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Note 5 - Credit Facilities and Other Debt
 9 Months Ended
Sep. 30, 2021
Notes to Financial Statements  
Debt Disclosure [Text Block]

5.

Credit Facilities and Other Debt

 

Domestic Credit Facilities

 

North Mill Capital Credit Facility

 

The Company has a secured revolving credit facility in the United States and Canada (the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit ("NM"). 

 

In order to obtain, document and govern the NM Credit Facility: SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, entered into 18-month individual Loan and Security Agreements with NM dated as of April 10, 2019. 

 

On January 5, 2021, the Company and NM entered into an agreement as of January 4, 2021, and effective as of December 31, 2020 (the "First Modification Agreement"), to extend the NM Credit Facility from October 10, 2021 to April 10, 2022, and increased the amounts of the credit facilities to $14.5 (USD) million in the USA and decreased the facility to $1.5 (CDN) million in Canada; in addition the First Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% from January 1, 2021 through June 30, 2021, and increased the unbilled cap for SMF to $4.5 million (USD) from $3.9 million (USD). 

 

The NM Credit Facility as amended by the First Modification Agreement continued to require the Company to pay interest on the loans equal to (A) Prime Rate designated by Wells Fargo Bank, plus (B) one hundred twenty-five basis points (1.25%) or a minimum of 6.75%. In addition, the Company continues to pay a facility fee to NM of 1.5% for the first $10.5 million loan balance, or $157,500 per year over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $14.5 million. Additionally, for the First Modification Agreement, SPAR paid NM a fee of $7,500 and agreed to reimburse NM's legal and documentation fees.

 

On March 22, 2021, the Company and NM executed and delivered a Second Modification Agreement effective as of April 1, 2021 (the "Second Modification Agreement"), pursuant to which NM and the Company agreed to extend the NM Loan Agreements from April 10, 2022 to October 10, 2023, and increased the amounts of the credit facilities for SMF to $16.5 (USD) million in the USA while the SCC facility remained at $1.5 (CDN) million in Canada; in addition, the Second Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% permanently, and increased the unbilled cap for SMF to $5.5 (USD) million from $4.5 (USD) million. The NM Loan Agreements as amended by the Second Modification Agreement will require the Company to pay interest on the loans equal to: (A) Prime Rate designated by Wells Fargo Bank, plus; (B) one hundred twenty-five basis points (1.25%) or a minimum of 5.25%. In addition, the Company continues to pay a facility fee to NM of 0.8% (decreased from 1.5%) for the first $10.5 million loan balance, or $84,000 per year, over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $16.5 million. Additionally, the early termination fee has decreased from 1.0% to 0.85% of the advance limit.

 

On September 30, 2021, the aggregate interest rate was 5.25% per annum, and the outstanding loan balance was $12.7 million. Outstanding amounts are classified as short-term debt.

 

The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the Company, including, maintaining a positive trailing EBITDA for each Borrower, limits on non-ordinary course payments and transactions, incurring or guarantying indebtedness, increases in executive, officer or director compensation, capital expenditures and other investments. The Company was in compliance of such covenants as of September 30, 2021.

 

 

Fifth Third Credit Facility - Resource Plus

 

One of the Company's consolidated subsidiaries, Resource Plus of North Florida, Inc. ("Resource Plus"), is a party to a revolving line of credit facility (the "Fifth Third Credit Facility") from Fifth Third Bank for $3.5 million, which is currently scheduled to expire on June 16, 2022. 

 

Revolving loans of up to $3.5 million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the applicable loan agreement (principally 80% of "eligible" accounts receivable less certain reserves). As of September 30, 2021, there was no outstanding balance. The Fifth Third Credit Facility is secured by substantially all assets of Resource Plus.

