Note 9 - Term Loans and Line of Credit Agreements

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 9. Term Loans and Line of Credit Agreements

Term Loan Agreement

On December 20, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “Term Loan Agreement”) with Laurel Capital Corporation which provided for a $23.0 million term loan. At closing, $13.8 million of the proceeds were used to pay off and refinance amounts outstanding under our then existing term loan and commercial mortgage agreements, $1.7 million of the proceeds were used to pay down the outstanding balance and associated interest on our existing line of credit agreement and $0.3 million of the proceeds were utilized to pay related transaction costs. The remaining proceeds of approximately $7.2 million were deposited into a project fund account for which those proceeds are required to fund future costs of renovating and expanding both The Grand Resort and Avalon Field Club at New Castle. Restricted cash in the project fund account was fully utilized at June 30, 2022. At December 31, 2021, loan proceeds of $1.7 million are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.”

The then existing term loan and commercial mortgage agreements were terminated in conjunction with the Term Loan Agreement.

The Term Loan Agreement is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced January 20, 2020 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of December 20, 2029. Borrowings under the Term Loan Agreement bear interest at a fixed rate of 5.00% 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) 5.00% per annum or (b) the sum of the five year treasury 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 7.35% per annum.

Avalon has the right to prepay the amount outstanding under the 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 Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The Term Loan Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The Term Loan also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the Term Loan Agreement covenants at June 30, 2022 and December 31, 2021.

The Company capitalized approximately $0.4 million of debt issuance costs in connection with the Term Loan Agreement. The Company is amortizing these costs over the life of the Term Loan Agreement. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.

Line of Credit Agreement

On May 31, 2018, Avalon entered into a business loan agreement with Premier Bank (formerly Home Savings Bank), (the “Line of Credit Agreement”) which provides for a line of credit of up to $5.0 million. On July 22, 2022, the Company amended the Line of Credit Agreement to extend the maturity date to July 31, 2024. 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.

No amounts were drawn under the Line of Credit Agreement at June 30, 2022 and December 31, 2021. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At June 30, 2022, the interest rate on the Line of Credit Agreement was 5.00%.

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 contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The Line of Credit Agreement also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreements covenants at June 30, 2022 and December 31, 2021.

Paycheck Protection Program Loan

The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, which was signed into law in March 2020, authorized the Small Business Administration to temporarily guarantee loans under a loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during the covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. Collateral or guarantor support is not required for the loan.

In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $2.8 million in loans under the Program. The Company utilized the entire balance of the loan proceeds in accordance with the Program’s guidelines and subsequently applied for forgiveness with the Small Business Administration.

The Company accounted for the loans in accordance with ASC 470 – Debt. Under ASC 470, the debt will be derecognized when the debt is extinguished in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment. During the three months ended June 30, 2021, approximately $0.9 million of the loans and $9,000 of associated interest were forgiven by the Small Business Administration. During the six months ended June 30, 2021, approximately $2.0 million of the loans and $17,000 of associated interest were forgiven by the Small Business Administration. As of June 30, 2021, all loan proceeds received under the Program and related interest were forgiven by the Small Business Administration.

During the three months ended June 30, 2022 and 2021, the weighted average interest rate on outstanding borrowings was 5.00% and 4.92%, respectively. During the six months ended June 30, 2022 and 2021, the weighted average interest rate on outstanding borrowings was 5.00% and 4.86%, respectively.

Obligations under the Company’s debt agreements at June 30, 2022 and December 31, 2021 consist of the following (in thousands):

	June 30, 2022
	Gross Amount		Debt Issuance Costs			Net Amount
Term Loan Agreement	$	20,256	$	(310	)	$	19,946
Less current portion		1,197		(42	)		1,155
Long-term debt	$	19,059	$	(268	)	$	18,791

	December 31, 2021
	Gross Amount		Debt Issuance Costs			Net Amount
Term Loan Agreement	$	20,833	$	(331	)	$	20,502
Less current portion		1,168		(42	)		1,126
Long-term debt	$	19,665	$	(289	)	$	19,376

For the twelve months ending June 30, future maturities of long-term debt are as follows (in thousands):

2023	$	1,197
2024		1,258
2025		1,323
2026		1,390
2027		1,461
Thereafter		13,627
Total	$	20,256