Debt

3 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Debt

Debt

Debt is comprised of the following (in thousands):

	9/30/2023		6/30/2023
Short-term and current maturities
Loan and Security Agreement (Term Loan)	$	2,168	$	1,495
Brazil Loans	3,102		3,466
Subtotal short-term and current maturities	5,270		4,961
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	3,284		1,957
Loan and Security Agreement (Line of Credit)	4,897		2,897
Brazil Loans	145		827
Debt Reacquisition Cost	(382)		(408)
Subtotal long-term debt	7,944		5,273
Total Debt	$	13,214	$	10,234

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a Loan and Security agreement (the "Loan and Security Agreement") with HSBC Bank USA (the "Lender"). The Company incurred debt re-acquisition cost of $0.5 million which are recorded net of debt and amortized over five years.

These credit facilities are comprised of a $30 million revolving Loan and Security Agreement Line of Credit ("Line of Credit") with a $10 million uncommitted accordion provision, a Loan and Security Agreement Term Loan ("the Term Loan") with

original principal of $12.1 million and a $7 million Capital Expenditure draw down credit facility (collectively, the "Facilities"). The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries.

The interest rate on the Facilities is based on a grid which uses the percentage of the remaining availability of the revolving credit line to determine the floating margin to be added to the one month or three months Secured Overnight Financing Rate, ("SOFR)". The Facilities mature on April 29, 2027.

Availability under the revolving line of credit is secured by and subject to a borrowing base comprised of eligible inventory and accounts receivable. The percentage of receivables included in the borrowing base is 90% for domestic investment grade and foreign insured accounts, 85% for domestic accounts that are neither investment grade nor insured, and 75% of foreign uninsured accounts. The percentage of inventory included in the borrowing base is the lower of 65% of the value of eligible inventory at cost or 85% of the net orderly liquidation value of eligible inventory at cost. Receivables and inventory are reported monthly to HSBC and subject to an annual field exam and inventory appraisal by an independent auditor commissioned by the Bank. The Company believes that the agreement provides an initial borrowing base sufficient for current domestic working capital needs and flexibility to accommodate potential growth-related working capital needs.

Availability under the Line of Credit remains subject to a borrowing base comprised of accounts receivable, inventory, and real estate. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $30.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

Availability under the Term Loan facility was comprised of 70% of the fair market value of the Borrowers’ eligible real estate, which included facilities located in Westlake, Ohio, and Waite Park, Minnesota and totaled $4.6 million; and 85% of the net orderly liquidation value of the Borrowers’ machinery and equipment, capped at $7.5 million. The real estate portion of the Term facility is subject to a 12.5 year straight line amortization paid quarterly, and the machinery and equipment portion of the facility is subject to a 6.67 year straight line amortization, also paid quarterly. The Term Loan is subject to equal quarterly installments of $373,650, payable on the last day of each fiscal quarter.

The capital expenditure loan facility is available for the purchase of new machinery and equipment at 80% of the net invoice value of new machinery and equipment purchases, with a draw period of eighteen months past the closing date, with any amount outstanding under the facility subject to a 3.75% amortization rate per quarter.

The Facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the U.S. borrowing companies tested quarterly and the Condensed Consolidated L.S. Starrett Company tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate all commitments and facilities, and require the immediate payment of the entire unpaid principal balances, accrued interest, and all other obligations.

In Brazil affecting the need for borrowing, the Company historically had a build-up of ICMS (which translates to "Tax on Commerce and Services"). The Company has changed the methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at that rate again. The ICMS balance as of June 30, 2023 was $4.9 million and $4.8 million as of September 30, 2023. The balance is located on the unaudited Condensed Consolidated Balance Sheets in prepaid expenses and other current assets.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of September 30, 2023 (in thousands):

Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Itau	4.52	%	October 2021	September 2024	$	2,286
Itau	4.98	%	February 2022	February 2024	609
Brasil	4.95	%	August 2022	July 2025	289
Brasil	3.80	%	September 2022	August 2024	63
					$	3,247