 

The Fifth Third Credit Facility currently requires Resource Plus to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined in the applicable loan agreement) per annum, plus (B) two hundred fifty basis points (2.50%). On September 30, 2021, the aggregate interest rate under that formula was 3.6% per annum. The Fifth Third Credit Facility contains a debt service charge coverage ratio financial covenant requiring Resource Plus to maintain a minimum ratio of 1.2 for available cash flow to fixed charges, as defined in the agreement. Resource Plus was not in compliance with the covenant as of September 30, 2021 and has obtained a waiver from Fifth Third Bank.

 

Resource Plus - Seller Notes

 

Effective with the closing of the Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling $2.3 million. The notes are payable in annual installments at various amounts due on December 31st of each year starting with December 31, 2018 and continuing through December 31, 2023. As such these notes are classified as both short term and long term for the appropriate amounts. The total balance owed at  September 30, 2021 was approximately $1.3 million.

 

International Credit Facilities

 

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with National Australia Bank, effective October 31, 2017, for $800,000 (Australian) or approximately $586,000 USD (based upon the exchange rate at September 30, 2021). The facility provides for borrowing based upon a formula, as defined in the applicable loan agreement (principally 80% of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bank as of  September 30, 2021 was $83,000 (Australian) or $61,000 USD and is due on demand.

 

SPAR China has secured a loan with Construction Bank for 1.0 million Chinese Yuan or approximately $155,000 USD (based upon the exchange rate at September 30, 2021). The loan will expire May 31, 2022. The annual interest rate was 4.25% as of September 30, 2021. The outstanding balance with Construction Bank as of September 30, 2021 was 1.0 million Chinese Yuan or $155,000 USD and is due on demand.

 

SPAR China has secured a loan with People's Bank of China for 1.0 million Chinese Yuan or approximately $155,000 USD (based upon the exchange rate at September 30, 2021). The loan will expire June 7, 2022. The annual interest rate was 3.65% as of September 30, 2021. The outstanding balance with People's Bank of China as of September 30, 2021 was 1.0 million Chinese Yuan or $155,000 USD and is due on demand.

 

SPAR China has secured a loan with Industrial Bank for 3.0 million Chinese Yuan or approximately $465,000 USD (based upon the exchange rate at September 30, 2021). The loan will expire December 17, 2021. The annual interest rate was 6.0% as of September 30, 2021. The outstanding balance with Industrial Bank as of September 30, 2021 was 3.0 million Chinese Yuan or $465,000 USD and is due on demand.

 

Effective February 4, 2020, SPAR Todopromo established a line of credit facility with Ve Por Mas for 8.0 million Mexican Pesos or approximately $400,000 USD (based upon the exchange rate at September 30, 2021). The line expires on February 2022. The variable interest rate is TIIE plus 3.0% resulting in a rate of 7.5% as of September 30, 2021. There was no outstanding balance as of September 30, 2021.

 

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer for 7.5 million Mexican Pesos, or approximately $375,000 USD (based upon the exchange rate at September 30, 2021). The revolving line of credit expires May 2022. The variable interest rate is TIIE plus 5.2% resulting in a rate of 9.5% as of September 30, 2021. There was no outstanding balance as of September 30, 2021.

 

  

Interest Rate

                         
  

as of

                         
  

September 30, 2021

  

2021

  

2022

  

2023

  

2024

  

2025

  

2026

 

Australia - National Australia Bank

  6.56%  61   -   -   -   -   - 

China- Construction Bank

  4.25%  155   -   -   -   -   - 

China- People's Bank of China

  3.65%  155   -   -   -   -   - 

China- Industrial Bank

  6.00%  465   -   -   -   -   - 

USA - North Mill Capital

  5.25%  12,692   -   -   -   -   - 

USA - Resource Plus Seller Notes

  1.85%  300   300   700   -   -   - 

Total

     $13,828  $300  $700  $-  $-  $– 

 

Summary of Unused Company Credit and Other Debt Facilities (in thousands):

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Unused Availability:

        

United States / Canada

 $5,807  $10,238 

Australia

  526   262 

Mexico

  775   463 

Total Unused Availability

 $7,108  $10,963 

 

Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations.