Notes Payable and Accrued Interest

9 Months Ended

Sep. 30, 2019

Notes Payable [Abstract]

Notes Payable and Accrued Interest

At September 30, 2019 and December 31, 2018, the Company’s notes payable and accrued interest consisted of the following:

	September 30, 2019			December 31, 2018
Credit Facility:
Principal	$	83,200,000		$	122,400,000
Unamortized debt issuance costs		(3,570,500	)		(674,300	)
Accrued interest		181,300			139,300
Special purpose financing:
Principal:
UK SPE Financing		-			9,211,200
Term Loans		38,796,900			-
Unamortized debt issuance costs		(1,026,300	)		-
Accrued interest		101,300			16,000
	$	117,682,700		$	131,092,200

(a) Credit Facility

As discussed below, as a result of the Forbearance Agreement, the maximum availability under the Company’s Credit Facility, which is provided by a syndicate of banks, was reduced from $145 million (with the ability for the Company to request an increase up to $160 million) to $115 million (with the ability for the Company to request an increase up to $130 million). Borrowings under the Credit Facility bear interest at floating rates that reset periodically to a market benchmark rate plus a credit margin, and the Company is obligated to pay a quarterly fee on any unused portion of the Credit Facility at a rate of 0.50%. As required under the Credit Facility agreement, within 30 days after closing of the financing, the Company entered into an interest rate protection derivative instrument with respect to $50 million of its Credit Facility debt.

The borrowings under the Credit Facility agreement are secured by a first priority lien on all of the Company's assets, including the Company’s aircraft portfolio, except those aircraft that are subject to the Term Loans. The Credit Facility agreement requires the Company to comply with certain covenants relating to payment of taxes, preservation of existence, maintenance of property and insurance, and periodic financial reporting, as well as compliance with several financial ratio covenants. The Credit Facility agreement restricts the Company with respect to certain corporate level transactions and transactions with affiliates or subsidiaries without consent of the Credit Facility Lenders. Events of default under the Credit Facility agreement include failure to make a required payment within three business days of a due date or to comply with other obligations (subject to specified cure periods for certain events of default), a default under other indebtedness of the Company, and a change in control of the Company. Remedies for default include acceleration of the outstanding debt and exercise of any remedies available under applicable law, including foreclosure on the collateral securing the borrowings under the Credit Facility.

Primarily as a result of reduced values for assets included in the borrowing base of the Company’s Credit Facility because of aircraft impairment charges and bad debt expense totaling $23,923,000 and $3,918,000, respectively, during 2019, as of September 30, 2019, the Company had a Borrowing Base Default due to the outstanding balance under the Credit Facility exceeding the amount permitted under the Credit Facility by approximately $9.4 million. The Company was also not in compliance with various covenants contained in the Credit Facility agreement, including those related to interest coverage and debt service coverage ratios and a no-net-loss requirement under the Credit Facility.

On October 15, 2019, the agent bank for the Credit Facility Lenders delivered a Reservation of Rights Letter to the Company which contained notice of the Borrowing Base Default and a demand for repayment of the amount of the Borrowing Base Deficit by January 13, 2020, and also contained formal notices of other default under the Credit Facility agreement relating to the alleged material adverse effects on the Company’s business of the recent early termination of leases for three aircraft and potential financial covenant noncompliance based on the Company’s financial projections provided to the Credit Facility Lenders. The Reservation of Rights Letter also informed the Company that further advances under the Credit Facility agreement would no longer be permitted due to the existence of such defaults.

In October and November 2019, the Company and the Credit Facility Lenders entered into the Forbearance Agreement and an amendment extending the Forbearance Agreement, which provides that the Credit Facility Lenders forbear until December 12, 2019 from exercising default remedies for the Specified Defaults unless defaults other than Specified Defaults occur under (i) the Credit Facility, (ii) any term loan indebtedness of the Company’s special purpose subsidiaries, or (iii) the Forbearance Agreement. The Forbearance Agreement (i) reduces the maximum availability under the Credit Facility to $115 million (with the ability for the Company to request an increase up to $130 million), (ii) allows the Company to continue to use LIBOR as its benchmark interest rate and (iii) increases the margin on the Company’s LIBOR-based loans under the Credit Facility from a maximum of 3.75% to 6.00%. The Company also paid a fee of $181,250 on October 28, 2019 and will pay an additional $225,000 no later than the Forbearance Expiration Date.

