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Note 5 - Long-term Debt, Net
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

5. Long-term debt, net

 

Long-term debt, net of unamortized discount and financing costs, related to the Credit Facility (as defined herein) consisted of the following:

 

  

March 31, 2024

  

December 31, 2023

 

Credit Facility due 2025 (less unamortized discount and financing costs of $1,019 and $762, respectively)

 $28,981  $30,488 

Note Payable due 2026

  2,000   — 

Long-term debt, net

  30,981   30,488 

Less: Current portion of long-term debt

  (30,981)  (5,000)

Long-term debt, net (non-current)

 $—  $25,488 

 

Citizens Credit Facility

 

On March 31, 2021, Fluent, LLC (the "Borrower") entered into a credit agreement (as amended, modified, extended, restated, replaced, or supplemented from time to time, the "Citizens Credit Agreement") with certain subsidiaries of the Borrower as guarantors, the lenders thereto, and Citizens Bank, N.A. ("Citizens Bank") as administrative agent, lead arranger and bookrunner. The original Citizens Credit Agreement provided for a term loan in the aggregate principal amount of $50,000 funded on the closing date (the "Term Loan"), along with an undrawn revolving credit facility of up to $15,000 (the "Revolving Loans," and together with the Term Loan, the "Credit Facility"). 

 

On May 15, 2023, the Borrower and Citizens Bank entered into a third amendment to the Citizens Credit Agreement, which amended certain provisions by adding an additional tier of applicable margin to the selected rates and providing for additional notice of certain material events and, for the remaining fiscal quarters of 2023, established certain terms and conditions under the Citizens Credit Agreement.

 

 

On August 21, 2023, the Borrower and Citizens Bank entered into a fourth amendment to the Citizens Credit Agreement (the "Fourth Amendment"), which adjusted certain financial covenants for the remaining fiscal quarters of 2023, required updated reporting requirements, including a business consultant to be retained at the Borrower's expense and required a $5,000 prepayment of the Term Loan and a reduction in the maximum amount of the Revolving Loans by the same amount to $10,000. The $5,000 prepayment amount was paid as of September 30, 2023, and in evaluating the amendments under ASC 470-50, Debt- Modifications and Extinguishments, the Company determined that the amendment should be treated as a debt modification with no gain or loss recognized.

 

On November 15, 2023, the Borrower and Citizens Bank entered into a Temporary Waiver under Credit Agreement (the "Initial Waiver"), pursuant to which Citizens Bank agreed to waive, through the termination date, its rights and remedies arising from the Company’s breach of the total leverage ratio covenant during the quarter ending September 30, 2023. On January 17, 2024, the Initial Waiver termination date was extended until January 26, 2024.

 

On January 26, 2024, the Borrower and Citizens Bank entered into a Third Temporary Waiver and Amendment to Credit agreement (the "Third Waiver"), pursuant to which Citizens Bank agreed to waive through the earlier of  April 30, 2024, an occurrence of any other event of default, or failure to comply with requirements of the Third Waiver and its rights and remedies arising from the Company’s breach of the total leverage covenant and fixed charge ratio during the quarters ending December 31, 2023 and March 31, 2024. Among other things, the Third Waiver required the Borrower to, by March 31, 2024, deliver one or more Transaction Commitments, defined as: (i) a third-party commitment to provide additional capital in exchange for equity or subordinated debt, (ii) a purchase agreement for the sale of a divested business, or (iii) a third-party commitment to refinance the Credit Agreement. One condition of the Transaction Commitments was that the Borrower provide for net proceeds, in the aggregate, to Fluent of not less than $10,000.

 

All obligations under the Citizens Credit Agreement were accelerated from the initial March 30, 2026 deadline to September 30, 2025, and interest was payable monthly. Scheduled principal amortization of the Term Loan was $1,250 per quarter, which commenced with the fiscal quarter ended June 30, 2021. At March 31, 2024, the Company was in compliance with all of the financial covenants under the Citizens Credit Agreement, except for the total leverage ratio and fixed charge ratio covenants. As discussed above, these covenant breaches were waived through the termination date by the Third Waiver. 

 

Borrowings under the Citizens Credit Agreement bore interest at a rate per annum equal to the benchmark selected by the Borrower, which was based on the Alternative Base Rate (as defined in the Citizens Credit Agreement), LIBOR (as defined in the Citizens Credit Agreement) rate (subject to a floor of 0.25%) prior to the election as of December 31, 2022, or Term SOFR (as defined in the Citizens Credit Agreement) (subject to a floor of 0.00%) subsequent to the election, plus a margin applicable to the selected benchmark. The applicable margin was between 0.75% and 2.25% for borrowings based on the Alternative Base Rate and 1.75% and 3.25% for borrowings based on Term SOFR, depending upon the Borrower's total leverage ratio. The opening interest rate of the Credit Facility was 2.50% (LIBOR + 2.25%), which increased to 9.43% (Term SOFR + 0.1% + 4.00%) as of March 31, 2024.

