Subordinated Debt

12 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Subordinated Debt

Subordinated Debt

The following table summarizes the Company’s subordinated debt for the years ended December 31, 2022 and 2021:

($ in thousands)	2022		2021
Junior subordinated interest debentures, due September 15, 2036, payable quarterly
Principal	$	59,794	$	59,794
Less: Debt issuance costs	(657)		(705)
Unsecured subordinated notes, due May 24, 2039, interest payable quarterly
Principal	20,000		20,000
Less: Debt issuance costs	(528)		(560)
Subordinated debt, net of debt issuance costs	$	78,609	$	78,529

In May 2019, the Company entered into an agreement to issue unsecured subordinated notes (the “Notes”) with an aggregate principal amount of $20.0 million. Interest on the Notes is fixed at 7.25% for the first 8 years and fixed at 8.25% thereafter. Early retirement of the debt ahead of 8 year commitment requires all interest payments to be paid in full as well as the return of outstanding principal. Principal is due at maturity on May 24, 2039 and interest is payable quarterly. The Notes have junior priority to all previously issued debt. The Company reports debt related to the Notes in its December 31, 2022 and 2021 consolidated balance sheets, net of debt issuance costs of approximately $0.5 million and $0.6 million, respectively. These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

On August 2, 2006, Delos Capital Trust n/k/a HIIG Capital Trust I (the “Trust”), a Delaware statutory trust, issued $58.0 million of fixed/floating rate capital securities guaranteed by us. The Trust also issued us $1.8 million of common stock, classified within other long-term investments. The Company has not consolidated the Trust that issued the capital securities, as it does not meet the criteria for consolidation and the Company does not have significant influence over the investee. The Company carries its investment in the common stock of the Trust at cost. There were no impairments or observable changes in price during the year ended December 31, 2022.

The sole asset of the Trust consists of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”) with a principal amount of $59.8 million issued by the Company. The Debentures are an unsecured obligation that are currently redeemable, and have a maturity date of September 15, 2036. Interest on the Debentures is payable quarterly at an annual rate based on the three-month LIBOR (4.77% at December 31, 2022) plus 3.4%. The Company reflects debt related to the Debentures in its December 31, 2022 and 2021 consolidated balance sheets, net of debt issuance costs of approximately $0.7 million and $0.7 million, respectively. These deferred financing costs are presented as a direct deduction from the carrying amount of the subordinated debt.

Notes Payable

The following table summarizes the Company’s notes payable for the years ended December 31, 2022 and 2021:

($ in thousands)	2022		2021
Term loan, due December 31, 2024, interest payable quarterly	$	50,000	$	50,000

The interest rate on the $50.0 million term loan is the lesser of the one-month LIBOR (4.39% on December 31, 2022) plus the Applicable Margin, which is defined as 1.65%, or the highest lawful rate. Interest-only payments are due and payable on a quarterly basis through December 31, 2024. The principal balance of the $50.0 million term loan is due December 31, 2024.

Interest payments on the term loan at December 31, 2022 and 2021 were as follows:

($ in thousands)	2022		2021
Interest payments on term loan	$	1,443	$	894

The interest rate on the $50.0 million revolving line of credit is the lesser of the prime rate, as published by the Wall Street Journal, or the one-month LIBOR (4.39% on December 31, 2022) plus the Applicable Margin, which is defined as the lesser of 1.65%, or the highest lawful rate. The revolving promissory note includes a fee of 0.25% on the unused portion. Interest-only payments are due and payable on a quarterly basis through December 31, 2024. The entire principal balance of the $50.0 million revolving line of credit is due December 31, 2024. Subject to lender approval, the Company has a right to increase the capacity to $75.0 million.

Interest payments on the Company’s revolving line of credit at December 31, 2022 and 2021 were as follows:

($ in thousands)	2022		2021
Interest payments on revolving line of credit	$	—	$	127

The indebtedness is collateralized by a perfected first priority security interest in all of the assets of the Company, SUA and the outstanding capital stock of HSIC, which are both subsidiaries of the Company.

The Company’s credit agreement includes financial covenants that require the Company maintain minimum surplus and risk-based capital on HSIC, minimum net worth, and a minimum fixed charge coverage ratio as well as other customary covenants and events of default. As of December 31, 2022, the Company was in compliance with all covenants in its credit agreement.