During the forbearance period under the Forbearance Agreement, the Company intends to formulate a Workout Plan to address the noncompliance with its Credit Facility covenants and negotiate a longer term amendment with its existing Credit Facility Lenders to address covenant compliance in the Credit Facility agreement. The Company has engaged an investment banking advisor to assist in formulating the Workout Plan and analyzing various strategic financial alternatives to address its capital structure, including strategic and financing alternatives to restructure its indebtedness and other contractual obligations.

If the Workout Plan is not approved and Enabling Amendments are not executed by the Company and the Credit Facility Lenders by the Forbearance Expiration Date, or even if the Workout Plan is approved but does not achieve its anticipated results, the Credit Facility Lenders would thereafter have the right to exercise any and all remedies for default under the Credit Facility agreement. Such remedies include, but are not limited to, declaring the entire indebtedness immediately due and payable, and if the Company were unable to repay such accelerated indebtedness, foreclosing upon the assets of the Company that secure the Credit Facility indebtedness, which consist of all of the Company’s assets except for certain assets held in the Company’s single asset special purpose financing subsidiaries.

As of December 31, 2018, the Company was not in compliance with the interest coverage, debt service coverage, no-net-loss and revenue concentration covenants under the Credit Facility. The noncompliance resulted primarily from the Company recording aircraft impairment charges and losses on sale of aircraft totaling $3,408,700 during 2018. The Credit Facility agreement was amended in February 2019 to, among other things, extend the maturity date of the Credit Facility, cure the December 31, 2018 noncompliance and revise the compliance requirements through the extended maturity date of the Credit Facility.

The unused amount of the Credit Facility was $61,800,000 and $47,600,000 as of September 30, 2019 and December 31, 2018, respectively. The weighted average interest rate on the Credit Facility was 5.81% and 5.92% at September 30, 2019 and December 31, 2018 respectively.

(b) Term Loans 

On February 8, 2019, the Company, through four wholly-owned subsidiary limited liability companies (“LLC Borrowers”), entered into a term loan agreement with the U.S. branch of a German bank (“Term Loan Lender”) that provides for six separate term loans with an aggregate principal amount of $44.3 million. Each of the Term Loans is secured by a first priority security interest in a specific aircraft (“Term Loan Collateral Aircraft”) owned by an LLC Borrower, the lease for such aircraft, and a pledge by the Company of its membership interest in each of the LLC Borrowers, pursuant to a Security Agreement (the “Security Agreement”) among the LLC Borrowers and a security trustee, and certain pledge agreements. Two of the Term Loan Collateral Aircraft that are owned by the Company’s two UK special purpose entities were previously financed using special purpose financing. The interest rates payable under the Term Loans vary by aircraft, and are based on a fixed margin above either 30-day or 3-month LIBOR. The proceeds of the Term Loans were used to pay down the Credit Facility and pay off the UK LLC SPE Financing. The maturity of each Term Loan varies by aircraft, with the first Term Loan maturing in October 2020 and the last Term Loan maturing in May 2025. The debt under the Term Loans is expected to be fully amortized by rental payments received by the LLC Borrowers from the lessees of the Term Loan Collateral Aircraft during the terms of their respective leases and remarketing proceeds.

The Term Loans include covenants that impose various restrictions and obligations on the LLC Borrowers, including covenants that require the LLC Borrowers to obtain the Term Loan Lender’s consent before they can take certain specified actions, and certain events of default. If an event of default occurs, subject to certain cure periods for certain events of default, the Term Loan Lender would have the right to terminate its obligations under the Term Loans, declare all or any portion of the amounts then outstanding under the Term Loans to be accelerated and due and payable, and/or exercise any other rights or remedies it may have under applicable law, including foreclosing on the assets that serve as security for the Term Loans.