Borrowings

12 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Borrowings

13.Borrowings

Related party borrowings of the Company’s subsidiaries are summarized in the following table:

		As of June 30,
(in thousands)	Subsidiaries	2022		2021
Seller Note	GECM	$	6,270	$	-
GP Corp. Note	GEC GP	*		*
Total principal		$	6,270	$	-
Unamortized debt issuance cost			-		-
Total long-term related party notes payable			6,270		-
Less current portion of related party notes payable			-		-
Related party notes payable, net of current portion		$	6,270	$	-

*Balance eliminates in consolidation.

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

		As of June 30,
(in thousands)	Subsidiaries	2022			2021
GEGGL Notes	GEG	$	26,945		$	-
DME Revolver	HC LLC and subsidiaries		-			-
Equipment Financing	HC LLC and subsidiaries		2,993			2,041
Total principal		$	29,938		$	2,041
Unamortized debt discounts and issuance costs			(1,413	)		-
Total other outstanding borrowings			28,525			2,041
Less current portion of other outstanding borrowings			(2,993	)		(1,974	)
Other outstanding borrowings, net of current portion		$	25,532		$	67

The Company incurred interest expense on these borrowings of $4.0 million and $3.2 million for the years ended June 30, 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 year ending June 30, 2023	$	2,993
For the year ending June 30, 2024		6,270
For the year ending June 30, 2025		-
For the year ending June 30, 2026		-
For the year ending June 30, 2027		26,945
Thereafter		-
Total	$	36,208

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

Durable Medical Equipment

In connection with the acquisition of DME Inc., the Company assumed a secured note (Corbel Facility) with a principal balance of $8.5 million, which was amended and increased to $25 million concurrent with the closing of the acquisition described in Note 6 – Acquisitions. In addition, the Company assumed and expanded a revolving line of credit agreement with Banc of California (formerly Pacific Mercantile Bank) (DME Revolver) with a principal balance of $0.8 million, which was amended and increased to $6.3 million at the date of acquisition.

The Corbel Facility was repaid on December 29, 2020. The repayment included deferred structuring fees of $0.6 million, prepayment premiums and settlement fees of $1.0 million, and lender legal fees of $0.1 million. In addition, upon repayment, the Company wrote off the remaining unamortized debt issuance costs of $0.2 million, resulting in an aggregate $1.9 million loss on extinguishment of debt.

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 7 – Related Party Transactions and Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

Principal payments and interest expense incurred on the Corbel Facility for the year ended June 30, 2021 were $25.1 million and $1.3 million, respectively.

There were no borrowings outstanding under the DME Revolver at June 30, 2022. The 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 0.40% per annum. At June 30, 2022 the interest rate was 5.2%. 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 its 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 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 Company was in compliance with all material covenants and restrictions at June 30, 2022.

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 3rd 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%. The Company financed $6.4 million and $3.6 million in inventory and equipment through such financing agreements during the years ended June 30, 2022 and 2021, respectively.

Investment Management

On May 4, 2022 as part of the consideration paid to acquire the Monomoy REIT asset management agreement, GECM issued ICAM a $6.3 million promissory note (the Seller Note). The Seller Note is due on August 4, 2023 and is payable at GECM’s option with either cash, GECC shares owned by GEG, or newly issued GEG shares (subject to shareholder approval). There are no prepayment penalties. The Seller Note bears interest at 6.5%, which is paid quarterly.

During the year ended June 30, 2022, the Company incurred $0.1 million in interest expense on the Seller Note. There were no principal payments made during the year ended June 30, 2022.

As part of the entry into the investment management business, the Company acquired certain assets from MAST Capital Management, LLC (MAST Capital) and in consideration for those assets, 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 was 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.

During the year ended June 30, 2021, the Company incurred interest expense of $0.1 million on the GP Corp. Note. Principal payments made and interest expense accrued after March 10, 2021 are eliminated in consolidation.

General Corporate

On June 9, 2022, we issued $26.9 million in aggregate principal amount of 7.25% Notes due 2027 (the GEGGL Notes), which included $1.9 million of GEGGL Notes issued in connection with the partial exercise of the underwriters’ over-allotment option. The aggregate principal balance of the GEGGL Notes outstanding as of June 30, 2022 is $26.9 million. The GEGGL Notes are unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness. The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Convertible Notes and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries. We pay interest on the GEGGL Notes on March 31, June 30, September 30 and December 31 of each year. The GEGGL Notes will mature on June 30, 2027. The GEGGL Notes can be called on, or after, June 30, 2024. Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date. The Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends subject to compliance with a net consolidated debt to equity ratio of 2:1. As of June 30, 2022 our consolidated debt to equity ratio is 1.2:1.