Debt and lease liabilities

6 Months Ended

Jun. 30, 2020

Senior Credit Facility

On February 20, 2018, the Company entered a Commercial Business Loan Agreement that provides for Term Loans and Lines of Credit with Hancock Whitney Bank.

Line of Credit

The Company maintains a line of credit in the amount of $10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor and will be secured by substantially all of the Company's assets. There were no borrowings against this line of credit at June 30, 2020 or December 31, 2019.

Commercial Term Notes

On May 30, 2019, the Company entered into a term note (the “Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $4,845,000. The proceeds of the Building Term Note were used to purchase the Company's corporate headquarters. Beginning July 1, 2019, the Company began making monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of the assets of the borrower, including the real property acquired with the proceeds of the Building Term Note. The Building Term Note bears interest at a variable rate equal to the one month ICE LIBOR index plus a margin of 2.45% per annum. The Company is required to maintain a loan to value ratio of 85% with respect to the appraised value of the real property. In connection with the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68%.

On September 19, 2019, the Company entered into an additional loan agreement providing for a term note (the “Term Note") under the Commercial Business Loan Agreement in the principal amount of $5,000,000. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company started making monthly principal payments of $139,000 towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of the assets of the borrower. The Term Note bears interest at the rate of 4.60% per annum.

The Company incurred immaterial financing costs related to the above term notes. These deferred financing costs are amortized over the term of the loans using the effective interest method.

The Company has recognized these term notes, which have terms greater than twelve months, as follows:


	June 30, 2020		December 31, 2019
Notes payable	$	8,517	$	9,379
Less:
Current portion of notes payable	(1,794)		(1,750)
Net long-term notes payable	$	6,723	$	7,629

Under the terms of the Commercial Business Loan Agreement, the Company is subject to the following financial covenants:

Financial Covenant

Required Ratio

Ratio

Total Debt to Adjusted EBITDA (Quarterly)

not more than 1.50:1.00

0.45

Fixed Charge Coverage Ratio (Quarterly)

not less than 1.35:1.00

17.12

Loan-to-Value Ratio (Quarterly)

not more than 0.85

0.72

The Company was in compliance with all covenants in effect at June 30, 2020.

Leases

The Company has recognized finance lease liabilities for medical equipment and operating leases for land and buildings that have terms greater than twelve months, as follows:


	June 30, 2020		December 31, 2019
Lease liabilities	$	6,994	$	10,132
Less:
Current portion of lease liabilities	(5,467)		(7,093)
Net long-term lease liabilities	$	1,527	$	3,039

Finance lease liabilities

The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 9.64%, secured by equipment, due between 2020 and 2022. The Company's weighted average interest rate was 2.75% and 0.47% for all finance lease liabilities outstanding as of June 30, 2020 and 2019, respectively. At June 30, 2020 and 2019, the weighted average lease term was approximately 0.90 years and 0.76 years, respectively. Interest expense related to these finance lease obligations for the three and six months ended June 30, 2020 amounted to $42,000 and $94,000, respectively. Interest expense related to these finance lease obligations for the three and six months ended June 30, 2019 amounted to $20,000 and $46,000, respectively.

Operating lease liabilities

The Company has recognized operating lease liabilities that relate primarily to the lease of land and buildings. These leases contain renewal options that we have not included as part of the Company's assessment of the lease term as it is not reasonably certain that we will exercise these options. These lease liabilities are recorded at present value based on a discount rate of 5.50%, which was based on the Company's incremental borrowing rate at the time of assessment. At June 30, 2020, the weighted average lease term was approximately 3.52 years. Operating rental expenses were $201,000 and $385,000 for the three and six months ended June 30, 2020, respectively, and $89,000 and $178,000 for the three and six months ended June 30, 2019.

Included within these operating lease liabilities are real property leases for real estate from a related party. Rental payments under these related party lease agreements are $20,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $61,000 and $121,000 for the three and six months ended June 30, 2020, respectively, and $61,000 and $121,000 for the three and six months ended June 30, 2019, respectively. The expense for these related party rents has been included within general and administrative expenses.