The Company had $35.7 million and $32.5 million letters of credit at September 30, 2024 and December 31, 2023, and approximately $208.1 million and $11.9 million in short-term borrowings at September 30, 2024 and December 31, 2023. Interest expense was $6.0 million and $5.7 million for the three months ended September 30, 2024 and 2023, and $15.4 million and $16.8 million for the nine months ended September 30, 2024 and 2023.

Revolving Credit Facility

The Company maintains a revolving credit facility which allows for a senior unsecured credit facility of $750.0 million, which may be increased by up to $250.0 million under certain conditions and provides for the issuance of letters of credit up to a maximum of $100.0 million and swingline loans up to a maximum of $50.0 million. The expiration date is December 15, 2026. At September 30, 2024, there was $175.0 million outstanding under the revolving credit facility included in short-term borrowings with weighted-average annual interest rate of 6.27% for the nine months ended September 30, 2024. At December 31, 2023, there was no outstanding balance under the revolving credit facility. The unused credit capacity was $571.1 million and $746.9 million at September 30, 2024 and December 31, 2023.

The Company is required to maintain a maximum total adjusted net leverage ratio of 3.75:1, except in the event of an acquisition in which case the ratio may be increased at the Company’s election to 4.25:1 for the quarter in which such acquisition occurs and for the next three quarters thereafter. The Company was in compliance with the financial covenants at September 30, 2024.

Additionally, the Company maintains various credit facilities within our international market with an aggregate capacity of approximately $142.8 million that is available for working capital needs and issuance of letters of credit. The Company had $33.1 million and $11.9 million of borrowings outstanding under these credit facilities included in short-term borrowings at September 30, 2024 and December 31, 2023.

HF-T1 Distribution Center Loan

To finance construction and improvements to the Company’s North American distribution center, the Company’s joint venture with HF Logistics I, LLC (“HF”), HF Logistics-SKX, LLC (the “JV”), through a wholly-owned subsidiary of the JV (“HF-T1”), entered into a $129.5 million construction loan agreement which matures on March 18, 2025 (the “HF-T1 2020 Loan”) with interest of SOFR Daily Floating Rate plus a margin of 1.75% per annum.

HF-T1 also entered into an ISDA master agreement (together with the schedule related thereto, the “Swap Agreement”) with Bank of America, N.A. to govern derivative and/or hedging transactions that HF-T1 concurrently entered into with Bank of America, N.A. Pursuant to the Swap Agreement, on August 14, 2015, HF-T1 entered into a confirmation of swap transactions (the “Interest Rate Swap”) as amended (the “Swap Agreement Amendment”) on March 18, 2020 with Bank of America, N.A. with a maturity date of March 18, 2025. The Swap Agreement Amendment fixes the effective interest rate on the HF-T1 2020 Loan at 2.55% per annum. The HF-T1 2020 Loan and Swap Agreement Amendment are subject to customary covenants and events of default. Bank of America, N.A. also acts as a lender and syndication agent under the Company’s revolving credit facility. The obligations of the JV under this loan are guaranteed by HF.

The Interest Rate Swap involves the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At September 30, 2024 and December 31, 2023, the Interest Rate Swap had an aggregate notional amount of $129.5 million. Under the terms of the Swap Agreement Amendment, the Company will pay a weighted-average fixed rate of 0.778% on the notional amount and receive payments from the counterparty based on the 30-day SOFR rate, effectively modifying the Company’s exposure to interest rate risk by converting floating-rate debt to a fixed rate of 2.63%. At September 30, 2024, the outstanding balance under the HF-T1 2020 Loan was classified as current installments of long-term borrowings.

HF-T2 Distribution Center Construction Loan

On April 3, 2020, HF Logistics-SKX T2, LLC (“HF-T2”), a joint venture, entered into a construction loan agreement of up to $73.0 million with Bank of America, N.A. to expand the North American distribution center. The maturity date is April 3, 2025. The interest rate is based on the Bloomberg Short-Term Bank Yield Index Daily Floating Rate plus a margin of 190 basis points, reducing to 175 basis points upon substantial completion of the construction and certain other conditions being satisfied. The weighted-average annual interest rate on borrowings was 7.09% during the nine months ended September 30, 2024. The obligations of the JV under this loan are guaranteed by TGD Holdings I, LLC, which is an affiliate of HF. At September 30, 2024, the outstanding balance under the HF-T2 2020 Loan was classified as current installments of long-term borrowings.

China Distribution Center Expansion Construction Loan

On October 18, 2022, the Company entered into a loan agreement for 1.1 billion yuan with Bank of China Co., Ltd to finance the construction of its distribution center expansion in China. Interest is paid quarterly. The interest rate at September 30, 2024 was 2.95% and may increase or decrease over the life of the loan, and will be evaluated every 12 months. This loan matures 10 years from the initial receipt of funds. Beginning in 2026, the principal of the loan will be repaid in semi-annual installments of variable amounts. The obligations of this loan entered through the Company’s Taicang Subsidiary are jointly and severally guaranteed by the Company’s China joint venture.

China Operational Loans

The Company has certain secured credit facilities with an aggregate capacity of 1.65 billion yuan to support the operations of its China joint venture. The interest rate was 1.04% to 2.60% per annum at September 30, 2024 and had interest rates ranging from 2.75% to 2.90% per annum at December 31, 2023. The outstanding balances under these working capital loans were classified as current installments of long-term borrowings.

Other Financial Commitments

During the quarter, the Company created the new joint venture, HF Logistics-SKX T3, LLC to support expansion for our North America distribution center. The Company will contribute $150.0 million consisting of $50.0 million paid in the quarter and the remaining $100.0 million to be contributed in even quarterly amounts over the next four quarters. The joint venture partner contributed land with an estimated value of $150.0 million.