Annual report pursuant to Section 13 and 15(d)

Long-Term Debt

v3.23.4
Long-Term Debt
 12 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Long-Term Debt
Note 10: Long-Term Debt
Long-term debt as of September 30, 2023 and 2022 consisted of the following (in $000’s):
September 30,
2023		 September 30,
2022
Revolver loans $ 56,779  $ 43,107 
Equipment loans 15,486  13,716 
Term loans 14,290  7,941 
Other long-term debt
 15,789  14,501 
Total long-term debt
 102,344  79,265 
Less: unamortized debt issuance costs (557) (626)
Net amount 101,787  78,639 
Less: current portion (23,077) (18,935)
Total long-term debt, net of current portion
 $ 78,710  $ 59,704 
Future maturities of long-term debt at September 30, 2023 are as follows excluding related party debt (in $000’s):
Years ending September 30,
2024 $ 23,077 
2025 6,010 
2026 28,265 
2027 32,730 
2028 1,287 
Thereafter 10,418 
Total $ 101,787 
Bank of America Revolver Loan
On January 31, 2020, Marquis entered into an amended $25.0 million revolving credit agreement (“BofA Revolver”) with Bank of America Corporation (“BofA”). The BofA Revolver is a five-year, asset-based facility that is secured by substantially all of Marquis’ assets. Availability under the BofA Revolver is subject to a monthly borrowing base calculation. Marquis’ ability to borrow under the BofA Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with BofA.
The BofA Revolver bears interest at a variable rate based on a base rate plus a margin. The current base rate is the greatest of (i) Bank of America prime rate, (ii) the current federal funds rate plus 0.50%, or (iii) 30-day Term SOFR plus 0.11448% credit spread adjustment plus the margin, which varies, depending on the fixed coverage ratio table below (Effective December 31, 2021, SOFR replaced the USD LIBOR for most financial benchmarking). Levels I – V determine the interest rate to be charged Marquis and is based on the fixed charge coverage ratio achieved. The Level V interest rate is adjusted up or down on a quarterly basis going forward based upon the above fixed coverage ratio achieved by Marquis. The BofA Revolver places certain restrictions and covenants on Marquis, including a limitation on asset sales, additional liens, investment, loans, guarantees, acquisitions, incurrence of additional indebtedness for Marquis to maintain a fixed charge coverage ratio of at least 1.05 to 1, tested as of the last day of each month for the twelve consecutive months ending on such day.
The advance rate in certain circumstances for inventory is 46.7% for raw materials, 0% for work-in-process, and 66.4% for finished goods subject to eligibility, special reserves and advance limit of the lessor of $12.5 million or 65% of the value of
eligible inventory. Letters of credit reduce the amount available to borrow under the BofA Revolver by an amount equal to the face value of the letters of credit.
Level
Fixed Charge Coverage Ratio
 Term SOFR Revolver Loan Base Rate
Revolver Loan
I
<1.20 to 1.00
2.25%
1.25%
II
>1.20 to 1.00 but <1.50 to 1.00
2.00%
1.00%
III
>1.50 to 1.00 but <1.75 to 1.00
1.75%
0.75%
IV
>1.75 to 1.00 but <2.00 to 1.00
1.50%
0.50%
V
>2.00 to 1.00
1.25%
0.25%
The following tables summarize the BofA Revolver for the years ended and as of September 30, 2023 and 2022, respectively (in $000’s):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ 118,865  $ 148,015 
Cumulative repayment during the period 122,907  136,928 
Maximum borrowed during the period 12,648  11,210 
Weighted average interest for the period 6.87  % 3.68  %
As of September 30,
2023 2022
Total availability $ 14,904  $ 13,804 
Total outstanding 6,101  10,143 
Loan with Encina Business Credit, LLC
On July 14, 2020, Precision Marshall entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC, as Agent (the “Agent”). The Loan Agreement provides for secured revolving loans (the “Encina Revolver Loans”) in a principal amount not to exceed the lesser of (i) $23.5 million and (ii) a borrowing base equal to the sum of (a) 85% of Precision Marshall’s eligible accounts receivable, plus (b) 85% of Precision Marshall’s eligible inventory, subject to an eligible inventory sublimit that begins at $14.0 million and declines to $12.0 million during the term of the Loan Agreement, minus (c) customary reserves. The Encina Revolver Loans matured on July 14, 2023. On January 20, 2022, Precision Marshall refinanced these loans with Fifth-Third Bank (see below). The refinanced credit facility, totaling $29 million, is comprised of $23.0 million in revolving credit, $3.5 million in machinery and equipment (“M&E”) lending, and $2.5 million for capital expenditure (“Capex”) lending.
