Annual report pursuant to Section 13 and 15(d)

LONG-TERM DEBT

v3.21.2
LONG-TERM DEBT
 12 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT:
Long-term debt at September 30, 2021 and 2020 consisted of the following:
  2021 2020
Revolving credit facilities $ 350,597  $ 416,793 
Securitization facility 95,990  67,700 
Senior secured term loan —  22,359 
2025 Senior Notes 297,796  297,256 
Other borrowings 10,150  20,742 
Finance lease obligations 9,177  9,684 
Total debt 763,710  834,534 
Less current maturities (4,624) (26,824)
Long-term debt $ 759,086  $ 807,710 

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan. The senior secured amortizing term loan was paid in full in March 2021. A portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.00% at September 30, 2021) based on the Company's secured leverage ratio.  The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement.  The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the domestic credit facility. Unamortized costs were $2,182 and $2,734 at September 30, 2021 and September 30, 2020, respectively.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2021 and 2020 were $349,780 and $257,439, respectively. There were no outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2021. Outstanding Euro denominated borrowings on the revolving credit facility at September 30, 2020 were €117.0 million ($137,188). There were no outstanding borrowings on the term loan as of September 30, 2021. Outstanding borrowings on the term loan at September 30, 2020 were $22,359. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at September 30, 2021 and 2020 was 2.03% and 2.41%, respectively.

The Company has $300,000 of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with 2025 Senior Notes. Unamortized costs were $2,204 and $2,744 at September 30, 2021 and 2020, respectively.

The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions, which matures in March 2022 and the Company intends to extend this facility. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at September 30, 2021 and 2020 were $95,990 and $67,700, respectively. The interest rate on borrowings under this facility at September 30, 2021 and 2020 was 0.83% and 0.90%, respectively.
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
September 30, 2021 September 30, 2020
Pay fixed swaps - notional amount $ 250,000  $ 312,500 
Net unrealized loss $ (2,062) $ (7,792)
Weighted-average maturity period (years) 2.2 2.6
Weighted-average received rate 0.08  % 0.15  %
Weighted-average pay rate 1.34  % 1.34  %

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments which are considered probable of occurring.  Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss net of unrealized gains of $2,062 ($1,558 after tax) and an unrealized loss of $7,792 ($5,884 after tax) at September 30, 2021 and 2020, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income ("AOCI").  Assuming market rates remain constant with the rates at September 30, 2021, a loss (net of tax) of approximately $1,428 included in AOCI is expected to be recognized in earnings over the next twelve months.
At September 30, 2021 and 2020, the interest rate swap contracts were reflected on a gross-basis in the consolidated balance sheets as follows:
Derivatives: 2021 2020
Current assets:
Other current assets $ 31  $ — 
Long-term assets:    
Other assets 139  — 
Current liabilities:    
Other current liabilities (1,922) (3,164)
Long-term liabilities:    
Other liabilities (310) (4,628)
Total derivatives $ (2,062) $ (7,792)

The (losses) gains recognized on derivatives was as follows:
Derivatives in Cash Flow Hedging Relationships Location of (Loss) Gain Recognized in Income on Derivatives Amount of (Loss) Gain Recognized in Income on Derivatives
    2021 2020 2019
Interest rate swaps Interest expense $(3,249) $(861) $3,181

The Company recognized the following (losses) gains in AOCI:
Derivatives in Cash Flow Hedging Relationships  Amount of Gain (Loss) Recognized in AOCI on Derivatives Location of (Loss) Gain Reclassified from AOCI into Income Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion*)
2021 2020 2019 (Effective Portion*) 2021 2020 2019
Interest rate swaps $1,873 $(6,130) $(6,540) Interest expense $(2,453) $(650) $2,402
* There is no ineffective portion or amount excluded from effectiveness testing.
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews.  The maximum amount of borrowings available under this facility is €25.0 million ($28,976), which includes €8.0 million ($9,272) for bank guarantees. The credit facility matures in December 2021 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €704,000 ($817) and €18.9 million ($22,166) at September 30, 2021 and 2020, respectively. The weighted-average interest rate on outstanding borrowings under this facility was 2.25% and 1.25% at September 30, 2021 and 2020, respectively.

Other borrowings totaled $10,150 and $20,742 at September 30, 2021 and 2020, respectively. The weighted-average interest rate on these borrowings was 2.19% and 2.10% at September 30, 2021 and 2020, respectively.

During fiscal 2021, the Company entered into a U.S. Dollar/Euro cross currency swap with a notional amount of $94,464 as of September 30, 2021, which was designated as a net investment hedge of foreign operations. The swap contract matures in seven years. The Company assesses hedge effectiveness for this contract based on changes in fair value attributable to changes in spot prices. A gain of $22 (net of income taxes of $7) which represented an effective hedge of net investments, was reported as a component of AOCI within currency translation adjustment for fiscal 2021. Income of $63, which represented the recognized portion of the fair value excluded from the assessment of hedge effectiveness, was included in current period earnings as a component of interest expense for fiscal 2021.

The Company previously used certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $5,370 (net of income taxes of $1,743) and currency losses of $4,377 (net of income taxes of $1,420), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment for fiscal 2021 and 2020, respectively.

In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($11,535 at September 30, 2021) with respect to a performance guarantee on an incineration equipment project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.K. Court ruled completely in favor of Matthews following a trial on the merits. However, the dispute involved litigation in multiple foreign jurisdictions because the contract between the parties included a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment was required to be executed in Saudi Arabia. Thus, the Company pursued a trial on the merits in Saudi Arabia. On November 9, 2020, the judge in the Commercial Court of Saudi Arabia issued a final judgment against the customer in the amount of £10,450,000 (representing the full claim amount plus interest) in favor of Matthews and the customer did not appeal the ruling by the Commercial Court. As result, the judgment is now final and enforceable in Saudi Arabia. The Company is assessing options to enforce and collect upon the judgment and its level of success in recovering funds from the customer will depend upon several factors, including the availability of recoverable funds, and the level of support of the Saudi Arabian government to enforce the judgment against the customer.

During fiscal 2020 and fiscal 2021, the Saudi Arabian government enforced restrictions on travel to Mecca due to the COVID-19 pandemic. As a result, the Company was not able to support the operation of the incineration equipment for the local agency responsible for its operation during the prior two (2) Hajj Pilgrimages. Consequently, the Company continues to have concerns regarding the level of anticipated support from the government in its collection efforts. As a result of these concerns and other collectability risks, the Company established a reserve for the full value of the funded letter of credit as of June 30, 2020, and has made no adjustments to the reserve since that time. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.

As of September 30, 2021 and 2020, the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of September 30, 2021
Aggregate maturities by fiscal year of long-term debt, including other borrowings, is as follows:

2022 $ 97,757 
(a)
2023 1,058 
2024 1,055 
2025 350,854 
2026 298,892 
Thereafter 4,917 
  754,533 
Finance lease obligations 9,177 
(b)
$ 763,710 
(a) The Company maintains certain debt facilities with current maturity dates in fiscal 2022 that it intends and has the ability to extend beyond fiscal 2022 totaling $96,807. These balances have been classified as non-current on the Company's Consolidated Balance Sheet.
(b) Aggregate maturities of finance lease obligations can be found in Note 10, "Leases."