DEBT

12 Months Ended

Jul. 31, 2023

Debt Disclosure [Abstract]

DEBT

DEBTThe components of debt and a reconciliation to the carrying amount of long-term debt is presented in the table below:

	Successor		Predecessor
	July 31, 2023		July 31, 2022
	(In thousands)
Unsecured
7.50% Convertible Senior Note due September 1, 2024	$	12,461	$	14,940
Credit Facilities
Umpqua Revolver	—		—
Less: unamortized discounts and issuance costs(a)(b)	—		(3,972)
Total debt, net	$	12,461	$	10,968

(a) As of May 1, 2023, the Company will account for the SPHG Note under the fair value option.

(b) Amounts include deferred debt issuance costs related to credit facilities of $79 thousand as of July 31, 2022, which are presented in Other Assets.

7.50% Convertible Senior Note

On February 28, 2019, the Company entered into a 7.50% Convertible Senior Note Due 2024 Purchase Agreement (the "SPHG Note Purchase Agreement") with SPH Group Holdings LLC ("SPHG Holdings"), whereby SPHG Holdings agreed to loan the Company $14.9 million in exchange for a 7.50% Convertible Senior Note due 2024 (the "SPHG Note").

On March 9, 2023 (the "Amendment Date"), the Company and SPHG Holdings entered into an amendment to the SPHG Note (the “SPHG Note Amendment”). Pursuant to the SPHG Note Amendment, the maturity date of the SPHG Note was extended six months from March 1, 2024 to September 1, 2024. In addition, the Company repaid $1.0 million in principal amount of the SPHG Note on the Amendment Date, and repaid an additional $1.0 million principal amount of the note on June 9, 2023. In connection with the SPHG Note Amendment, the Company paid SPHG Holdings a cash amendment fee of $0.1 million, and derecognized $0.2 million of the debt discount in proportion to the reduction of the principal balance in the third quarter of fiscal 2023. No other changes were made to the terms of the SPHG Note besides the items discussed.

SPHG Holdings has the right, at its option, prior to the close of business on the business day immediately preceding the maturity date of the SPHG Note, to convert the SPHG Note or a portion thereof that is $1,000 or an integral multiple thereof, into shares of common stock (if the Company has not received a required stockholder approval) or cash, shares of common stock or a combination of cash and shares of common stock, as applicable (if the Company has received a required stockholder approval), at an initial conversion rate of 45.1356 shares of common stock, which is equivalent to an initial conversion price of approximately $22.16 per share (subject to adjustment as provided in the SPHG Note) per $1,000 principal amount of the SPHG Note, subject to, and in accordance with, the settlement provisions of the SPHG Note. As of July 31, 2023, the if-converted value of the SPHG Note did not exceed the principal value of the SPHG Note.

The below discusses the components of the SPHG Note as of July 31, 2023 and July 31, 2022:

On May 1, 2023, as a result of pushdown accounting related to the Exchange Transaction, the carrying value of the SPHG Note was remeasured to $13.0 million, which represents its fair value. As of May 1, 2023, the Company will now account for the SPHG Note under the fair value option in order to conform with Steel Holdings' basis of accounting, with changes in fair value recognized in earnings. Refer to Note 3 - "Exchange Transaction" and Note 23 - "Fair Value Measurements" for further information.

As of July 31, 2023, the principal amount of the SPHG note was $12.9 million. The fair value of the SPHG note was $12.5 million.

As of July 31, 2022, the principal amount of the SPHG note was $14.9 million and the net carrying value of the SPHG note was $11.0 million. As of July 31, 2022, the effective interest rate on the SPHG Note, including accretion of the discount, was 27.8%, which was the effective interest rate prior to the SPHG Note Amendment. The effective interest rate subsequent to the SPHG Note Amendment was 23.0%.

	Predecessor
	July 31, 2022
Carrying amount of equity component	$	8,200
Principal amount of note	$	14,940
Unamortized debt discount	(3,893)
Net carrying amount	$	11,047

Below is a reconciliation of interest expense related to the SPHG Note to total interest expense:

	Successor		Predecessor
	May 1 to July 31,		August 1, 2022 to April 30,		Fiscal Year Ended July 31,
	2023		2023		2022
	(In thousands)
Interest expense related to contractual interest coupon on the SPHG Note	$	261	$	844	$	1,136
Interest expense related to accretion of the discount on the SPHG Note	—		1,688		1,704
Interest expense related to revolving credit facilities (see below)	—		36		212
Other	4		20		68
Total interest expense	$	265	$	2,588	$	3,120

Umpqua Revolver

On March 16, 2022, ModusLink, as borrower, entered into a new credit agreement with Umpqua Bank as lender and as agent. The Umpqua Revolver provides for a maximum credit commitment of $12.5 million and a sublimit of $5.0 million for letters of credit and expires on March 31, 2025. Concurrent with signing the Umpqua Revolver ModusLink submitted a notice of termination to MidCap Financial Trust for its $12.5 million revolving credit facility (the “MidCap Credit Facility”), which was set to expire on December 31, 2022. There was no balance outstanding on the Midcap Credit Facility at the time of its termination.

On March 13, 2023, ModusLink and Umpqua Bank entered into an amendment to the Umpqua Revolver (the "Umpqua Revolver Amendment") to extend the expiration date of the facility from March 16, 2024 to March 31, 2025. There were no fees associated with the extension. As of April 30, 2023, there were $43.4 thousand of unamortized debt issuance costs recorded to other current assets, which were written off with the application of pushdown accounting. Refer to Note 3 - "Exchange Transaction" for further details.

As of July 31, 2023, ModusLink was in compliance with the Umpqua Revolver's covenants, and believes it will remain in compliance with the Umpqua Revolver’s covenants for the next twelve months. As of July 31, 2023, ModusLink had available borrowing capacity of $11.9 million and there was $0.6 million outstanding for letters of credit.