The following tables summarize the Encina Revolver Loans as of and for the years ended September 30, 2023 and 2022 (in $000’s):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ —  $ 18,812 
Cumulative repayment during the period —  31,547 
Maximum borrowed during the period —  2,000 
Weighted average interest for the period —  % 6.50  %
Loan with Fifth Third Bank (Precision Marshall)
On January 20, 2022, Precision Marshall refinanced its Encina Business Credit loans with Fifth Third Bank (see above), and the balance outstanding was repaid. The refinanced credit facility, totaling $29 million, is comprised of $23.0 million in revolving credit, $3.5 million in M&E lending, and $2.5 million for capital Capex lending. Advances under the new credit facility will bear interest at the 30-day SOFR plus 200 basis points for lending under the revolving facility, and 30-
day SOFR plus 225 basis points for M&E and Capex lending (Effective December 31, 2021, SOFR replaced the USD LIBOR for most financial benchmarking). The refinancing of the Borrower’s existing credit facility reduces interest costs and improves the availability and liquidity of funds by approximately $3.0 million at the close. The facility terminates on January 20, 2027, unless terminated earlier in accordance with its terms.
In connection with the acquisition of Kinetic (see Note 4), the existing revolving facility was amended to add Kinetic as a borrower. In addition, two additional term loans were executed to fund the purchase of Kinetic. Approximately $6.0 million was drawn from the revolving facility, and the term loans were opened in the amounts of $4.0 million and $1.0 million, respectively. The $4.0 million term loan (“Kinetic Term Loan #1”), which matures on January 20, 2027, carries the same terms for M&E term lending as stated above. The $1.0 million term loan (“Kinetic Term Loan #2”), which matures on June 28, 2025, is a “Special Advance Term Loan”, and bears interest at SOFR plus 375 basis points.
As of September 30, 2023 and 2022, the outstanding balance on the revolving loan was approximately $23.0 million and $23.6 million, respectively, and the outstanding balance on the original M&E lending, which is documented as a term note, was approximately $2.3 million and $3.2 million, respectively. As of September 30, 2023 and 2022, the outstanding balance on Kinetic Term Loan #1 was $3.3 million and $3.9 million. As of September 30, 2023 and 2022, the outstanding balance on Kinetic Term Loan #2 was $0 and $917,000, respectively.
On April 12, 2023, in connection with its existing credit facility with Fifth Third Bank, Precision Marshall took an advance against its Capex term lending in the amount of approximately $1.4 million. The loan matures January 2027 and bears interest on the same terms as for Capex lending as stated above. The first payment under this loan is due in February 2024. As of September 30, 2023, the outstanding balance on this Capex loan was $1.4 million.
The following tables summarize the Precision Marshall Fifth Third Bank Revolver Loan as of and for the years ended September 30, 2023 and 2022 (in $000’s):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ 72,336  $ 61,745 
Cumulative repayment during the period 69,707  38,172 
Maximum borrowed during the period 1,700  12,937 
Weighted average interest for the period 7.85  % 4.64  %
As of September 30,
2023 2022
Total availability $ 5,959  $ 4,900 
Total outstanding 26,202  23,573 
Texas Capital Bank Revolver Loan
On November 3, 2016, Vintage Stock entered into an amended $12.0 million credit agreement with Texas Capital Bank (“TCB Revolver”). The TCB Revolver is a five-year, asset-based facility that is secured by substantially all of Vintage Stock’s assets. Availability under the TCB Revolver is subject to a monthly borrowing base calculation. The TCB Revolver matures, as amended September 30, 2021, on November 3, 2023.
Borrowing availability under the TCB Revolver is limited to a borrowing base that allows Vintage Stock to borrow up to 90% of the appraisal value of the inventory, plus 85% of eligible receivables, net of certain reserves. The borrowing base provides for borrowing up to 90% of the appraisal value during the fiscal months of January through September and 92.5% of the appraisal value during the fiscal months of October through December. Letters of credit reduce the amount available to borrow under the TCB Revolver by an amount equal to the face value of the letters of credit.
