Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below at June 30, 2019 and March 31, 2019, respectively. AirCo, Contrail Aviation (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.



	June 30, 2019			March 31, 2019			Maturity Date	Interest Rate	Unused commitments
Revolver - MB&T	$	14,830,650		$	12,403,213		November 30, 2019	Prime - 1%	$2,169,351
Term Note A - MB&T	8,500,000			8,750,000			January 1, 2028	1-month LIBOR + 2%
Term Note B - MB&T	4,250,000			4,375,000			January 1, 2028	4.5%
Term Note D - MB&T	1,590,400			1,607,200			January 1, 2028	1-month LIBOR + 2%
Debt - Trust Preferred Securities	6,102,310			—			June 7, 2049	8%
Air T Debt	35,273,360			27,135,413

Revolver - MB&T	—			3,820,000			May 21, 2019	7.5%	5,000,000
Revolver - MB&T	4,876,259			—			November 30, 2019	greater of 6.50% or Prime + 2%	5,123,741
Term Loan - MB&T	—			450,000			December 17, 2019	7.50%
Term Loan - MB&T	—			400,000			June 17, 2020	7.25%
Term Loan - Park State	2,100,000			2,100,000			June 17, 2020	8.50%
AirCo Debt	6,976,259			6,770,000

Revolver	—			—			May 5, 2019	1-month LIBOR + 3%	—
Term Loan	8,152,054			8,616,336			January 26, 2021	1-month LIBOR + 3.75%
Term Loan	14,000,000			15,500,000			September 14, 2021	1-month LIBOR + 3.75%
Contrail Debt - Old National	22,152,054			24,116,336

Total Debt	64,401,673			58,021,749

Less: Unamortized Debt Issuance Costs	(341,612		)	(368,760		)
Total Debt, net	$	64,060,061		$	57,652,989

At June 30, 2019, our contractual financing obligations, including payments due by period, are as follows:



Due by	Amount
June 30, 2020	$	27,774,151
June 30, 2021	17,319,212
June 30, 2022	3,567,200
June 30, 2023	1,567,200
June 30, 2024	1,567,200
Thereafter	12,606,710
	64,401,673
Less: Unamortized Debt Issuance Costs	(341,612		)
	$	64,060,061

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 7 for discussion.


•	The Company issued and distributed to existing common shareholders an aggregate of 1,600,000 trust preferred capital security ("TruPs") shares (aggregate $4,000,000 stated value) and an aggregate of 8,400,000 warrants ("Warrants") (representing warrants to purchase $21,000,000 in stated value of TruPs). The Warrants are exercisable for one year from issuance.

•

The Company entered into an 8% Junior Subordinated Debenture (“Debenture”) to pay to Air T Funding ("the Trust") a principal sum of $4,000,000 on June 7, 2049, and to pay interest on said principal sum quarterly at the rate of 8.0% per annum. The Company's Debenture and the Trust's associated note receivable (the "Note") are eliminated in the Company's consolidated financial statements, and Debt - Trust Preferred Securities is presented as a component of long-term debt on our consolidated balance sheets.

The issuance of the TruPs and Warrants is disclosed on our consolidated statements of equity as well as within the supplemental non-cash disclosure of the Company's consolidated statements of cash flows. As of June 30, 2019, 840,924 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $6,102,310 as of June 30, 2019.

At June 30, 2019, the Company had Warrants outstanding and exercisable to purchase 7,559,076 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 June 30, 2019
Warrant liability (Level 2)	$	755,907

As of June 30, 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).

On April 3, 2019, AirCo entered into a revolving line of credit agreement with MBT in the amount of $10,000,000 with a maturity date of November 30, 2019. The annual interest rate is stated at the greater of 6.50% or the sum of the Prime Rate plus 2.00%. AirCo used the proceeds from this transaction to pay off the outstanding balances on their term loans.

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 June 30, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $456,000 and $227,000, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended June 30, 2019, the Company recorded a loss of approximately $176,038, net of tax, in the consolidated statement of comprehensive income for changes in the fair value of the instruments.