APPFOLIO INCAPPF
APPFOLIO INC Debt Disclosure
Long-term Debt
The following is a summary of our long-term debt at December 31, 2018 (in thousands):
Principal amounts due under term loan | $ | 50,000 | ||
Less: Debt financing costs | (185 | ) | ||
Long-term debt, net of unamortized debt financing costs | 49,815 | |||
Less: Current portion of long-term debt | (1,213 | ) | ||
Total long-term debt, net of current portion | 48,602 | |||
Scheduled principal payments for the Term Loan at December 31, 2018 are as follows (in thousands):
Years Ending December 31, | |||
2019 | 1,250 | ||
2020 | 1,250 | ||
2021 | 2,500 | ||
2022 | 2,500 | ||
2023 | 42,500 | ||
Total principal payments | 50,000 | ||
Credit Agreement
On March 16, 2015, we entered into a credit facility (the “Original Credit Agreement” and as amended, the "Credit Agreement") comprised of a $10.0 million term loan (the “Original Term Loan”), and a $2.5 million revolving line of credit (the "Original Revolving Facility") with Wells Fargo, as administrative agent, and the lenders that are parties thereto ("Wells Fargo"). In March 2015, we borrowed $10.0 million under the Original Term Loan and on July 16, 2015, we made an optional prepayment in full of the Original Term Loan.
First Amendment to Credit Agreement
On October 9, 2015, we entered into Amendment Number One to the Original Credit Agreement (the "First Amendment"), which amended the terms of the Original Credit Agreement with Wells Fargo.
Under the terms of the Credit Agreement, the lenders made available to us a $25.0 million revolving line of credit (the “Revolving Facility”). Subject to customary terms and conditions, we can seek to increase the principal amount of indebtedness available under the First Amendment by up to $10.0 million, in the form of revolving commitments or term loan debt, although the lenders are under no obligation to make additional amounts available to us. Borrowings under the Revolving Facility are subject to the satisfaction of customary conditions.
Under the terms of the First Amendment, borrowings under the Revolving Facility bear interest at a fluctuating rate per annum equal to, at our option, (i) a base rate equal to the highest of (a) the federal funds rate plus 1/2 of 1%, (b) the London Interbank Offered Rate (“LIBOR”) for a one-month interest period plus 1% and (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its prime rate, in each case plus an applicable margin of 1.5%, or (ii) LIBOR for the applicable interest period plus an applicable margin of 2.5%. Interest is due and payable monthly. We are also required to pay a commitment fee equal to 0.25% per annum of the unused portion of the Revolving Facility if revolver usage is above $10.0 million, or 0.375% per annum of the unused portion of the Revolving Facility if revolver usage is less than or equal to $10.0 million.
In conjunction with the First Amendment, during 2015 we incurred and capitalized deferred financing costs of $0.2 million. These additional costs were added to the unamortized debt financing costs from the Original Revolving Facility of $0.1 million, amortized using a straight-line method over the term of the Revolving Facility's commitment and included in interest expense in the Consolidated Statements of Operations.
Second Amendment to Credit Agreement
On December 24, 2018, we entered into Amendment Number Two to the Credit Agreement (the "Second Amendment"), which amended the terms of the Original Credit Agreement, as amended by the First Amendment.
Under the terms of the Second Amendment, the lenders have made available to us a $50.0 million term loan (the "Term Loan") and have increased the existing $25.0 million Revolving Facility to $50.0 million. The maturity date of the Term Loan and Revolving Facility is December 24, 2023. In addition, we are now permitted to make certain restricted junior payments, including without limitation stock repurchases and enter into acquisitions in which we are the purchaser ("Acquisitions"), with no dollar cap on such Acquisitions, so long as we maintain certain specified liquidity requirements and leverage ratios.
The Second Amendment also modifies certain financial covenants by, among other things, requiring us to maintain (i) an EBITDA to interest expense ratio of not less than 3.0 to 1.0, and (ii) a funded indebtedness to EBITDA ratio of not more than 3.5:1.0 (the "Required Leverage Ratio") (decreasing by 0.25 per year until the Required Leverage Ratio is 2.5 to 1.0); provided, however, that we are not required to maintain the foregoing ratios if our liquidity (sum of remaining borrowing capacity and available cash) has equaled or exceeded the greater of $20.0 million and 20% of the sum of the outstanding principal amount of the Term Loan and commitments under the Revolving Facility. If we enter into an Acquisition with a purchase price greater than or equal to $20.0 million, then the Required Leverage Ratio will be increased by 0.5 for the 12-month period immediately following the consummation of such Acquisition.
