Annual report pursuant to Section 13 and 15(d)

LONG-TERM DEBT AND LONG-TERM OBLIGATIONS

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LONG-TERM DEBT AND LONG-TERM OBLIGATIONS
12 Months Ended
Dec. 31, 2017
LONG-TERM DEBT AND LONG-TERM OBLIGATIONS [Abstract]  
LONG-TERM DEBT AND LONG-TERM OBLIGATIONS
NOTE 13 - LONG-TERM DEBT AND LONG-TERM OBLIGATIONS

Long-term debt and long-term obligations at December 31 are summarized as follows:

   
2017
   
2016
 
   
(thousands of dollars)
 
  Revolving note to domestic banks (A)
 
$
35,000
   
$
9,000
 
  Term note to domestic banks (B)
   
47,250
     
56,000
 
  Term note to domestic banks (C)
   
17,333
     
19,000
 
  Loan fees
   
(501
)
   
(748
)
                 
     Total long-term debt
   
99,082
     
83,252
 
                 
  Less current portion including loan fees
   
8,061
     
10,145
 
                 
     Total long-term debt, less current portion including loan fees
 
$
91,021
   
$
73,107
 

Loan fees are capitalized and amortized on a straight line basis over the life of the loan, which approximates the effective interest method.  Loan fees of $501,000 and $748,000 net of accumulated amortization are included with long term debt and long term obligations at December 31, 2017 and 2016.  Amortization of loan fees amounted to approximately $247,000, $272,000, and $272,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
 
(A) On October 1, 2014, TOCCO, SHR, GSPL and TC (SHR, GSPL and TC collectively the "Guarantors") entered into an Amended and Restated Credit Agreement ("ARC Agreement") with the lenders which from time to time are parties to the ARC Agreement (collectively, the "Lenders") and Bank of America, N.A., a national banking association, as Administrative Agent for the Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger.
 
On March 28, 2017, we entered into a Second Amendment to the ARC with terms which increased the Maximum Consolidated Leverage Ratio financial covenant of 3.25x to 4.00x at March 31, 2017, and 4.25x at June 30, 2017, before stepping down to 3.75x at September 30, 2017, 3.50x at December 31, 2017, and reverting to the original financial covenant of 3.25x at March 31, 2018.

For Fiscal Quarter Ending
Maximum Consolidated Leverage Ratio
March 31, 2017
4.00 to 1.00
June 30, 2017
4.25 to 1.00
September 30, 2017
3.75 to 1.00
December 31, 2017
3.50 to 1.00
March 31, 2018 and each fiscal quarter thereafter
3.25 to 1.00

The Second Amendment also reduced the Minimum Consolidated Fixed Charge Coverage Ratio of 1.25x to 1.10x at March 31, 2017, 1.05x at June 30, 2017 and September 30, 2017, 1.10x at December 31, 2017, before reverting to the original financial covenant of 1.25x at March 31, 2018.

For Fiscal Quarter Ending
Minimum Consolidated
Fixed Charge Coverage Ratio
March 31, 2017
1.10 to 1.00
June 30, 2017
1.05 to 1.00
September 30, 2017
1.05 to 1.00
December 31, 2017
1.10 to 1.00
March 31, 2018 and each fiscal quarter thereafter
1.25 to 1.00

Also, under the terms of the Second Amendment, two additional levels of pricing were added – levels 4 and 5.

Level
Consolidated Leverage Ratio
LIBOR Margin
Base Rate Margin
Commitment Fee
1
Less than 1.50 to 1.00
2.00%
1.00%
0.25%
2
Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00
2.25%
1.25%
0.25%
3
Greater than or equal to 2.00 to 1.00 but less than 3.00 to 1.00
2.50%
1.50%
0.375%
4
Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.00
2.75%
1.75%
0.375%
5
Greater than or equal to 3.50 to 1.00
3.00%
2.00%
0.375%

On July 25, 2017, Texas Oil & Chemical Co. II, Inc. ("TOCCO"), South Hampton Resources, Inc. ("SHR"), Gulf State Pipe Line Company, Inc. ("GSPL"), and Trecora Chemical, Inc. ("TC") (SHR, GSPL and TC collectively the "Guarantors") entered into a Third Amendment to Amended and Restated Credit Agreement ("3rd Amendment") with the lenders which from time to time are parties to the Amended and Restated Credit  Agreement (collectively, the "Lenders") and Bank of America, N.A., a national banking association, as Administrative Agent for the Lenders.  The Third Amendment increased the Revolving Facility from $40,000,000 to $60,000,000.  There were no other changes to the Revolving Facility.

Subject to the terms and conditions of the ARC Agreement as amended, TOCCO may (a) borrow, repay and re-borrow revolving loans (collectively, the "Revolving Loans") from time to time during the period ending September 30, 2019, up to but not exceeding at any one time outstanding $60.0 million (the "Revolving Loan Commitment") and (b) request up to $5.0 million of letters of credit and $5.0 million of swingline loans.  Each of the issuance of letters of credit and the advance of swingline loans shall be considered usage of the Revolving Loan Commitment.  All outstanding loans under the Revolving Loans must be repaid on October 1, 2019.  As of December 31, 2017, and 2016, TOCCO had long-term outstanding borrowings under the Revolving Loans of $35.0 million and $9.0 million, respectively.  At December 31, 2017, approximately $25.0 million was available to be drawn.

