Energy Recovery, Inc.ERII
Energy Recovery, Inc. Debt Disclosure
Lines of CreditCredit Agreement
The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMC”) on December 22, 2021 (“Credit
Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of $50.0 million. In
January 2026, the Company amended the Credit Agreement with JPMC to extend the termination date from December 21, 2026 to January
21, 2031. See Note 13, "Subsequent Events," for further information. The Credit Agreement requires the Company to comply with various
covenants, including among other things, financial covenants to 1) maintain a leverage ratio of consolidated net debt to adjusted earnings
before income taxes, depreciation and amortization (“adjusted EBITDA”), not to exceed 3.0 to 1; and 2) limit annual capital expenditures.
The Credit Agreement allows the Company to, among other things, make distributions to shareholders, repurchase its stock, incur other debt
or liens, or acquire or dispose of assets provided that the Company complies with certain requirements and limitations set forth in the Credit
Agreement. The unused portion of the credit line is subject to a fee equal to 0.20% per annum multiplied by the amount of such unused
portion.
On July 15, 2022, the Company and JPMC agreed to a modification of the Credit Agreement (“First Amendment”) to change the
indicated reference rate from the London Interbank Offered Rate (also referred to as “LIBOR”) to the Secured Overnight Financing Rate (also
referred to as “SOFR”). Changes in the Credit Agreement reference rate to SOFR did not materially change the provisions defined in the
original Credit Agreement nor did this change materially affect the Company’s financial statements. During September 2023, the Company
and JPMC amended the Credit Agreement (the “Second Amendment”) to only increase the maximum allowable letters of credit (“LCs”) credit
line component from $25.0 million to $30.0 million. No other components or features under the Credit Agreement (including the First
Amendment dated July 15, 2022) were amended. As of December 31, 2025, the Company was in compliance with all covenants under the
Credit Agreement.
Revolving LoansRevolving loans under the Credit Agreement may be in the form of 1) a base rate loan that bears interest equal to (a) the greater of
the Wall Street Journal prime rate and (b) the sum of (i) one-month reserve adjusted SOFR and (ii) 2.50%, plus an applicable margin of
0.25% or 0.50%, subject to the Company’s total leverage ratio, or 2) a Eurodollar loan that bears interest equal to the sum of the reserved
adjusted SOFR rate for an interest period elected by the Company, plus an applicable margin of 1.25% or 1.50%, based upon the Company’s
total leverage ratio. The Company may request loans up to the lower of a maximum exposure of $50.0 million or the amounts of unused
credit under the Credit Agreement. The unused portion of the credit facility is subject to a facility fee in an amount equal to 0.20% per annum
of the average unused portion of the revolving line. At the election of the lender following an event of default, the loans shall bear the
aforementioned interest rate plus an additional 2%. As of December 31, 2025, there were no revolving loans outstanding under the Credit
Agreement.
Letters of CreditUnder the Credit Agreement, the Company is allowed to request LCs up to the lower of a maximum exposure of $30.0 million or the
amounts of unused credit under the Credit Agreement. The Credit Agreement does not require any cash collateral when LCs are issued;
however, at the election of the lender following a default, the lender may require the Company to deposit cash in an amount equal to 103% of
the LCs exposure. LCs are subject to customary fees and expenses for issuance or renewal, and all disbursements are subject to the same
interest rate provision as noted directly above under Revolving Loans. LCs are limited to a term of one year, unless extended. Under the
LCs component, the Company utilized $20.4 million of the maximum allowable credit line of $30.0 million, which includes newly issued LCs,
and previously issued and unexpired stand-by letters of credits (“SBLCs”) and certain non-expired commitments under the Company’s
previous Loan and Pledge Agreement with Citibank, N.A. which are guaranteed under the Credit Agreement. These LCs had a weighted
average remaining life of approximately 19 months.
As of December 31, 2025 and 2024, the Company had $20.4 million and $15.7 million outstanding LCs and SBLCs issued by the Company to its customers related to product warranty and performance guarantees.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2018 | Mar 7, 2019 | |
| 2017 | Mar 8, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 4, 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.