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Note 12 - Debt
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

NOTE 12 DEBT

 

Debt consists of the following instruments at December 31, 2024 and December 31, 2023:

 

(in thousands)

 

December 31, 2024

  

December 31, 2023

 
  

Principal

  

Carrying Value

  

Fair Value

  

Principal

  

Carrying Value

  

Fair Value

 

Bank loans:

                        

2021 Ravix Loan

 $2,288  $2,288  $2,312  $4,650  $4,650  $4,811 

2022 Ravix Loan

  4,300   4,182   4,389   4,925   4,769   5,027 

2022 Ravix Revolver

  500   500   500   —   —   — 

SNS Term Loan

  3,842   3,779   3,942   5,142   5,063   5,243 

SNS Revolver

  450   450   452   —   —   — 

DDI Loan

  5,507   5,452   5,704   5,600   5,534   5,841 

Image Solutions Loan

  7,556   7,399   7,669   —   —   — 

2020 KWH Term Loan

  —   —   —   10,479   10,306   10,725 

2024 KWH Term Loan

  13,313   13,228   13,536   —   —   — 

2024 KWH DDTL

  5,850   5,850   5,982   —   —   — 

KWH Revolver

  1,000   1,000   1,067   500   500   515 

Total bank loans

  44,606   44,128   45,553   31,296   30,822   32,162 

Subordinated debt

  15,000   13,409   13,409   15,000   13,594   13,594 

Total

 $59,606  $57,537  $58,962  $46,296  $44,416  $45,756 

 

Subordinated debt mentioned above consists of the following trust preferred debt instrument at December 31, 2024 and  December 31, 2023:

 

Issuer

 

Principal (in thousands)

 

Issue date

Interest

Redemption date

Kingsway DE Statutory Trust III

 $15,000 

5/22/2003

annual interest rate equal to CME Term SOFR, plus 4.20% payable quarterly

5/22/2033

 

The contractual maturities of the Company's principal debt balances as of December 31, 2024 were as follows:

 

(in thousands)

  Principal Maturities 

2025

 $9,428 

2026

  7,850 

2027

  7,972 

2028

  5,879 

2029

  11,539 

Thereafter

  16,938 

Total

 $59,606 

 

 

(a)

Bank loans:

 

Ravix

 

As part of the acquisition of Ravix Group Inc. ("Ravix") on October 1, 2021, Ravix became a wholly owned subsidiary of Ravix Acquisition LLC ("Ravix LLC"), and together they borrowed from a bank a principal amount of $6.0 million in the form of a term loan, and established a $1.0 million revolver to finance the acquisition of Ravix (together, the "2021 Ravix Loan").  The 2021 Ravix Loan requires monthly payments of principal and interest.

 

 

The 2021 Ravix Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 3.75%.  At December 31, 2024, the interest rate was 8.00%. The term loan matures on October 1, 2027.   The Company also recorded as a discount to the carrying value of the 2021 Ravix Loan issuance costs of $0.2 million specifically related to the 2021 Ravix Loan.  The 2021 Ravix Loan is carried in the consolidated balance sheets at itsunpaid principal balance. 

 

Subsequent to the acquisition of CSuite Financial Partners, LLC ("CSuite") on November 1, 2022, CSuite became a wholly owned subsidiary of Ravix LLC.  As a result of the acquisition of CSuite, on November 16, 2022, the 2021 Ravix Loan was amended to (1) include CSuite as a borrower; (2) borrow an additional principal amount of $6.0 million in the form of a supplemental term loan (the "2022 Ravix Loan"); and (3) amend the maturity date and interest rate of the $1.0 million revolver (the "2022 Ravix Revolver").  The 2022 Ravix Loan requires monthly payments of principal and interest.  The 2022 Ravix Loan matures on November 16, 2028 and has an annual interest rate equal to the Prime Rate plus 0.75%.  At December 31, 2024, the interest rate was 8.25%.   The 2022 Ravix Revolver was  to mature on November 16, 2024 prior to the third amendment to the 2021 Ravix Loan on  October 24, 2024, which extended the maturity date on the 2022 Ravix Revolver to February 13, 2025.  The 2022 Ravix Revolver has an annual interest rate equal to the Prime Rate plus 0.50%.  At  December 31, 2024, the interest rate was 8.00%.

