Note 8. –Long-Term Debt

Long-term debt consisted of the following:


	March 31,			June 30,
	2017			2016
Trace RDA Loan	$	7,321		$	7,698
SHPP RDA Loan		0			1,950
Carmichael Notes		0			1,508
Capital lease obligations and other		17			32

Total		7,338			11,188
Less unamortized debt issuance costs		(508	)		(736	)
Less current maturities		(503	)		(7,473	)

	$	6,327		$	2,979

Trace RDA Loan and Trace Working Capital Loan—On July 11, 2012, Southern Health Corporation of Houston, Inc. (“Trace”) a wholly owned subsidiary of the Company, closed on a $9,975 Mortgage Loan Agreement (“Trace RDA Loan”) and a Working Capital Loan Agreement (which expired on July 2, 2016) with a bank, both dated as of July 5, 2012.

The Trace RDA Loan has a term of 15 years with monthly payments of principal and interest until repaid. The Trace RDA Loan bears a floating rate of interest equal to the greater of (i) the prime rate (as published in The Wall Street Journal) plus 1.5%, or (ii) 6% (6.0% at March 31, 2017). The Trace RDA Loan is collateralized by real estate and equipment of Trace in Houston, MS and is partially guaranteed under the U.S. Department of Agriculture, Rural Development Business and Industry Program.

The Trace RDA Loan contains various terms and conditions, including financial restrictions and limitations, and affirmative and negative covenants. The covenants include financial covenants measured on a quarterly basis which require Trace to comply with a ratio of current assets to current liabilities, debt service coverage, fixed charge ratio, and funded debt to EBITDA, all as defined in the Trace RDA Loan. At September 30, 2016 and June 30, 2016, Trace was not in compliance with the debt service coverage, fixed charge ratio and funded debt to EBITDA ratios. The Company received a waiver of these non-compliances from the lender for both measurement dates and the Trace RDA Loan was amended by the Fourth Amendment to Loan Agreement and Waiver dated January 6, 2017. Under the Fourth Amendment, the debt service coverage, the fixed charge coverage and funded debt to EBITDA ratios were amended for periods ended December 31, 2016, March 31, 2017 and June 30, 2017 and an additional covenant was entered into requiring the deposit of $1,000 into a blocked interest bearing account with the lender. The deposit, which was made on January 13, 2017, will remain in the blocked account until Trace achieves compliance with financial covenants in effect prior to the Amendment or November 15, 2017, when the modified financial covenants will revert back to the pre-modification amounts. At March 31, 2017, Trace was in compliance with the modified covenants but not with the prior covenants. Indebtedness of $7,698 as of June 30, 2016 is presented in current liabilities in the condensed consolidated balance sheet as a result of the financial covenant non-compliance at that date. The ability of Trace to continue to make the required debt service payments under the Trace RDA Loan depends on, among other things, its ability to generate sufficient cash flows, including from operating activities. If Trace is unable to generate sufficient cash flow from operations to meet debt service payments on the Trace RDA Loan, including in the event the lender were to declare an event of default and accelerate the maturity of the indebtedness, such failure could have material adverse effects on the Company. The Trace RDA Loan is guaranteed by the Company and one subsidiary.

SHPP RDA Loan—On November 6, 2012, SunLink Healthcare Professional Property, LLC, (“SHPP”) a subsidiary of the Company, entered into and closed on a $2,100 term loan dated as of October 31, 2012 (the “SHPP RDA Loan”) with a bank. On December 16, 2016, SHPP repaid the remaining $1,933 outstanding principal balance of this loan when it sold the collateral for the SHPP RDA Loan, a medical office building located in Ellijay, Georgia. An early repayment penalty of $97 was paid at that date as required by loan terms and $192 of unamortized prepaid loan costs were expensed as of the sale date, both of which were reported as a loss on early repayment of debt of $289 for the nine months ended March 31, 2017.

Carmichael Notes—On April 22, 2008, SunLink Scripts Rx, LLC issued a $3,000 promissory note with an interest rate of 8% to the former owners of Carmichael as part of the acquisition purchase price (the “Carmichael Notes”). The Carmichael Notes, as amended, were payable in semi-annual installments of $185 of principal and plus accrued interest, with the remaining balance of $1,255 due October 22, 2017. Under an agreement dated September 9, 2016, between the Company and the Note holders, the Carmichael Notes balance of $1,508 was paid in full on September 9, 2016 and the accrued interest payable to that date of $46 was forgiven. A gain on retirement of debt of $46 for the nine months ended March 31, 2017 was reported for the accrued interest forgiveness.

ASU 2016-3, “Simplifying the Presentation of Debt Issuance Costs” —In April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-3, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2016-3”). ASU 2016-3 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than separately as an asset. The Company adopted the provisions of ASU 2016-3 on July 1, 2016 and retrospectively for all periods presented. The adoption of ASU 2016-3 had no impact on the Company’s results of operations or cash flows.

The following is a summary of the line items impact of the adoption of ASU 2016-3 in the Company’s June 30, 2016 accompanying condensed consolidated balance sheet:


	As		Adjustments			As
	Originally		for the Adoption			Currently
	Reported		of ASU 2015-3			Reported
Prepaid expense and other current assets	$	2,777	$	(9	)	$	2,768
Total current assets	$	17,901	$	(9	)	$	17,892
Other noncurrent assets	$	1,459	$	(727	)	$	732
Total noncurrent assets	$	13,946	$	(727	)	$	13,219
Total Assets	$	44,841	$	(736	)	$	44,105
Current maturities of long-term debt	$	8,012	$	(539	)	$	7,473
Total current liabilities	$	20,590	$	(539	)	$	20,051
Long-term debt	$	3,176	$	(197	)	$	2,979
Total long-term liabilities	$	4,762	$	(197	)	$	4,565
Total Liabilities and Shareholders’ Equity	$	44,841	$	(736	)	$	44,105