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Note 9 - Term Loans and Line of Credit Agreements | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Debt Disclosure [Text Block] | Note 9. Term Loan s and Line of Credit Agreements 2016 Term Loan Agreement On December 20, 2016, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “2016 Term Loan Agreement”) with Laurel Capital Corporation which provided for a $12.0 million term loan. At closing, $9.1 million of the proceeds were used to pay off amounts outstanding under the then existing line of credit agreement and associated accrued interest with Home Savings Bank, dated May 21, 2015, as amended, and pay related transaction costs associated with the 2016 Term Loan Agreement. The line of credit agreement with Home Savings Bank was terminated in conjunction with the repayment. Remaining proceeds of $2.9 million under the 2016 Term Loan Agreement were deposited in a project fund account to fund costs of renovating and expanding The Grand Resort. At September 30, 2019 the project fund proceeds related to the 2016 Term Loan Agreement were fully utilized. At December 31, 2018, the remaining project fund proceeds of approximately $0.5 million are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.” On December 4, 2017 the 2016 Term Loan Agreement was amended to restate the definition of “Total Fixed Charges” utilized in the calculation of the “Fixed Charge Coverage Ratio.” The $12.0 million term loan amount is payable in 119 equal monthly installments of principal and interest , based on a fifteen ( 15 ) year maturity schedule which commenced on January 20, 2017. The 2016 Term Loan Agreement matures on December 20, 2026 at which time the final balloon payment equal to the remaining outstanding principal, interest and fees are due. Borrowings under the 2016 Term Loan Agreement bear interest at a fixed rate of 5.35% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.35% per annum or (b) the sum of the Index Rate on the date two ( 2 ) business days prior to the reset date plus 3.95%, provided that the applicable rate shall in no event exceed 7.50% per annum. Avalon has the right to prepay the amount outstanding under the 2016 Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent ( 5% ) on any prepayment in the first five years; four percent ( 4% ) on any prepayment in the sixth and seventh year; three percent ( 3% ) on any prepayment in the eighth and ninth year; and two percent ( 2% ) on any prepayment in the tenth year. Borrowings under the 2016 Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The 2016 Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the 2016 Term Loan Agreement covenants at September 30, 2019 and December 31, 2018. The Company incurred approximately $191,000 of debt issuance costs in connection with the 2016 Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the 2016 Term Loan Agreement. In accordance with ASU 2015 - 03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015 - 03” ), these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability. 2019 Term Loan Agreement On March 29, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “2019 Term Loan Agreement”) with Laurel Capital Corporation which provided for a $3.0 million term loan. At closing, a portion of the proceeds were used to pay related transaction costs associated with the 2019 Term Loan Agreement with the remaining proceeds deposited into a project fund account to fund costs of renovating and expanding The Grand Resort. At September 30, 2019 the project fund proceeds related to the 2019 Term Loan Agreement were fully utilized. The $3.0 million outstanding under the 2019 Term Loan Agreement is payable in 92 equal monthly installments of principal and interest , based on a fifteen ( 15 ) year maturity schedule which commenced on April 20, 2019 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of December 20, 2026. Borrowings under the 2019 Term Loan Agreement bear interest at a fixed rate of 6.25% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 6.25% per annum or (b) the sum of the Index Rate on the date two ( 2 ) business days prior to the reset date plus 3.60%, provided that the applicable rate shall in no event exceed 8.50% per annum. Avalon has the right to prepay the amount outstanding under the 2019 Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent ( 5% ) on any prepayment in the first five years and two percent ( 2% ) on any prepayment in the sixth, seventh or eighth year. Borrowings under the 2019 Term Loan Agreement are secured by a second priority mortgage lien on the land, building and improvements on the property owned by The Grand Resort as defined in the agreement. The 2019 Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the 2019 Term Loan Agreement covenants at September 30, 2019. The Company incurred approximately $42,000 of debt issuance costs in connection with the 2019 Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the 2019 Term Loan Agreement. In accordance with ASU 2015 - 03, these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability. Commercial Mortgage On May 13, 2019, Havana Cigar Shop, Inc., a wholly owned subsidiary of Avalon, entered into an asset Purchase and Sale Agreement with New Castle Country Club (the “Club”) for the purchase of the real property assets associated with the Club. Havana Cigar Shop, Inc. concurrently entered into