 

The Company also recorded as a discount to the carrying value of the 2022 Ravix Loan issuance costs of $0.1 million specifically related to the 2022 Ravix Loan.  The 2022 Ravix Loan is carried in the consolidated balance sheet at itsamortized cost, which reflects the monthly pay-down of principal as well as the amortization of the debt discount and issuance costs using the effective interest rate method.

 

The 2022 Ravix Loan and the 2021 Ravix Loan were not deemed to be substantially different; therefore, the 2022 Ravix Loan is accounted for as a modification of the 2021 Ravix Loan and a new effective interest rate was determined based on the carrying amount of the 2021 Ravix Loan.  The issuance costs related to the 2022 Ravix Loan, along with the existing unamortized issuance costs from the 2021 Ravix Loan, are being amortized over the remaining term of the 2022 Ravix Loan using the effective interest rate.

 

On July 23, 2024, Ravix, Ravix LLC and CSuite entered into a second amendment to the 2021 Ravix Loan that provides for: (1) a principal prepayment of the 2021 Ravix term loan of $1.5 million, partially financed by borrowing $0.5 million under the 2022 Revolver and the remainder to be paid with available cash; and (2) amending the loan amortization payment schedule to provide for equal monthly payments through the loan maturity date.  The 2021 Ravix Loan was not deemed to be substantially different as a result of the second amendment; therefore, the amended 2021 Ravix Loan is accounted for as a modification of the original 2021 Ravix Loan.

 

On October 4, 2024, Ravix, Ravix LLC and CSuite entered into a third amendment to the 2021 Ravix Loan to extend the maturity date of the 2022 Ravix Revolver to February 13, 2025.

 

On February 7, 2025, Ravix, Ravix LLC and CSuite entered into a fourth amendment to the 2021 Ravix Loan that provides for: (1) a new 2025 term loan in the principal amount of $9.1 million, with a maturity date of February 7, 2031 (the "2025 Ravix Loan"); and (2) extending the maturity date of the 2022 Revolver to February 7, 2027.  In connection with the fourth amendment, Ravix used a portion of the proceeds from the 2025 Ravix Loan to repay the following outstanding principal balances under the 2021 and 2022 Ravix Loans: (1) $2.2 million related to the 2021 Ravix term loan; and (2) $4.2 million related to the 2022 Ravix term loan.  

 

The fair values of the 2021 Ravix Loan and the 2022 Ravix Loan disclosed in the table above is derived from quoted market prices of B and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The 2021 Ravix Loan and the 2022 Ravix Loan are secured by certain of the equity interests and assets of Ravix and CSuite.

 

The 2021 Ravix Loan and the 2022 Ravix Loan contain a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the 2021 Ravix Loan and 2022 Ravix Loan that, among other things, restrict Ravix and CSuite’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.

 

 

SNS

 

As part of the asset acquisition of Secure Nursing Service, Inc. on November 18, 2022, the Company formed Secure Nursing Service LLC ("SNS"), which became a wholly owned subsidiary of Pegasus Acquirer Holdings LLC ("Pegasus LLC"), and together they borrowed from a bank a principal amount of $6.5 million in the form of a term loan, and established a $1.0 million revolver to finance the acquisition of Secure Nursing Service, Inc. (together, the "SNS Loan").  The SNS Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00%.  At December 31, 2024, the interest rate was 8.00%.  Monthly principal payments on the term loan began on November 15, 2023.  The revolver matures on May 2, 2025 and the term loan matures on November 18, 2028. During the first quarter of 2024, the Company borrowed $0.2 million under the SNS Loan Revolver.  During the second quarter of 2024, the SNS Loan Revolver of $0.2 million was repaid. During the fourth quarter of 2024, the Company borrowed $0.5 million under the SNS Loan Revolver. 