The TCB Revolver places certain restrictions on Vintage Stock, including a limitation on asset sales, a limitation of 25 new leases in any fiscal year, additional liens, investment, loans, guarantees, acquisitions and incurrence of additional indebtedness.
The following tables summarize the TCB Revolver as of and for the years ended September 30, 2023 and 2022 (in $000's):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ 73,074  $ 86,390 
Cumulative repayment during the period 77,195  85,794 
Maximum borrowed during the period 11,146  2,425 
Weighted average interest for the period 7.50  % 3.26  %
As of September 30,
2023 2022
Total availability $ 6,526  $ 1,707 
Total outstanding 5,270  9,391 
Eclipse Business Capital Loans
In connection with the acquisition of Flooring Liquidators (see Note 4), on January 18, 2023, Flooring Liquidators entered into a credit facility with Eclipse Business Capital, LLC (“Eclipse”). The facility consists of $25.0 million in revolving credit (“Eclipse Revolver”) and $3.5 million in M&E lending (“Eclipse M&E”). The Eclipse Revolver is a three-year, asset-based facility that is secured by substantially all of Flooring Liquidators’ assets. Availability under the Eclipse Revolver is subject to a monthly borrowing base calculation. Flooring Liquidators’ ability to borrow under the Eclipse Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Eclipse. The Eclipse Revolver bears interest at 4.5% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 3.5% per annum in excess of Adjusted Term SOFR after April 1, 2023. The Eclipse M&E loan bears interest at 6.0% per annum in excess of Adjusted Term SOFR prior to April 1, 2023, and 5.0% per annum in excess of Adjusted Term SOFR after April 1, 2023. The credit facility matures in January 2026. As of September 30, 2023, the outstanding balance on the Eclipse M&E loan was approximately 2.4 million.
The following tables summarize the Eclipse Revolver as of and for the years ended September 30, 2023 and 2022 (in $000's):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ 41,545  $ — 
Cumulative repayment during the period 46,710  — 
Maximum borrowed during the period 13,396  — 
Weighted average interest for the period 9.80  % —  %
As of September 30,
2023 2022
Total availability $ 1,558  $ — 
Total outstanding 8,230  — 
Loan with Fifth Third Bank (PMW)
In connection with the acquisition of PMW (see Note 4), on July 20, 2023, PMW entered into a revolving credit facility with Fifth Third Bank. The facility consists of $15.0 million in revolving credit and approximately $5.0 million in M&E lending. The Fifth-Third Revolver is a three-year, asset-based facility that is secured by substantially all of PMW's assets. Availability under the Fifth-Third Revolver is subject to a monthly borrowing base calculation. PMW's ability to borrow under the Fifth-Third Revolver is subject to the satisfaction of certain conditions, including meeting all loan covenants under the credit agreement with Fifth-Third. Loans made under the Revolving Credit Facility are considered Reference Rate Loans, and bear interest at a rate equal to the sum of the Reference Rate plus the Applicable Margin. Reference Rate means the greater of (a) 3.0% or (b) the Lender’s publicly announced prime rate (which is not intended to be Lender’s lowest or most favorable rate in effect at any time) in effect from time to time. The Applicable Margin for revolving loans is zero, while for the Machinery & Equipment Term Loan or any Capital Expenditure Term Loan, it is 50 basis points
(0.5%). The credit facility matures in July 2026. As of September 30, 2023, the outstanding balance on the Fifth-Third M&E loan was approximately $4.8 million.
The following tables summarize the PMW Fifth-Third Bank Revolver as of and for the years ended September 30, 2023 and 2022 (in $000's):
During the year ended September 30,
2023 2022
Cumulative borrowing during the period $ 16,294  $ — 
Cumulative repayment during the period 14,258  — 
Maximum borrowed during the period 13,327  — 
Weighted average interest for the period 8.46  % —  %
As of September 30,
2023 2022
Total availability $ 3,818  $ — 
Total outstanding 10,975  — 
Lonesome Oak Equipment Loan
In connection with Marquis' acquisition of Lonesome Oak in November 2019, the Company assumed an unsecured note, payable to Extruded Fibers Inc., in the amount of $3.6 million. The note is noninterest bearing, however, in accordance with ASC 805-30, interest is being imputed at 6.78% annually. Principal is payable monthly in the amount of $100,000 for 36 months, beginning March 31, 2020 maturity date March 3, 2023. As of March 31, 2022, this note has been paid in full.
Note payable to JCM Holdings
During October 2020, Marquis purchased a manufacturing facility, which it had previously leased, for approximately $2.5 million. Marquis entered into a $2.0 million loan agreement, secured by the facility, with the seller of the facility, in order to complete the purchase of the facility. The loan bears interest at 6%, due monthly, and matures January 2030. As of September 30, 2023 and 2022, the outstanding principal balance was approximately $1.5 million and $1.7 million, respectively.
Note Payable to the Sellers of Vintage Stock
In connection with the purchase of Vintage Stock, on November 3, 2016, Vintage Stock Affiliated Holdings, LLC ("VSAH") and Vintage Stock entered into a seller financed mezzanine loan in the amount of $10.0 million with the previous owners of Vintage Stock. The Sellers Subordinated Acquisition Note bears interest at 8% per annum, with interest payable monthly in arrears The Sellers Subordinated Acquisition Note, as amended, matured on September 23, 2023. As of March 31, 2022, this note has been paid in full.
Equipment Loans
On June 20, 2016 and August 5, 2016, Marquis entered into a transaction that provided for a master agreement and separate loan schedules (the “Equipment Loans”) with Banc of America Leasing & Capital, LLC which provided:
Note #3 is for approximately $3.7 million, secured by equipment. The Equipment Loan #3 is due December 2023, payable in 84 monthly payments of $52,000 beginning January 2017, bearing interest rate at 4.8% per annum. As of September 30, 2023 and 2022, the outstanding balance was approximately $154,000 and $751,000, respectively.
Note #4 is for approximately $1.1 million, secured by equipment. The Equipment Loan #4 is due December 2023, payable in 81 monthly payments of $16,000 beginning April 2017, bearing interest at 4.9% per annum. As of September 30, 2023 and 2022, the outstanding balance was approximately $47,000 and $231,000, respectively.
Note #5 is for approximately $4.0 million, secured by equipment. The Equipment Loan #5 is due December 2024, payable in 84 monthly payments of $55,000 beginning January 2018, bearing interest at 4.7% per annum. As of September 30, 2023 and 2022, the outstanding balance was approximately $799,000 and $1.4 million, respectively.
Note #6 is for $913,000, secured by equipment. The Equipment Loan #6 is due July 2024, payable in 60 monthly payments of $14,000 beginning August 2019, with a final payment of $197,000, bearing interest at 4.7% per annum. As of September 30, 2023 and 2022, the outstanding balance was approximately $317,000 and $471,000, respectively.
Note #7 is for $5.0 million, secured by equipment. The equipment loan #7 is due February 2027, payable in 84 monthly payments of $59,000 beginning March 2020, with the final payment of $809,000, bearing interest at 3.2% per annum. As of September 30, 2023 and 2022, the outstanding balance was approximately $2.9 million and $3.5 million, respectively.
Note #8 is for approximately $3.4 million, secured by equipment. The equipment loan #8 is due September 2027, payable in 84 monthly payments of $46,000 beginning October 2020, bearing interest at 4.0%. As of September 30, 2023 and 2022, the outstanding balance was approximately $2.0 million and $2.5 million, respectively.
In December 2021, Marquis funded the acquisition of $5.5 million of new equipment under Note #9 of its master agreement. The note, which is secured by the equipment, matures December 2026, and is payable in 60 monthly payments of $92,000 beginning January 2022, bearing interest at 3.75%. As of September 30, 2023 and 2022, the outstanding balance was approximately $3.9 million and $4.8 million, respectively.
In December 2022, Marquis funded the acquisition of $5.7 million of new equipment under Note #10 of its master agreement. The Equipment Loan #10, which is secured by the equipment, matures December 2029, and is payable in 84 monthly payments of $79,000, beginning January 2023, with the final payment in the amount of approximately $650,000, bearing interest at 6.50%. As of September 30, 2023, the balance was approximately $5.3 million.
