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Long-Term Debt and Revolving Line of Credit

12 Months Ended

Jun. 30, 2012

LONG-TERM DEBT AND REVOLVING LINE OF CREDIT

Long-term debt consisted of the following:


	June 30,
	2012			2011
Term Loan	$	16,086		$	29,086
Callaway RDA Loan		4,376			0
Capital lease obligations		176			169

Total		20,638			29,255
Less current maturities		(9,050	)		(1,814	)

	$	11,588		$	27,441

SunLink Credit Facility—On April 23, 2008, SunLink entered into a $47,000 seven-year senior secured credit facility (“Credit Facility”) initially comprised of a revolving line of credit of up to $12,000 (the “Revolving Loan”) and a $35,000 term loan (the “Term Loan”). The Credit Facility has subsequently been amended by eight modification agreements as a result of which the Revolving Loan commitment was reduced to $9,000 effective September 27, 2010 and the termination date was changed to January 1, 2013 effective July 28, 2011. At June 30, 2012, the Revolving Loan balance was $5,931 with an interest rate at LIBOR plus 9.375% (12.125% at June 30, 2012) and the Term Loan had an outstanding balance of $16,086 with an interest rate at LIBOR plus 11.32% (14.07% at June 30, 2012). In the Credit Facility, LIBOR is defined as the Thirty-Day published rate, not to be less than 2.75%, nor more than 5.50%. The maximum availability of the Revolving Loan is keyed to the calculated net collectible value of eligible accounts receivable. Interest rates for the Revolving Loan and Term Loan were as follows:


	Interest Rate
Dates	Term Loan			Revolver
July 1, 2009—September 21, 2010		7.82	%		6.25	%
September 22, 2010—November 14, 2010		10.82	%		9.25	%
November 15, 2010—February 15, 2011		11.82	%		10.25	%
February 16, 2011—April 14, 2011		12.82	%		11.25	%
April 15, 2011—May 15, 2011		13.82	%		12.25	%
May 16, 2011—July 15, 2011		14.82	%		13.25	%
July 16, 2011—July 28, 2011		15.82	%		14.25	%
July 29, 2011—September 30, 2011		13.57	%		11.625	%
October 1, 2011—December 31, 2011		13.82	%		11.875	%

Financing costs and expenses related to the Credit Facility of $2,639 are being amortized over the modified life of the Credit Facility. Accumulated amortization and amortization expense was approximately $2,523 and $201, respectively, as of and for the fiscal year ended June 30, 2012 and $2,322 and $1,485 as of and for the fiscal year ended June 30, 2011. The decreased financing cost amortization in the fiscal year ended June 30, 2012 resulted from the change in the termination date of the Credit Facility from April 2015 to September 30, 2011 effective September 27, 2010. The termination date was changed to January 1, 2013 effective July 28, 2012. The Credit Facility is secured by a first priority security interest in substantially all real and personal property of the Company and its consolidated domestic subsidiaries, including a pledge of all of the equity interests in such subsidiaries (except for Callaway Community Hospital (“Callaway”) which is a second lien on the real and personal property).

The Credit Facility contains various terms and conditions, including operational and financial restrictions and limitations, and affirmative and negative covenants. The covenants include financial covenants measured on a quarterly basis which require SunLink to comply with maximum leverage and minimum fixed charge ratios, maximum capital expenditure amounts, collateral value to loan amount and liquidity and cash flow measures, all as defined in the Credit Facility. We believe that the Company should be able to continue in compliance with the revised levels of financial covenants and terms in the Credit Facility through January 2013, but there is no assurance that the Company will be able to do so.

If we fail to remain in compliance with the Credit Facility as modified, we would cease to have a right to draw on the revolving line of credit facility and the lenders would, among other things, be entitled to call a default and demand repayment of the indebtedness outstanding. If SunLink or its applicable subsidiaries experience a material adverse change in their business, assets, financial condition, management or operations, or if the value of the collateral securing the Credit Facility decreases, we may be unable to draw on the credit facility.

Subsequent to June 30, 2012, $15,000 was repaid on the Term Loan consisting of $7,500 of proceeds from the sale of Memorial and $7,500 of proceeds from the Trace RDA Loan. $1,000 was paid on the Revolving Loan subsequent to year end using proceeds from the sale of Memorial. The Term Loan and Revolving Loan balances at September 10, 2012 were $649 and $4,931, respectively.

Additionally, subsequent to June 30, 2012 and prior to the issuance of the financial statements, the Company entered into the Trace RDA Loan for $9,975 and the Trace Working Capital Loan for $1,000 (see Note 3. Subsequent Events). $7,200 of the proceeds were used to repay a portion of the Term Loan. Therefore, in accordance with ASC 470-10, “Debt”, (“ASC 470-10”) the Company has classified $7,200 of the Term Loan as a long-term liability as at June 30, 2012.

Callaway RDA Loan—On March 26, 2012, SunLink, HealthMont of Missouri, LLC (“HOM”) and HealthMont LLC (“HLLC”), the direct parent of HOM, entered into and closed on a $5,000 Loan Agreement with a bank dated as of March 16, 2012 (the “Callaway RDA Loan”). The loan is guaranteed by the Company and HLLC. HealthMont of Missouri, LLC owns and operates Callaway in Fulton, Missouri. The Loan Agreement consists of two a $4,000 term loan and $1,000 construction loan. The $4,000 term loan was drawn in its entirety on March 26, 2012. As of June 30, 2012, $388 has been drawn on the $1,000 construction loan with the commencement of construction and improvement projects.

The Callaway RDA Loan has a term of 25 years with monthly payments of principal and interest until repaid. The Callaway RDA Loan bears interest at a floating interest rate computed as the prime rate (as published in The Wall Street Journal) plus 2%. The Callaway RDA Loan is collateralized by Callaway’s real estate and equipment and is partially guaranteed under the U.S. Department of Agriculture, Rural Development Business and Industry Program. Of the Callaway RDA Loan proceeds, $3,250 was applied as payment against the Company’s senior debt under the Term Loan under the Company’s Credit Facility. Approximately $1,000 of the Callaway RDA Loan proceeds will be used to finance improvements, including to provide an inpatient geriatric psychiatry unit at Callaway, with the remainder of the Callaway RDA Loan proceeds used for working capital and closing costs. The Callaway RDA Loan contains certain financial covenants with respect to the Borrower’s Current Ratio of current assets to current liabilities and Debt Service Coverage, all as defined in the Callaway RDA Loan Agreement, that the Borrower must maintain and that are measured at the end of each fiscal year. The Callaway RDA Loan is guaranteed by HLLC and the Company.

Annual required payments of debt for the next five years and thereafter are as follows:


2013	$	9,051
2014		476
2015		469
2016		496
2017		515
2018 and thereafter		9,631

Total	$	20,638

The contractual commitments for interest on long-term debt are shown in the following table. The interest rate on variable interest debt is calculated at the interest rate at June 30, 2012.


2013	$	1,725
2014		620
2015		250
2016		582
2017		552
2018 and thereafter		4,125

Total	$	7,854