Note 4 - Credit Facilities

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Debt Disclosure [Text Block]

4. Credit Facilities

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 for Spar Group, Inc. (“SGRP”) and certain of its direct and indirect subsidiaries in the United States and Canada, entered into individual 18-month Loan and Security Agreements with NM dated as of April 10, 2019. The revolving credit facility requires the Company to maintain a lockbox whereby all cash remittances from SMF (as defined below) and customers are applied to reduce the borrowings. As such, the line of credit is classified as a current obligation in the consolidated balance sheets.

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 “Second 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 Spar Marketing Force ( “SMF”) 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 (USD) million from $3.9 (USD) million. 

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 December 31, 2021, the aggregate interest rate was 5.25% per annum, and the outstanding loan balance was $9.7 million with a fair market value of $9.9 million versus 6.75% and $8.3 million with a fair market value of $8.4 million on December 31, 2020. 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 December 31, 2021.

Fifth Third Credit Facility

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, with an expiration date of June 16, 2022. 

As of December 31, 2021, there was no outstanding balance. 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). The Fifth Third Credit Facility is secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facility required 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 December 31, 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 in violation of this covenant at December 31, 2021. Fifth Third issued a waiver of default for the Resource Plus' covenant violation as of December 31, 2021 prior to the termination of the facility.

Subsequent to  December 31, 2021, Resource Plus closed the line of credit with Fifth Third Bank on March 11, 2022.  Resource Plus maintained an existing $850,000 cash balance with Fifth Third Bank to be in compliance with their insurance policy.

Resource Plus – Seller Notes

Effective with the closing of the Resource Plus acquisition, it entered into promissory notes with the sellers totaling $2.3 million. The notes are payable in annual installments at various amounts due on December 31^st 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 annual interest rate was 1.85% and the total balance owed at  December 31, 2021 was approximately $1.0 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 $572,000 USD (based upon the exchange rate at December 31, 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  December 31, 2021 was $164,000 (Australian) or $118,000 USD and is due on demand, and  December 31, 2020 was $200,000 (Australian) or $154,000 USD, respectively.

SPAR China has secured a loan with Construction Bank, effective June 30, 2021, for 1.0 million Chinese Yuan or approximately $157,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire May 31, 2022. The annual interest rate was 4.25% as of December 31, 2021. There was no outstanding balance with Construction Bank as of December 31, 2021.

SPAR China has secured a loan with People’s Bank of China, effective June 21, 2021, for 1.0 million Chinese Yuan or approximately $157,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire June 7, 2022. The annual interest rate was 3.65% as of December 31, 2021. The outstanding balance with People’s Bank of China as of December 31, 2021 was 1.0 million Chinese Yuan or $157,000 USD and is due on demand.

SPAR China has secured a loan with Industrial Bank, effective December 18, 2020, for 3.0 million Chinese Yuan or approximately $472,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire December 18, 2022. The annual interest rate was 6.0% as of December 31, 2021. The outstanding balance with Industrial Bank as of December 31, 2021 was 3.0 million Chinese Yuan or $472,000 USD and is due on demand,  December 31, 2020 was 3.0 million Chinese Yuan or $460,000 USD, respectively.

SPAR China has secured a loan with Industrial and Commericao Bank of China, effective December 21, 2021, for 2.0 million Chinese Yuan or approximately $315,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire November 4, 2022. The annual interest rate was 4.15% as of December 31, 2021. The outstanding balance with Industrial and Commericao Bank of China as of December 31, 2021 was 2.0 million Chinese Yuan or $315,000 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 $383,000 USD (based upon the exchange rate at December 31, 2021). The line expires on February 2022. The variable interest rate is the interbank “equilibrium” rate known as the TIIE plus 3.0% resulting in a rate of 7.5% as of December 31, 2021. There was no outstanding balance as of December 31, 2021.

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer for 7.5 million Mexican Pesos, or approximately $359,000 USD (based upon the exchange rate at December 31, 2021) effective May 1, 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 December 31, 2021. There was no outstanding balance as of December 31, 2021.

Summary of the Company’s lines of credit and short-term loans (in thousands):

	Effective Interest Rate as of
Used Availability:	December 31, 2021			2022		2023
USA – North Mill Capital		5.38	%		9,680		–
USA – Resource Plus Sellers		1.87	%		300		700
Australia – National Australia Bank		6.76	%		118		–
China – People’s Bank of China		3.71	%		157		–
China – Industrial Bank		6.17	%		472		–
China – Industrial and Commercial Bank of China		4.23	%		315		–
China – Construction Bank		5.33	%		–		–
Mexico – Ve Por Mas		7.76	%		–		–
Mexico – Bancomer Bank		9.92	%		–		–
Total				$	11,042	$	700

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

	December 31, 2021		December 31, 2020
Unused Availability:
United States, (excluding Resource Plus facility)	$	5,319	$	10,238
Mexico		743		262
China		157		–
Australia		455		463
Total Unused Availability	$	6,674	$	10,963