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Bank Loan Agreements
 12 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Bank Loan Agreements

5.           Bank Loan Agreements

  

On November 12, 2019, we entered into a Second Amended and Restated Loan and Security Agreement (“Amended Agreement”) with Silicon Valley Bank (“SVB”), which amended, restated and superseded our previous agreement with SVB in its entirety.

 

Pursuant to the Amended Agreement, SVB made available to us a senior secured revolving line of credit of up to $6,000,000 (“Revolving Facility”) and a senior secured term loan of $6,000,000 (“Term Loan Facility”). Advances under the Revolving Facility could be borrowed from time to time prior to November 12, 2021, subject to the satisfaction of certain conditions, and could be used to fund our working capital and general business requirements. The $6,000,000 proceeds of the Term Loan Facility were drawn in full in November 2019 and were used to fund our acquisition of Intrinsyc, which occurred in January 2020. The Revolving Facility was scheduled to mature on November 12, 2021. There were no borrowings on the Revolving Facility at June 30, 2021. The Term Loan Facility was repayable over a 48 month period commencing January 1, 2020.

 

The interest rate on the Revolving Facility floats at a rate per annum equal to the greater of the prime rate and 5.00 percent. The interest rate on the Term Loan Facility floats at a rate per annum equal to the greater of 1.00 percent above the prime rate and 6.00 percent. We could elect to repay and reborrow the amounts outstanding under the Revolving Facility at any time prior to the maturity date of the Revolving Facility without premium or penalty. We could elect to repay the Term Loan Facility at any time without premium or penalty in minimum amounts equal to at least $1,000,000.

  

The following table summarizes our outstanding debt: 

          
   June 30, 
   2021   2020 
   (In thousands) 
Outstanding borrowings on Term Loan Facility  $3,750   $5,250 
Less: Unamortized debt issuance costs   (68)   (96)
Net Carrying amount of debt   3,682    5,154 
Less: Current portion   (1,472)   (1,472)
Non-current portion  $2,210   $3,682 

 

During the year ended June 30, 2021 we recognized $278,000 of interest expense in our consolidated statements of operations related to interest and amortization of debt issuance associated with the outstanding Term Loan Facility. As discussed further below in the section entitled “New Financing Arrangements” the balance of the Term Loan Facility was fully paid off in August 2021.

  

The Amended Agreement included a financial covenant that required that we maintain a minimum cash balance of $3,000,000 at SVB, as measured at the end of each month. The Amended Agreement also required that we did not exceed a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions of (i) 3.0 to 1.0 for each calendar quarter ending December 31, 2019 through and including December 31, 2020, (ii) 2.5 to 1.0 for each calendar quarter ending March 31, 2021 through and including December 31, 2021, and (iii) 2.0 to 1.0 for each calendar quarter ending after January 1, 2022. We were in compliance with all covenants under the Amended Agreement as of June 30, 2021.

 

The following table presents certain information with respect to the Revolving Facility: 

          
   June 30, 
   2021   2020 
   (In thousands) 
Outstanding borrowings on the line of credit  $–   $– 
Available borrowing capacity on the line of credit  $6,000   $5,602 
Outstanding letters of credit  $51   $51 

 

Our outstanding letters of credit at June 30, 2021 and 2020 were used as security deposits.

 

New Financing Arrangements

 

In connection with the Transaction on the Closing Date (refer to Note 3), we entered into (i) a Third Amended and Restated Loan and Security Agreement with SVB, pursuant to which SVB made a term loan of $17,500,000 on the Closing Date and will make available a revolving credit facility of up to $2,500,000 (the term loan facility and the revolving credit facility, the “Senior Credit Facilities”) and (ii) Mezzanine Loan and Security Agreement with SVB Innovation Credit Fund VIII, L.P. (“Lender”), pursuant to which Lender funded on the Closing Date a $12,000,000 term loan facility (the “Mezzanine Credit Facility”). The proceeds of the Senior Credit Facilities were used to refinance our outstanding obligations owing to SVB under our existing Amended Agreement discussed above, and the remaining proceeds of the Senior Credit Facility and the proceeds from the Mezzanine Facilities were used to fund the purchase price of the TN Companies, to pay related fees and expenses, and will be available for working capital and general corporate purposes.

 

The Senior Credit Facilities mature on August 2, 2025 and the Mezzanine Credit Facility matures on February 2, 2026. Advances under the Senior Credit Facilities bear interest at LIBOR or the Prime Rate, at the option of Lantronix, plus a margin that ranges from 3.00% to 4.00% in the case of LIBOR and 1.50% to 2.50% in the case of the Prime Rate, depending on the total leverage of the Borrowers and their subsidiaries with a LIBOR floor of 0.50% and a Prime Rate floor of 3.25%. Advances under the Mezzanine Credit Facility bear interest at LIBOR or the Prime Rate, at the option of Lantronix, plus a margin of 9.00% with a floor of 1.00% in the case of LIBOR and a margin of 7.50% with a floor of 3.50% in the case of the Prime Rate. We are also obligated to pay other customary facility fees for credit facilities of the similar size and type.

 

The Senior Credit Facilities and Mezzanine Credit Facility require Lantronix and its subsidiaries, on a consolidated basis, to comply with a maximum senior leverage ratio, a minimum fixed charge coverage ratio and a minimum liquidity test. In addition, the Senior Credit Facilities and the Mezzanine Credit Facility contain customary representations and warranties, affirmative and negative covenants, including covenants that limit or restrict Lantronix and its subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain speculative hedging arrangements. The Senior Credit Facilities and Mezzanine Credit Facility include a number of events of default, including, among other things, non-payment defaults, covenant defaults, cross-defaults to other materials indebtedness, bankruptcy and insolvency defaults and material judgment defaults. If any event of default occurs (subject, in certain instances, to specified grace periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Senior Credit Facilities and Mezzanine Credit Facility may become due and payable immediately.