 

The Company also recorded as a discount to the carrying value of the SNS Loan issuance costs of $0.1 million specifically related to the SNS Loan.  The SNS Loan is carried in the consolidated balance sheet at its amortized cost, which reflects the monthly pay-down of principal, as well as amortization of the debt discount and issuance costs using the effective interest rate method.  The fair value of the SNS Loan disclosed in the table above is derived from quoted market prices of B plus and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The SNS Loan is secured by certain of the equity interests and assets of SNS.

 

The SNS Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the SNS Loan that, among other things, restrict SNS’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets. At December 31,  September 30,  June 30, and March 31, 2024, SNS was in default under the SNS Loan due to debt covenant violations related to the leverage and fixed charge ratios.  The Company has entered into an amendment to the SNS Loan that waives the events of default for the fiscal quarter ended December 31, 2024.  As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations.  A default may permit the lender to declare the amounts owed under the SNS Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available. 

 

DDI

 

As part of the asset acquisition of DDI on October 26, 2023, DDI became a wholly owned subsidiary of DDI Acquisition, LLC ("DDI LLC"), and together they borrowed from a bank a principal amount of $5.6 million in the form of a term loan, and established a $0.4 million revolver to finance the acquisition of DDI (together, the "DDI Loan").  The DDI Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00%.  At December 31, 2024, the interest rate was 8.00%.  Monthly principal payments on the term loan began on December 15, 2024.  The revolver matured on September 1, 2024 and the term loan matures on October 26, 2029.  On December 12, 2024, the DDI Loan was amended to extend the maturity date on the revolver to  November 1, 2025. At December 31, 2024 and  December 31, 2023, the balance of the DDI Loan revolver was zero.

 

The Company also recorded as a discount to the carrying value of the DDI Loan issuance costs of $0.1 million specifically related to the DDI Loan.  The DDI Loan is carried in the consolidated balance sheet at its amortized cost, which reflects the monthly pay-down of principal starting December 15, 2024, as well as the amortization of the debt discount and issuance costs using the effective interest rate method.  The fair value of the DDI Loan disclosed in the table above is derived from quoted market prices ofB plus, BB and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The DDI Loan is secured by certain of the equity interests and assets of DDI.

 

The DDI Loan contains a number of covenants, including, but not limited to, a senior leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the DDI Loan that, among other things, restrict DDI’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
 
Image Solutions
 
As part of the acquisition of Image Solutions on September 26, 2024, Image Solutions became a wholly owned subsidiary of Steel Bridge Acquisition, LLC ("SB LLC"), and together they borrowed from a bank a principal amount of $7.75 million in the form of a term loan, and established a $0.5 million revolver to finance the acquisition of Image Solutions (together, the "Image Solutions Loan"). The Image Solutions Loan requires monthly payments of principal and interest and has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 7.25%.  At December 31, 2024, the interest rate was  8.00%.  The revolver matures on September 26, 2026 and the term loan matures on September 26, 2030.  At  December 31, 2024, the balance of the revolver was  zero.
 
The Company also recorded as a discount to the carrying value of the Image Solutions Loan issuance costs of $0.2 million specifically related to the Image Solutions Loan.  The Image Solutions Loan is carried in the consolidated balance sheet at its amortized cost, which reflects the monthly pay-down of principal as well as the amortization of the debt discount and issuance costs using the effective interest rate method.  The fair value of the Image Solutions Loan disclosed in the table above is derived from quoted market prices of BB plus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The Image Solutions Loan is secured by certain of the equity interests and assets of Image Solutions.
 

 

The Image Solutions Loan contains a number of covenants, including, but not limited to, a senior leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the Image Solutions Loan that, among other things, restrict Image Solutions’ ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.

 

KWH

 

In 2019, the Company formed Kingsway Warranty Holdings LLC ("KWH"), whose original subsidiaries included IWS Acquisition Corporation ("IWS"), Geminus Holdings Company, Inc. ("Geminus") and Trinity Warranty Solutions LLC ("Trinity"). As part of the acquisition of PWI Holdings, Inc. ("PWI") on December 1, 2020, PWI became a wholly owned subsidiary of KWH, which borrowed a principal amount of $25.7 million from a bank, consisting of a $24.7 million term loan and a $1.0 million revolving credit facility (the "2020 KWH Loan"). The proceeds from the 2020 KWH Loan were used to partially fund the acquisition of PWI and to fully repay the prior outstanding loan at KWH, which occurred on December 1, 2020.

