Financing Arrangements

9 Months Ended

Dec. 31, 2019

Borrowings of the Company and its subsidiaries are summarized below (in thousands) at December 31, 2019 and March 31, 2019, respectively. AirCo and Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Contrail Aviation Leasing Ireland DAC, CRO No. 662616 (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.

On October 30, 2019, Contrail entered into Supplement #5 to Master Loan Agreement with Old National Bank (“Supplement #5”). In connection therewith, Contrail entered into the Promissory Note Term Note D in the principal amount of $7,553,165 to ONB (“Term Note D”). The Term Note D has a maturity date of October 30, 2021, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth. Term Note D was fully paid off in the current quarter.

On December 19, 2019, Contrail entered into Supplement #6 to that certain Master Loan Agreement with ONB. In connection therewith, Contrail entered into that certain Promissory Note Term Note E in the principal amount of $6,894,790 to ONB (“Term Note E”). The Term Note E has a maturity date of December 1, 2022, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth.

On December 31, 2019, the Company and Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”, "the bank"), entered into Amendment No. 2 to that certain Amended and Restated Credit Agreement (the “Second Amendment”). In connection with the Second Amendment, the Company entered into that certain Supplemental Revolving Credit Note in the principal amount of $10,000,000 to MBT (the “Note”). The Note has a maturity date of June 30, 2020, with a fluctuating annual rate of interest equal to the greater of (a) the sum of (i) the LIBOR Rate, and as the same may adjust monthly, plus (ii) 1.25%; or (b) 3.00%; provided, that, upon the occurrence and during the continuance of any Event of Default as defined therein, the rate of interest thereunder shall be increased by 3.00% above the rate of interest that would otherwise be in effect thereunder. The loan is secured by a pledge of a continuing security interest in the demand deposit cash collateral accounts of Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company, with an aggregate account cash balance of $10,000,000 under the sole control by MBT. Twelve of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT.


(In Thousands)	December 31, 2019		March 31, 2019		Maturity Date	Interest Rate	Unused commitments
Revolver - MB&T	$	13,608	$	12,403	February 28, 2020	Prime - 1%	$	3,392
Term Note A - MB&T	8,000		8,750		January 1, 2028	1-month LIBOR + 2%
Term Note B - MB&T	4,000		4,375		January 1, 2028	4.5%
Term Note D - MB&T	1,557		1,607		January 1, 2028	1-month LIBOR + 2%
Debt - Trust Preferred Securities	10,292		—		June 7, 2049	8%
Note - MB&T	10,000		—		June 30, 2020	1-month LIBOR + 1.25% or 3%	—
Air T Debt	47,457		27,135

Revolver - MB&T	—		3,820		May 21, 2019	7.5%
Revolver - MB&T	9,327		—		February 28, 2020	greater of 6.50% or Prime + 2%	673
Term Loan - MB&T	—		450		December 17, 2019	7.50%
Term Loan - MB&T	—		400		June 17, 2020	7.25%
Term Loan - Park State	—		2,100		June 17, 2020	8.50%
AirCo Debt	9,327		6,770

Revolver	11,652		—		September 5, 2021	1-month LIBOR + 3%	8,348
Term Loan A	6,808		8,617		January 26, 2021	1-month LIBOR + 3.75%
Term Loan B	—		15,500		September 14, 2021	1-month LIBOR + 3.75%
Term Loan C	9,621		—		August 1, 2024	1-month LIBOR + 3.75%
Term Loan D	—		—		October 30, 2021	1-month LIBOR + 3.75%
Term Loan E	6,895		—		December 1, 2022	1-month LIBOR + 3.75%
Contrail Debt - Old National	34,976		24,117

Total Debt	91,760		58,022

Less: Unamortized Debt Issuance Costs	(261)		(369)
Total Debt, net	$	91,499	$	57,653

Maturities - At December 31, 2019, our contractual financing obligations, including payments due by period, are as follows (in thousands):


Due by	Amount
December 31, 2020	$	51,504
December 31, 2021	12,795
December 31, 2022	6,601
December 31, 2023	3,279
December 31, 2024	1,567
Thereafter	16,014
	91,760
Less: Unamortized Debt Issuance Costs	(261)
	$	91,499

Liquidity and Financial Condition - The Company's condensed consolidated financial statements as of December 31, 2019 have been prepared assuming that the Company will continue its operations as a going concern. The Company believes cash on hand, net cash provided by operations, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to extend the maturity of or refinance the Air T and AirCo revolvers ("revolvers") maturing February 28, 2020. Based on our discussions to date with MBT, as well as our history of refinancing with MBT and the receipt of written confirmation from MBT indicating their intention to refinance the revolvers, at substantially the same terms, with maturity dates extending beyond February 28, 2021, the Company believes the plan to refinance these revolvers is probable of occurring.

Other - On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:

•A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split). See Footnote 6 for discussion.

•The Company issued and distributed to existing common shareholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs). The Warrants are exercisable for one year from issuance.

As of December 31, 2019, 2,516,916 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $10,292,000 as of December 31, 2019.

At December 31, 2019, the Company had Warrants outstanding and exercisable to purchase 5,883,084 shares of its TruPs at an exercise price of $2.40 per share, which represents a discount to the $2.50 face value of each Trust Preferred Security. The Warrants will expire on June 7, 2020 or earlier upon redemption or liquidation.


	Fair Value Measurement as of December 31, 2019
Warrant liability (Level 2)	$	588,308

As of December 31, 2019, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).

The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.

As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.

As of August 1, 2018, these swap contracts were designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedge transaction affects earnings. As of December 31, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $448,000 and $227,000, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended December 31, 2019, the Company recorded a gain of approximately $94,000, net of tax, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.