Note Payable to Store Capital Acquisitions, LLC
On June 14, 2016, Marquis entered into a transaction with Store Capital Acquisitions, LLC. The transaction included a sale-leaseback of land owned by Marquis and a loan secured by the improvements on such land. The total aggregate proceeds received from the sale of the land and the loan was $10.0 million, which consisted of approximately $644,000 from the sale of the land and a note payable of approximately $9.4 million. In connection with the transaction, Marquis entered into a lease with a 15-year term commencing on the closing of the transaction, which provides Marquis with an option to extend the lease upon the expiration of its term. The initial annual lease rate is $60,000. The proceeds from this transaction were used to pay down the BofA Revolver and Term loans, and related party loan, as well as to purchase a building from the previous owners of Marquis that was not purchased in the July 2015 transaction. The note payable bears interest at 9.3% per annum, with principal and interest due monthly. The note payable matures June 13, 2056. For the first five years of the note payable, there is a pre-payment penalty of 5%, which declines by 1% for each year the loan remains unpaid for the next five years. At the end of ten years, there is no pre-payment penalty. In connection with the note payable, Marquis incurred approximately $458,000 in transaction costs that are being recognized as a debt issuance cost and are being amortized and recorded as interest expense over the term of the note payable. As of September 30, 2023 and 2022, the remaining principal balance was approximately $9.1 million and $9.2 million, respectively.
Loan Covenant Compliance
As of September 30, 2023, the Company was in compliance with all covenants under its existing revolving and other loan agreements.
Related Party Seller Notes
Seller notes as of September 30, 2023 and 2022 consisted of the following (in $000’s):
September 30,
2023		 September 30,
2022
Seller of Flooring Liquidators, 8.24% interest rate, matures January 2028
 $ 34,000  $ — 
Seller of PMW, 8.0% interest rate, matures July 2028
 2,500  — 
Seller of Kinetic, 7.0% interest rate, matures September 2027
 3,000  3,000 
Total Seller notes payable - related parties 39,500  3,000 
Less: unamortized debt issuance costs (502) — 
Net amount 38,998  3,000 
Less current portion —  — 
Long-term portion of Seller notes - related parties $ 38,998  $ 3,000 
Future maturities of seller notes at September 30, 2023 are as follows (in $000’s):
Years ending September 30,
2026 500 
2027 3,500 
2028 34,998 
Total $ 38,998 
Note Payable to the Sellers of Kinetic
In connection with the purchase of Kinetic (see Note 4), Kinetic entered into an employment agreement with the previous owner of Kinetic to serve as its Head of Equipment Operations. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, Precision Marshall entered into a seller financed loan in the amount of $3.0 million with the previous owner of Kinetic. The Sellers Subordinated Acquisition Note bears interest at 7.0% per annum, with interest payable quarterly in arrears. The Sellers Subordinated Acquisition Note has a maturity date of September 27, 2027. As of September 30, 2023, the remaining principal balance was $3.0 million.
Note Payable to the Seller of Flooring Liquidators
In connection with the purchase of Flooring Liquidators (see Note 4), the Company entered into an employment agreement with the previous owner of Flooring Liquidators to serve as its Chief Executive Officer. The employment agreement is for an initial term of five years and shall be automatically extended in 90-day increments unless either party provides notice as required under the agreement. Additionally, the Company entered into a seller financed mezzanine loan, which is fully guaranteed by the Company, in the amount of $34.0 million with the previous owners of Flooring Liquidators. The Seller Subordinated Acquisition Note (“Sellers Note”) bears interest at 8.24% per annum, with interest payable monthly in arrears beginning on January 18, 2024. The Sellers Note has a maturity date of January 18, 2028. The fair value assigned to the Sellers Note, as calculated by an independent third-party firm, was $31.7 million, or a discount of $2.3 million. The $2.3 million discount is being accreted to interest expense, using the effective interest rate method, as required by GAAP, over the term of the Sellers Note. As of September 30, 2023, the carrying value of the Sellers Note was approximately $33.5 million.
Note Payable to the Sellers of PMW
In connection with the purchase of PMW (see Note 4), the Company entered into an consulting agreement with the previous owner of PMW to serve as part-time President and Chief Executive Officer. The consulting agreement commenced on the Effective Date and shall terminate upon the latter of (i) Sellers’ receipt of Earn-out Payments in an aggregate amount equal to $3,000,000 and (ii) the full satisfaction and payment of all amounts due and to that are to become due under the seller note, unless earlier terminated in accordance with the terms set forth in the consulting agreement. Additionally, PMW entered into two seller financed loans, in the aggregate amount of $2.5 million, which are fully guaranteed by the Company. The Sellers Subordinated Acquisition Notes bear interest at 8.0% per annum, with
interest payable quarterly in arrears. The Sellers Subordinated Acquisition Note has a maturity date of July 18, 2028. As of September 30, 2023, the carrying value of the Sellers Notes was approximately $2.5 million.