Borrowings

9 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Borrowings

12. Borrowings

The Company’s subsidiaries’ outstanding borrowings are summarized in the following table:

(in thousands)	Subsidiaries	March 31, 2022			June 30, 2021
Equipment Financing	DME Inc. and subsidiaries		2,711			2,041
Less current portion of capitalized equipment financing			(2,711	)		(1,974	)
Equipment financing debt, net of current portion		$	-		$	67

The Company incurred interest expense of $0.03 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively. The Company incurred interest expense of $0.9 million and $2.3 million for the nine months ended March 31, 2022 and 2021, respectively.

The Company’s aggregate future required principal debt repayments are summarized in the following table:

(in thousands)	Principal Due
For the three months ending June 30, 2022	$	1,230
For the year ending June 30, 2023		1,481
Total	$	2,711

Additional details of each borrowing by operating segment are discussed below.

Durable Medical Equipment

The Corbel Facility was assumed in the acquisition of the durable medical equipment businesses in 2018 and was repaid on December 29, 2020. The Corbel Facility was held by Corbel, a related party, which also holds a non-controlling interest in DME Inc. and HC LLC Series A-1 Preferred Stock. See Note 6 – Related Party Transactions and Note 15 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

Principal payments and interest expense incurred on the Corbel Facility are summarized in the following table:

	For the three months ended March 31,				For the nine months ended March 31,
(in thousands)	2022		2021		2022		2021
Principal payments	$	-	$	-	$	-	$	25,106
Interest expense		-		-		-		1,296

The Company also assumed a revolving line of credit with Banc of California (formally Pacific Mercantile Bank) (DME Revolver) in the acquisition of the durable medical equipment businesses in 2018. There were no borrowings outstanding under the DME Revolver at March 31, 2022. DME Revolver allows for borrowings up to $10 million, subject to a fixed percentage of qualifying accounts receivables and inventories related to the durable medical equipment business operations. Borrowings under the line of credit are due on November 29, 2022 and accrue interest at a variable rate of the prime rate plus 0.4% per annum. At March 31, 2022 the interest rate was 3.9%. Interest is payable monthly in arrears. The Company has the option to prepay the borrowings without any penalty.

The borrowings under the DME Revolver are collateralized by the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The DME Revolver includes covenants that restrict HC LLC’s and its subsidiaries’ business operations to the current business, limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions. Events of default include the failure to pay amounts when due, bankruptcy, or violation of covenants, including a change in control of HC LLC. HC LLC and its subsidiaries on a consolidated basis must also comply with a fixed-charge coverage and leverage ratio financial covenants, which are based in part on the HC LLC EBITDA levels. The obligations under the DME Revolver are non-recourse to the Company.

HC LLC’s operating subsidiaries also utilize equipment financing debt to fund certain inventory and equipment purchases from suppliers. These equipment financing debt agreements are entered into with third party banks and are generally payable in equal installments over terms of one to three years, depending on the nature of the underlying purchases being financed. The debt is secured by the inventory and equipment, as applicable, of the operating subsidiaries entering into the agreements, and the long-term agreements have implicit interest rates between 7 – 8%. During the nine months ended March 31, 2022 and 2021, the Company financed $4.6 million and $3.6 million, respectively, in inventory and equipment through such financing agreements.

Investment Management

As part of the entry into the investment management business, the Company acquired certain assets from MAST Capital and in consideration for those assets, Great Elm GECC GP Corp. (GP Corp.) issued a senior secured note payable (the GP Corp. Note). The GP Corp. Note matures in November 2026, accrues interest at a variable rate of three-month LIBOR plus 3.0% per annum and is secured by a profit sharing agreement related to GECM’s management of GECC. On March 10, 2021, GEG purchased the GP Corp. Note as well as non-controlling interests in GP Corp. and certain board appointment rights from MAST Capital. In exchange, GEG issued $2.3 million of Convertible Notes. As MAST Capital is a related party, no gain was recorded on the transaction. The difference in carrying value between the instruments purchased (including the GP Corp. Note and MAST Capital’s non-controlling interests) and that of the newly issued convertible notes was treated as a capital contribution and recorded to additional paid in capital in the amount of $0.6 million.

Payments and interest expense incurred on the GP Corp. Note are summarized in the following table:

	For the three months ended March 31,				For the nine months ended March 31,
(in thousands)	2022(1)		2021		2022(1)		2021
Principal payments	$	-	$	-	$	-	$	-
Interest expense		-		22		-		73

(1) Principal and interest amounts incurred after GEG’s purchase of the GP Corp. note are not reported in this table, as they eliminate in consolidation.