The Credit Agreement contains customary affirmative, negative and financial covenants. The affirmative covenants require us to, among other things, disclose financial and other information to the lenders, maintain our business and properties, and maintain adequate insurance. The negative covenants restrict us from, among other things, incurring additional indebtedness, prepaying certain types of indebtedness, encumbering or disposing of our assets, making fundamental changes to our corporate structure, and making certain dividends and distributions. At December 31, 2018, we were in compliance with the financial covenants under the Credit Agreement.
Under the terms of the Second Amendment, borrowings under the Credit Agreement will bear interest at a fluctuating rate per annum equal to, at our option, (i) the adjusted London Interbank Offered Rate ("LIBOR") or (ii) an alternate base rate, in each case plus the applicable interest rate margin. Borrowings will initially bear interest at adjusted LIBOR plus 2.0% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 1.0% per annum. After a compliance certificate has been delivered to Wells Fargo by us for the quarter ending December 31, 2018, the interest rate will fluctuate between adjusted LIBOR plus 1.5% per annum and adjusted LIBOR plus 2.0% per annum (or between the alternate base rate plus 0.5% per annum and the alternate base rate plus 1.0% per annum), based upon our leverage ratio.
Fees payable on the unused portion of the Revolving Facility will be 25 basis points per annum, unless the average usage of the Revolving Facility is equal to or less than $30.0 million for the applicable period, in which case the fees on the unused portion of the Revolving Facility will be 0.375% per annum.
At December 31, 2018 and 2017, there was no outstanding balance under the Revolving Facility.
The estimated fair value of the Term Loan approximates its carrying value due to the short period from the date of the Second Amendment, December 24, 2018, to the reporting period, December 31, 2018. We consider the fair value of the Term Loan to be a Level 2 measurement as the Term Loan is not actively traded. We carry the Term Loan at face value less the unamortized discount on our Consolidated Balance Sheet.
As a result of the Second Amendment, we incurred $0.4 million in financing fees that were capitalized and will be amortized over the remaining life of the related debt, $0.2 million of which was related to the Term Loan and $0.2 million of which was related to the Revolving Facility. Pursuant to GAAP, the Second Amendment is accounted for as a debt modification. As a result, the unamortized deferred debt financing costs related to the Revolving Facility prior to the Second Amendment were added to the $0.2 million of deferred debt financing costs related to the Second Amendment and will be amortized over the remaining life of the Revolving Facility. The following table presents the total deferred debt financing costs for the term loan and the Revolving Facility (in thousands):
Term Loan | Revolving Facility | |||||||
Deferred financing costs at December 31, 2017 | $ | — | $ | 175 | ||||
Deferred financing costs Second Amendment | 185 | 185 | ||||||
Amortization of deferred financing costs | — | (60 | ) | |||||
Deferred financing costs at December 31, 2018 | $ | 185 | $ | 300 | ||||
Debt Financing Costs
Debt financing costs are deferred and amortized, using the straight-line method, which approximates the effective interest method, for costs related to the Term Loan and the straight-line method for costs related to the Revolving Facility over the term of the debt arrangement; such amortization is included in interest expense in the Consolidated Statements of Operations. Amortization of deferred debt financing costs was not material for the years ended December 31, 2018, 2017 and 2016. At December 31, 2018 and 2017, the remaining unamortized deferred debt financing costs were $0.5 million and $0.2 million, respectively, of which, at December 31, 2018, $0.2 million was offset against debt. At December 31, 2018 and 2017, $0.3 million and $0.2 million of the remaining unamortized deferred debt financing costs were recorded in prepaid expenses and other current assets and other assets on the Consolidated Balance Sheet, respectively, as they pertained to the Revolving Facility.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2018 | Feb 28, 2019 | Showing above |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 29, 2016 | |
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.