(B)
Under the ARC Agreement, TOCCO also borrowed $70.0 million in a single advance term loan (the "Acquisition Term Loan") to partially finance the Acquisition.  At December 31, 2017, there was a short-term amount of $7.0 million and a long-term amount of $40.3 million outstanding.  At December 31, 2016, there was a short-term amount of $8.8 million and a long-term amount of $47.3 million outstanding.

(C)
Under the ARC Agreement, TOCCO also has the right to borrow $25.0 million in a multiple advance loan (the "Term Loans," together with the Revolving Loans and Acquisition Term Loan, collectively the "Loans").  Borrowing availability under the Term Loans ended on December 31, 2015.  The Term Loans convert from a multiple advance loan to a "mini-perm" loan once TOCCO has fulfilled certain obligations such as certification that construction of D Train was completed in a good and workmanlike manner, receipt of applicable permits and releases from governmental authorities, and receipt of releases of liens from the contractor and each subcontractor and supplier.  The Loans also include a $40.0 million uncommitted increase option (the "Accordion Option").  As of December 31, 2016, TOCCO had borrowed funds under the agreement aggregating $20.0 million with no additional availability remaining.  At December 31, 2017, there was a short-term amount of $1.3 million and a long-term amount of $16.0 million outstanding.  At December 31, 2016, there was a short-term amount of $1.7 million and a long-term amount of $17.3 million outstanding.

All of the Loans under the ARC Agreement will accrue interest at the lower of (i) a London interbank offered rate ("Eurodollar Rate") plus a margin of between 2.00% and 2.50% based on the total leverage ratio of TOCCO and its subsidiaries on a consolidated basis, or (ii) a base rate ("Base Rate") equal to the highest of the federal funds rate plus 0.50%, the rate announced by Bank of America, N.A. as its prime rate, and Eurodollar Rate plus 1.0%, plus a margin of between 1.00% to 1.50% based on the total leverage ratio of TOCCO and its subsidiaries on a consolidated basis.  The Revolving Loans accrue a commitment fee on the unused portion thereof at a rate between 0.25% and 0.375% based on the total leverage ratio of TOCCO and its subsidiaries on a consolidated basis.  Interest on the Revolving Loans is payable quarterly, with principal due and payable at maturity.  Interest on the Acquisition Term Loan is payable quarterly using a ten year commercial style amortization, commencing on December 31, 2014.  The Acquisition Term Loan is also payable as to principal beginning on December 31, 2014, and continuing on the last business day of each March, June, September and December thereafter, each payment in an amount equal to $1,750,000, provided that the final installment on the September 30, 2019, maturity date shall be in an amount equal to the then outstanding unpaid principal balance of the Acquisition Term Loan.  Interest on the Term Loans is payable quarterly using a fifteen year commercial style amortization, with interest only through December 31, 2015, and quarterly principal payments of $333,333 commenced on March 31, 2016.  Interest on the Loans is computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues.  At December 31, 2017, the variable interest rate under the loans was 4.07%.

The Loans may be prepaid in whole or in part without premium or penalty (Eurodollar Rate Loans are prepayable only on the last days of related interest periods or upon payment of any breakage costs) and the lenders' commitments relative thereto reduced or terminated.  Subject to certain exceptions and thresholds, outstanding Loans shall be prepaid by an amount equal to 100% of the net cash proceeds from: (i) all sales, transfers, licenses, lease or other disposition of any property by TOCCO and Guarantors (other than a permitted transfer); (ii) any equity issuance by TOCCO or the Guarantors; (iii) any debt issuance by TOCCO or the Guarantors; or (iv) the receipt of any cash received by TOCCO or the Guarantors not in the ordinary course of business.  Amounts prepaid in connection with the mandatory repayments described above will be applied first, to the principal repayment installments of the Acquisition Term Loan in inverse order of maturity, second, to the principal repayment installments of the Term Loans in inverse order of maturity and, third, to the Revolving Loans in the manner set forth in the Amended and Restated Credit Agreement.
 
All amounts owing under the ARC Agreement and all obligations under the guarantees will be secured in favor of the Lenders by substantially all of the assets of TOCCO and its subsidiaries and guaranteed by its subsidiaries.

The ARC Agreement contains, among other things, customary covenants, including restrictions on the incurrence of additional indebtedness, the granting of additional liens, the making of investments, the disposition of assets and other fundamental changes, the transactions with affiliates and the declaration of dividends and other restricted payments.  The ARC Agreement further includes customary representations and warranties and events of default, and upon occurrence of such events of default the outstanding obligations under the ARC Agreement may be accelerated and become immediately due and payable and the commitment of the Lenders to make loans under the ARC Agreement may be terminated.  TOCCO was in compliance with all covenants at December 31, 2017.

Principal payments of long-term debt for the next two years and thereafter ending December 31 are as follows:
Year Ending December 31,
 
Long-Term Debt
 
   
(thousands of dollars)
 
2018
 
$
8,333
 
2019
   
91,250
 
Total
 
$
99,583