Notes Payable and Accrued Interest

6 Months Ended

Jun. 30, 2021

Notes Payable and Accrued Interest

NOTE 4 - Notes Payable and Accrued Interest

4. Notes Payable and Accrued Interest

At June 30, 2021 and December 31, 2020, the Company’s notes payable and accrued interest consisted of the following. The Drake Indebtedness and PPP Loan (discussed in Note 4(c)) are included in liabilities subject to compromise at June 30, 2021 in the accompanying condensed consolidated balance sheet.

	June 30, 2021		December 31, 2020
Drake Indebtedness, subject to compromise at June 30, 2021:
Principal	$	79,936,800	$	88,557,000
Unamortized debt issuance costs		-		(780,900	)
Accrued interest		124,100		739,000
PPP Loan, subject to compromise at June 30, 2021:
Principal		170,000		276,400
Accrued interest		600		1,700
	$	80,231,500	$	88,793,200
Nord Loans held for sale:
Principal	$	-	$	14,091,300
Unamortized debt issuance costs		-		(313,400	)
Accrued interest		-		59,000
	$	-	$	13,836,900

(a) Drake Indebtedness

On October 30, 2020, the MUFG Lenders under the Company’s MUFG Loan sold the MUFG Loan and the $3.1 million obligation of the Company from termination of the MUFG Swaps to Drake, and the Company and Drake entered into the Drake Loan Agreement under which, among other things, the cash component of interest due for March 2020 and thereafter for the term of the loan will be capitalized.

The Drake Indebtedness is secured by a first priority lien held by Drake, which lien is documented in an amended and restated mortgage and security agreement assigned to Drake, on all of the Company’s assets, including the Company’s entire aircraft portfolio, other than one aircraft leased to a Kenyan lessee and certain Part-out Assets. The Drake Indebtedness had a stated maturity date of March 31, 2021, but collection of debt under, and the exercise of rights or remedies pursuant to, the Drake Loan Agreement were stayed due to the Company’s Chapter 11 filing, as discussed in Note 1(e), “Automatic Stay.” The Company has entered into the Stalking Horse Agreement with Drake for the sale of certain of the aircraft assets securing the Drake Indebtedness (the “Drake Collateral”), which has been approved by the Bankruptcy Court as the best and/or highest offer for the Drake Collateral. The Company is proceeding with transfer of title to the Drake Collateral pursuant to the Stalking Horse Agreement. Upon consummation of such transfers of title to Drake pursuant to the Stalking Horse Agreement, the Company’s obligations to Drake under the Drake Indebtedness will be deemed fully satisfied.

(b) Nord Loans

On February 8, 2019, the Company, through four wholly-owned subsidiary limited liability companies (“LLC Borrowers”), entered into a term loan agreement with NordDeutsche Landesbank Girozentrale, New York Branch (“Nord”) that provided for six separate term loans (“Nord Loans”) with an aggregate principal amount of $44.3 million. Each of the Nord Loans was secured by a first priority security interest in a specific aircraft (“Nord 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 among the LLC Borrowers and a security trustee, and certain pledge agreements.

The interest rates payable under the Nord Loans varied by aircraft and were based on a fixed margin above either 30-day or 3-month LIBOR. The maturity of each Nord Loan varied by aircraft, with the first Nord Loan maturing in October 2020 and the last Nord Loan maturing in May 2025. The debt under the Nord Loans was expected to be fully amortized by rental payments received by the LLC Borrowers from the lessees of the Nord Loan Collateral Aircraft during the terms of their respective leases and remarketing proceeds.

The Nord Loans included covenants that imposed various restrictions and obligations on the LLC Borrowers, including covenants that required the LLC Borrowers to obtain Nord consent before they could take certain specified actions, and certain events of default. The Company was in compliance with all covenants under the Nord Loans at December 31, 2020.

One of the Nord Loan Collateral Aircraft was sold in 2019 and two Nord Loan Collateral Aircraft were sold in 2020. The excess proceeds from the 2020 sales were held as restricted cash by ACY E-175. The restricted cash, the three aircraft held by ACY E-175 and ACY E-175’s Nord Loans and derivative liability were classified as held for sale at December 31, 2020. During March 2021, the Company sold its interest in ACY E-175 and was released from any remaining guarantee obligations under the Nord Loan and interest swap obligations of the special-purpose subsidiary.

(c) Paycheck Protection Program Loans

On May 20, 2020, JetFleet Management Corp. (the “PPP Borrower”), an indirect subsidiary of AeroCentury Corp., was granted a loan (the “PPP Loan”) from American Express National Bank in the aggregate amount of $276,353, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated May 18, 2020 issued by the PPP Borrower, was forgiven during the second quarter of 2021 and the Company recorded $279,200 of loan forgiveness as a negative expense in its condensed consolidated statement of operations.

In February 2021, the Company was granted a second PPP Loan (“Second PPP Loan”) (collectively, with the initial PPP Loan, the “PPP Loans”) in the aggregate amount of $170,002. The Second PPP Loan, in the form of a Note dated February 11, 2021, matures on February 11, 2026 and bears interest at a rate of 1.00% per annum, payable in monthly payments commencing 30 days after the Small Business Administration has made its final determination that any part of the loan will not be forgiven.

The applications for the PPP Loans required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loans attendant to these funds, is dependent on the Company having initially qualified for the loans and qualifying for the forgiveness of such loans based on its future adherence to the forgiveness criteria.

The Second PPP Loan may be prepaid by the PPP Borrower at any time prior to maturity with no prepayment penalties. Funds from the PPP Loans may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. The Company intends to use the entire PPP Loans for qualifying expenses. Under the terms of the PPP, certain amounts of the Second PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Although the Company expects that all or a significant portion of the Second PPP Loan will be forgiven, no assurance can be provided that the Company will obtain such forgiveness.