FINANCING ARRANGEMENTS

12 Months Ended

Mar. 31, 2020

On February 25, 2020, the Company and Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”), entered into Amendment No. 3 to the Amended and Restated Credit Agreement (the “Third Amendment”). The Third Amendment extends the termination date for the revolving credit commitment and the supplemental revolving credit commitment to the earlier of August 31, 2021, the date the Company reduces the respective commitment to zero or termination due to an event of default. Thirteen of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT and continue to grant a first priority security interest in each subsidiary’s assets to MBT as collateral for such obligations.

On February 25, 2020, AirCo 1, LLC, entered into Amendment No. 1 to the Loan Agreement with MBT (the “First Amendment”). The First Amendment extends the stated termination date of the revolving facility to August 31, 2021.

Borrowings of the Company and its subsidiaries are summarized below at March 31, 2020 and March 31, 2019, respectively (in thousands):


	March 31, 2020		March 31, 2019		Maturity Date	Interest Rate	Unused commitments
Air T Debt
Revolver - MBT	$	—	$	12,403	8/31/21	Prime - 1%	$	17,000
Term Note A - MBT	7,750		8,750		1/1/28	1-month LIBOR + 2%
Term Note B - MBT	3,875		4,375		1/1/28	4.50%
Term Note D - MBT	1,540		1,607		1/1/28	1-month LIBOR + 2%
Debt - Trust Preferred Securities	12,877		—		6/7/49	8.00%
Supplemental Revolver - MBT	9,550		—		6/30/20	Greater of 1-month LIBOR + 1.25% and 3%	450
Total	35,592		27,135

AirCo Debt
Revolver - MBT	—		3,820		5/21/19	7.50%
Revolver - MBT	8,335		—		8/31/21	Greater of 6.5% or Prime + 2%	1,665
Term Loan - MBT	—		450		12/17/19	7.50%
Term Loan - MBT	—		400		6/17/20	7.25%
Term Loan - Park State	—		2,100		6/17/20	8.50%
Total	8,335		6,770

Contrail Debt
Revolver - ONB	21,284		—		9/5/21¹	1-month LIBOR + 3.45%	18,716
Term Loan A - ONB	6,285		8,617		1/26/21	1-month LIBOR + 3.75%
Term Loan B - ONB	—		15,500		9/14/21	1-month LIBOR + 3.75%
Term Loan D - ONB	—		—		10/30/21	1-month LIBOR + 3.75%
Term Loan E - ONB	6,320		—		12/1/22	1-month LIBOR + 3.75%
Term Loan F - ONB	8,358		—		2/1/25	1-month LIBOR + 3.75%
Total	42,247		24,117

Total Debt	86,174		58,022

Less: Unamortized Debt Issuance Costs	(354)		(369)
Total Debt, net	$	85,820	$	57,653

The weighted average interest rate on short term borrowings outstanding as of March 31, 2020 and March 31, 2019 was 3.7% and 5.3%, respectively.

The Air T revolving credit facility and the Contrail revolving credit facility contain affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates.

The obligations of Contrail under the Contrail Credit Agreement with Old National Bank are secured by a first-priority security interest in substantially all of the assets of Contrail. The obligations of Contrail under the Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with MBT.

At March 31, 2020, our contractual financing obligations, including payments due by period, are as follows (in thousands):


Fiscal year ended	Amount
2021	$	42,684
2022	13,901
2023	4,991
2024	3,267
2025	3,126
Thereafter	18,205
	86,174
Less: Unamortized Debt Issuance Costs	(354)
	$	85,820

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.

Fair Value of Debts—As of March 31, 2020 and 2019, the carrying amounts reported in the consolidated balance sheets for the Company’s debt instruments approximate the fair values. Estimated fair values are determined by comparing current borrowing rates and risk spreads offered in the market (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available, to the stated interest rates and spreads on the Company’s debts.

Interest Expense, net - The components of net interest expense during the years ended March 31, 2020 and March 31, 2019 are as follows (in thousands):


	March 31, 2020	March 31, 2019
Contractual interest	4,458	3,291
Amortization of deferred financing costs	237	194
Interest income	(3)	(58)
Total	4,692	3,427

Other - 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 the securities 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 Note 24.

•The Company issued and distributed to existing common shareholders, via a non-cash transaction from equity, an aggregate of 1.6 million trust preferred capital security shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants (representing warrants to purchase $21.0 million in stated value of TruPs).

On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share.

As of March 31, 2020, approximately 3.6 million Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $12.9 million as of March 31, 2020.

At March 31, 2020, the Company had Warrants outstanding and exercisable to purchase approximately 4.8 million shares of its TruPs at an exercise price of $2.40 per one-tenth of a share. The Warrants are exercisable and as of March 31, 2020, will expire on June 7, 2020 or earlier upon redemption or liquidation.

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 have been 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 forecasted transactions (interest payments) affects earnings. As of March 31, 2020 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $0.9 million and $0.2 million, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the year ended March 31, 2020, the Company recorded a loss of approximately $0.5 million, net of tax, in the consolidated statement of comprehensive income for changes in the fair value of the instruments.