 

The 2020 KWH Loan has an annual interest rate equal to SOFR, having a floor of 0.75%, plus spreads ranging from 2.62% to 3.12%.  At December 31, 2024, the interest rate was 7.46%.  The 2020 KWH Loan was to mature on December 1, 2025, prior to entering into the third amendment to the KWH Loan further discussed below. The Company also recorded as a discount to the carrying value of the 2020 KWH Loan issuance costs of $0.4 million specifically related to the 2020 KWH Loan.

 

On February 28, 2023, KWH entered into a second amendment to the 2020 KWH Loan (the “KWH DDTL”) that provides for an additional delayed draw term loan in the principal amount of up to $10.0 million, with a maturity date of December 1, 2025.  All or any portion of the KWH DDTL, subject to a $2.0 million minimum draw amount, could be requested at any time through February 27, 2024.  The proceeds are evidenced by an intercompany loan and guarantee between KAI and KWH.  The principal amount shall be repaid in quarterly installments in an amount equal to 3.75% of the original amount of the drawn DDTL. Proceeds from certain assets dispositions, as defined, may be required to be used to repay outstanding draws under the DDTL. The KWH DDTL also increases the senior cash flow leverage ratio maximum permissible for certain periods. During the first quarter of 2024, the Company borrowed $3.5 million under the KWH DDTL and $0.5 million under the KWH Revolver.

 

On May 24, 2024, KWH entered into a third amendment to the 2020 KWH Loan that provides for: (1) a new 2024 term loan in the principal amount of $15.0 million, with a maturity date of May 24, 2029 (the “2024 KWH Loan”); and (2) a new 2024 delayed draw term loan in a principal amount of up to $6.0 million, with a maturity date of May 24, 2029 (the “2024 KWH DDTL”).  All or any portion of the 2024 KWH DDTL, subject to a $2.0 million minimum draw amount, could be requested at any time in up to three advances through May 24, 2026.  In connection with the third amendment, KWH used the proceeds from the 2024 KWH Loan to repay the following outstanding balances under the 2020 KWH Loan: (1) $9.6 million related to the original 2020 term loan; (2) $1.0 million related to the revolver; and (3) $3.1 million related to the KWH DDTL.

 

KWH continues to have access to a $1.0 million revolving credit facility (“KWH Revolver”) under the 2020 KWH Loan.

 

The 2020 KWH Loan and the 2024 KWH Loan were not deemed to be substantially different; therefore, the 2024 KWH Loan is accounted for as a modification of the 2020 KHW Loan.  The unamortized debt discount and issuance costs from the 2020 KWH Loan at the modification date of $0.2 million were recorded as loss on extinguishment of debt during the year ended December 31, 2024 since the original debt was fully repaid as part of the modification.

 

During the third and fourth quarters of 2024, $6.0 million was borrowed under the KWH DDTL and $1.0 million was drawn on the KWH Revolver.  As of December 31, 2024, both the KWH DDTL and the KWH Revolver are fully drawn.

 

The Company also recorded as a discount to the carrying value of the 2024 KWH Loan issuance costs of $0.1 million specifically related to the 2024 KWH Loan.  The 2020 KWH Loan and 2024 KWH Loan are carried in the consolidated balance sheets at amortized cost, which reflects the quarterly pay-down of principal as well as the amortization of the debt discount and issuance costs using the effective interest rate method.  The fair values of the 2020 KWH Loan, 2024 KWH Loan, 2024 KWH DDTL and KWH Revolver disclosed in the table above are derived from quoted market prices of BB and BB minus rated industrial bonds (2020 KWH Loan) and B plus, BB and BB minus rated industrial bonds (2024 KWH Loan) with similar maturities and is categorized within Level 2 of the fair value hierarchy. The 2020 KWH Loan is secured by certain of the equity interests and assets of KWH and its subsidiaries.

 

The 2024 KWH Loan contains a number of covenants, including, but not limited to, a leverage ratio, a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the 2024 KWH Loan that, among other things, restrict KWH’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.