 

The Citizens Credit Agreement also contains certain customary conditions applicable to extensions of credit, including that representations and warranties made in the Credit Agreement be materially true and correct at the time of such extension (once such extensions are no longer prohibited by the Fourth Amendment or a later amendment). 

 

On April 2, 2024, the Company repaid the $30,000 aggregate principal amount of the Term Loan, prior to maturity, resulting in a debt extinguishment loss of approximately $1,000, which will be recognized in the second quarter of 2024.

 

New Credit Facility

 

On April 2, 2024, Fluent, LLC, as Borrower, entered into a credit agreement (the "SLR Credit Agreement") with Fluent, Inc. and certain subsidiaries of the Borrower as guarantors, Crystal Financial LLC D/B/A SLR Credit Solutions, as administrative agent, lead arranger and bookrunner ("SLR") and each other lender from time to time party thereto.

 

The SLR Credit Agreement provides for a $20,000 term loan (the "SLR Term Loan") and a revolving credit facility of up to $30,000 (the "SLR Revolver" and together with the SLR Term Loan, the "SLR Credit Facility"). As of April 2, 2024, the SLR Credit Facility has an outstanding principal balance of $32,700 and matures on April 2, 2029.

 

The Company used a portion of the net proceeds of the SLR Credit Facility to repay its outstanding Term Loan under the Citizens Credit Agreement, dated March 31, 2021. 

 

 

There is no principal amortization prior to maturity under the SLR Credit Agreement except for certain mandatory prepayments to be made with the net cash proceeds of certain asset sales, casualty events, and other extraordinary receipts and upon the occurrence of certain other events, in each case, subject to certain reinvestment rights, thresholds and other exceptions. Unfunded commitments will be subject to an unused facility fee, which will be payable monthly in arrears, as of the month following the closing, at a rate of 0.50% per annum. All amounts owed under the Credit Facility are due and payable on the five-year anniversary of the closing date (the "Maturity Date"), or earlier following a change in control or an event of default, unless otherwise extended in accordance with the terms of the SLR Credit Agreement. Borrowings under the SLR Credit Agreement bear interest at a rate per annum equal to a 3-month term SOFR plus 0.26161%, subject to a 1.50% floor, plus 5.25% (the "Applicable Margin"). The Applicable Margin will be reduced to 5.0% when our fixed charge coverage ratio is greater than 1.10 to 1. The opening interest rate of the SLR Credit Facility was 10.81% [SOFR + CSA + 5.25%].

 

The Borrower's ability to draw on the SLR Revolver depends on its weekly borrowing base, which is calculated by adding specified percentages established by SLR of the Borrower's eligible accounts receivable and cash less reserves, subject to certain limitations.  

 

On May 15, 2024, the Borrower and SLR entered into a First Amendment to Credit Agreement, pursuant to which, among other things, SLR (1) waived any required prepayments on the SLR Revolver from the proceeds from the Company’s Private Placement; (2) required that the Credit Parties (as defined in the SLR Credit Agreement) retain a financial advisor; (3) increased the minimum excess availability covenant following the Private Placement; (4) amended the definition of borrowing base (as defined in the SLR Credit Agreement) and (5) amended certain post-closing obligations.

 

The SLR Credit Agreement contains restrictive covenants which impose limitations on the way the Company conducts business, including limitations on the amount of additional debt the Company is able to incur and its ability to make certain investments or other restricted payments. The SLR Credit Agreement is guaranteed by the Company and certain of its direct and indirect subsidiaries and is secured by substantially all of the Company's assets and those of its direct and indirect subsidiaries, including Fluent, LLC.

 

Note Payable

 

On March 17, 2024, Fluent, LLC entered into a junior secured promissory note (the "Note Payable") with Freedom Debt Relief, LLC in the principal amount of $2,000 in connection with the Berman Settlement Agreement (see Note 10, Contingencies). The Note Payable bears interest at a rate per annum equal to one-month CME Term SOFR (defined as the rate published by the CME Group Benchmark Administration Limited) plus 11.0%. The opening interest rate of the Note Payable is 16.32% [SOFR +11%].

 

A maximum of $1,000 of the borrowings under the Note Payable are secured by substantially all of the assets of Fluent, LLC. This security interest is subordinate to the security interest under the SLR Credit Agreement.

 

The Note Payable matures on March 31, 2026 and interest is payable quarterly. Scheduled principal amortization of the Note Payable is $250 per quarter, which will commence with the fiscal quarter ended June 30, 2024.

 

Maturities

 

As of March 31, 2024, scheduled future maturities of the Citizens Credit Agreement and Note Payable are as follows, not reflective of the debt being accelerated as noted in Note 1:

 

Year

  March 31, 2024 

Remainder of 2024

 $4,500 

2025

  27,250 

2026

  250 

Total maturities

  32,000