an Assignment and Assumption and Commercial Loan Modification Agreement (the “Assumption Agreement”) with Mercer County State Bank for the outstanding debt under the Club’s Commercial Mortgage (the “Commercial Mortgage”) and Demand Line of Credit, as amended (the “Demand Line of Credit”), at closing as consideration for the purchase of the real property of the Club (See Note 16 ). At closing the outstanding principal balance assumed under the Commercial Mortgage obligation was $653,000. The $653,000 outstanding under the $950,000 Commercial Mortgage is payable in 110 equal monthly installments of $7,573 consisting of principal and interest which commenced May 21, 2019 and matures on June 21, 2028. Borrowings under the Commercial Mortgage bear interest at a fixed rate of 5.50% until June 21, 2023 at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 4.25% per annum or (b) the Prime Rate plus 0.50%. Avalon has the right to prepay the amount outstanding under the Commercial Mortgage, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, with no prepayment penalty. Borrowings under the Commercial Mortgage are secured by a first lien mortgage and assignment of leases and rents on the land, building and improvements on the property and non-real estate assets owned by Havana Cigar Shop, Inc. The Commercial Mortgage also contains certain financial and other covenants, customary representations, warranties and events of default. Demand Line of Credit Under the Assumption Agreement Havana Cigar Shop, Inc. also assumed the Club’s $150,000 Commercial Demand Line of Credit with Mercer County State Bank of which $134,000 was outstanding at closing. Monthly payments consist of interest only on the outstanding principal balance with principal due on demand in the event of default as defined in the Commercial Demand Line of Credit agreement. During the third quarter of 2019, the outstanding balance was paid in full. No additional funds were drawn under the Demand Line of Credit at September 30, 2019. Outstanding borrowings under the Commercial Demand Line of Credit bear interest at Prime Rate plus 0.50%. At September 30, 2019, the interest rate on the Commercial Demand Line of Credit was 5.50%. Borrowings under the Commercial Demand Line of Credit are secured by a second lien mortgage and assignment of leases and rents on the land, building and improvements on the property and non-real estate assets owned by Havana Cigar Shop, Inc. The Commercial Demand Line of Credit agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Line of Credit Agreement On May 31, 2018, Avalon entered into a new business loan agreement with Home Savings Bank, (the “Line of Credit Agreement”) which provides for a line of credit of up to $5.0 million with an original maturity date of May 31, 2020. On June 17, 2019, the Company amended the Line of Credit Agreement to extend the maturity date to May 31, 2021. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement. The existing line of credit agreement with Home Savings Bank, dated December 20, 2016, as amended, which was entered into concurrently with the 2016 Term Loan Agreement, was terminated in conjunction with the new Line of Credit Agreement. No amounts were outstanding under the existing line of credit agreement at termination. At September 30, 2019, $575,000 was outstanding under the Line of Credit Agreement. No amounts were drawn under the Line of Credit Agreement at December 31, 2018. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At September 30, 2019, the interest rate on the Line of Credit Agreement was 5.25%. Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the line of credit agreements covenants at September 30, 2019 and December 31, 2018. During the three month periods ended September 30, 2019 and 2018, the weighted average interest rate on outstanding borrowings was 5.53% and 5.35%, respectively. During the nine month periods ended September 30, 2019 and 2018, the weighted average interest rate on outstanding borrowings was 5.48% and 5.35%, respectively. Obligations under the Company’s term loan and mortgage agreements at September 30, 2019 and December 31, 2018 consist of the following (in thousands):
|  | September 30, 2019 |
|  | Gross Amount |  |  | Debt Issuance Costs |  |  | Net Amount |
2016 Term loan agreement |  | $ | 10,454 |  |  | $ | (139 | ) |  | $ | 10,315 |
2019 Term loan agreement |  |  | 2,934 |  |  |  | (39 | ) |  |  | 2,895 |
Commercial Mortgage |  |  | 630 |  |  |  | - |  |  |  | 630 |
Total |  |  | 14,018 |  |  |  | (178 | ) |  |  | 13,840 |
Less current portion |  |  | 807 |  |  |  | (25 | ) |  |  | 782 |
Long-term debt |  | $ | 13,211 |  |  | $ | (153 | ) |  | $ | 13,058 |
|  | December 31, 2018 |
|  | Gross Amount |  |  | Debt Issuance Costs |  |  | Net Amount |
2016 Term loan agreement |  | $ | 10,898 |  |  | $ | (153 | ) |  | $ | 10,745 |
Less current portion |  |  | 597 |  |  |  | (19 | ) |  |  | 578 |
Long-term debt |  | $ | 10,301 |  |  | $ | (134 | ) |  | $ | 10,167 |
Future maturities under the Company term loan and mortgage agreements are as follows (in thousands):
For the Twelve Month Period Ending September 30, |  |  |  |
2020 |  | $ | 807 |
2021 |  |  | 853 |
2022 |  |  | 901 |
2023 |  |  | 951 |
2024 |  |  | 1,005 |
Thereafter |  |  | 9,501 |
Total |  | $ | 14,018 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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