 

(b)

Subordinated debt:

 

Between December 4, 2002 and December 16, 2003, six subsidiary trusts of the Company issued $90.5 million of 30-year capital securities to third-parties in separate private transactions. In each instance, a corresponding floating rate junior subordinated deferrable interest debenture was then issued by KAI to the trust in exchange for the proceeds from the private sale. The floating rate debentures bore interest at the rate of LIBOR, plus spreads ranging from 3.85% to 4.20%.  Effective July 3, 2023, the index used for determining the interest rate for the remaining trust preferred debt instrument converted from LIBOR to CME Term SOFR.  The Company has the right to call each of these securities at par value any time after five years from their issuance until their maturity.

 

The subordinated debt, or TruPs, is carried in the consolidated balance sheets at fair value. See Note 23, "Fair Value of Financial Instruments," for further discussion of the subordinated debt. The portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is recognized in other comprehensive income (loss).

 

Of the $0.2 million decrease in the Company’s subordinated debt between December 31, 2023 and December 31, 2024, $0.4 million is reported as decrease in fair value of debt attributable to instrument-specific credit risk in the Company's consolidated statements of comprehensive loss and $0.2 million is reported as loss on change in fair value of debt in the Company's consolidated statement of operations. 

 

 

In February 2023, the Company entered into amendments to the trust preferred option repurchase agreements described in Note 11, "Derivatives," that would give the Company an additional discount on the total repurchase price of the TruPs if the Company effected a 100% repurchase on or before March 15, 2023.  On March 2, 2023, the Company gave notice to the holders of five of its TruPs that it intended to exercise its options to repurchase 100% of the principal.  On March 22, 2023, the Company completed the repurchases of the five TruPs using available funds from working capital to fund the repurchases. The total amount paid for the five TruPs was $56.5 million, which included a credit for the $2.3 million that the Company previously paid at the time of entering into the trust preferred option repurchase agreements.  As a result, the Company repurchased $75.5 million of TruPs principal and $23.0 million of deferred interest payable.  The Company recognized a gain of $31.6 million, which is included in gain on extinguishment of debt in the consolidated statement of operations for the year ended  December 31, 2023.  At December 31, 2024, the Company has $15.0 million of principal outstanding related to the remaining trust preferred debt instrument.

 

At December 31, 2022, the fair value of the subordinated debt was $67.8 million. The $54.2 million decrease in the Company’s subordinated debt between December 31, 2022 and December 31, 2023 is attributed to the following:

 

 

•

A decrease of $56.1 million as a result of the repurchase of trust preferred debt during the first quarter of 2023;

 

•

A decrease of $0.3 million related to the change in fair value of the repurchased trust preferred debt instruments between December 31, 2022 and the repurchase dates; and

 

•

An increase of $2.2 million related to the change in fair value of the remaining trust preferred debt instrument between December 31, 2022 and December 31, 2023.

 

Of the $1.9 million net increase in fair value of the Company’s subordinated debt between December 31, 2022 and  December 31, 2023 described above, $1.8 million is reported as increase in fair value of debt attributable to instrument-specific credit risk in the Company's consolidated statements of comprehensive loss and $0.1 million is reported as loss on change in fair value of debt in the Company’s consolidated statements of operations.

 

The consolidated statements of comprehensive loss for the year ended December 31, 2023 also includes a reclassification adjustment of  $27.2 million from accumulated other comprehensive income to gain on extinguishment of debt related to the instrument-specific credit risk related to the repurchased TruPs.

 

During the third quarter of 2018, the Company gave notice to its Trust Preferred trustees of its intention to exercise its voluntary right to defer interest payments for up to 20 quarters, pursuant to the contractual terms of its outstanding Trust Preferred indentures, which permit interest deferral. This action did not constitute a default under the Company's Trust Preferred indentures or any of its other debt indentures.  In order to execute the repurchases described above, on March 13, 2023, the Company paid $5.0 million to the remaining Trust Preferred trustee to be used by the trustee to pay the interest which the Company had been deferring since the third quarter of 2018. 

 

The agreements governing the subordinated debt contain a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, make dividends and distributions, and make certain payments in respect of the Company’s outstanding securities.