as of August 31, 2017. The consolidated leverage ratio was required to be no more than 0.55 to 1.00 and was 0.22 to 1.00 as of August 31, 2017. The asset coverage ratio was required to be no less than 1.00 to 1.00 and was 1.80 to 1.00 as of August 31, 2017. The Company's obligations under the credit agreement are guaranteed by substantially all of our subsidiaries. The credit facilities and the related guarantees are secured by senior first priority liens on certain of our and our subsidiaries’assets, including equipment, inventory and accounts receivable. While we expect to remain in compliance with the financial covenants under the credit agreement, there can be no assurances that we will be able to do so in the event market conditions or other negative factors which adversely impact our results of operations and financial position lead to a trend of consolidated net losses. If we do not maintain compliance with our financial covenants and are unable to obtain an amendment or waiver from our lenders, a breach of a financial covenant would constitute an event of default and allow the lenders to exercise remedies under the agreements, the most severe of which is the termination of the credit facility under our committed bank credit agreement and acceleration of the amounts owed under the agreement. In such case, we would be required to evaluate available alternatives and take appropriate steps to obtain alternative funds. There can be no assurances that any such alternative funds, if sought, could be obtained or, if obtained, would be adequate or on acceptable terms. As of August 31, 2016, we had $8 million of tax-exempt economic development revenue bonds outstanding with the State of Oregon and scheduled to mature in January 2021. In August 2016, we exercised our option to redeem the bonds prior to maturity. We repaid the bonds in full in September 2016. The obligation is reported as a current liability within short-term borrowings as of August 31, 2016 on the Consolidated Balance Sheet, and the $8 million repayment is reported as a cash outflow from financing activities for the year ended August 31, 2017 on the Consolidated Statement of Cash Flows.