| Notes Payable and Other Long-Term Liabilities, Net | 7. Notes Payable and Other Long-term Liabilities, net Our debt obligations are as follows:
March 31,
December 31,
Interest Rate (1)
2021
2020
(Unaudited)
Monroe Term Loan (2)
9.75%
$
11,471,250
$
11,500,000
Green Remedies Promissory Note (3)
3.0%
2,577,457
2,684,250
BBVA ABL Facility (4)
3.0%
3,624,210
4,299,333
Total notes payable
17,672,917
18,483,583
Less: Current portion of long-term debt
(624,383
)
(624,383
)
Less: Unamortized debt issuance costs
(1,581,811
)
(1,670,529
)
Less: Unamortized OID
(468,631
)
(494,343
)
Less: Unamortized OID warrant
(697,792
)
(745,703
)
Notes payable, net
$
14,300,300
$
14,948,625
(1) Interest rates as of March 31, 2021
(2) Bears interest at LIBOR rate plus Applicable Margin ranging from 7.5%-10.5%
(3) Stated interest rate of 3.0%, discounted cash flow rate of 13%
(4) Bears interest at a Base rate, as defined, plus a margin of 0.75% to 1.25%
We capitalize financing costs we incur related to implementing our debt arrangements. We record these debt issuance costs associated with our revolving credit facility and our term loan as a reduction of long-term debt, net and amortize them over the contractual life of the related debt arrangements. The table below summarizes changes in debt issuance costs.
March 31,
2021
(Unaudited)
Debt issuance costs
Beginning balance
$
1,670,529
Less: Amortization expense
(88,718
)
Debt issuance costs, net of accumulated amortization
$
1,581,811
Revolving Credit Facility On August 5, 2020 and then as amended on October 19, 2020, QRHC and certain of its domestic subsidiaries entered into a Loan, Security and Guaranty Agreement (the “
•
An asset-based revolving credit facility in the maximum principal amount of $15.0 million with a sublimit for issuance of letters of credit of up to 10% of the maximum principal amount of the revolving credit facility. Each loan under the revolving credit facility bears interest, at the borrowers’ option, at either the Base Rate, plus the Applicable Margin, or the LIBOR Lending Rate for the Interest Period in effect, plus the Applicable Margin, in each case as defined in the BBVA Loan Agreement. The maturity date of the revolving credit facility is April 19, 2025. The revolving credit facility contains an accordion feature permitting the revolving credit facility to be increased by up to $10 million.
•
An equipment loan facility in the maximum principal amount of $2.0 million. Loans under the equipment loan facility may be requested at any time until August 5, 2023. Each loan under the equipment loan facility bears interest, at the borrowers’ option, at either the Base Rate, plus 1.75%, or the LIBOR Lending Rate for the Interest Period in effect, plus 2.75%. The maturity date of the equipment loan facility is April 19, 2025. The BBVA Loan Agreement contains certain financial covenants, including a minimum fixed charge coverage ratio. In addition, the BBVA Loan Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matter customarily restricted in such agreements. The BBVA Loan Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, change of control, and failure of any guaranty or security document supporting the BBVA Loan Agreement to be in full force and effect. Upon the occurrence of an event of default, the outstanding obligations under the BBVA Loan Agreement may be accelerated and become immediately due and payable. The ABL Facility bears interest, at our option, at either the Base Rate, as defined in the BBVA Loan Agreement, plus a margin ranging from 0.75% to 1.25% (3.0% as of March 31, 2021), or the LIBOR Lending Rate for the interest period in effect, plus a margin ranging from 1.75% to 2.25% (no borrowings as of March 31, 2021). As of March 31, 2021, the ABL Facility borrowing base availability was $15,000,000, of which $3,624,210 principal was outstanding. LIBOR is expected to be discontinued after 2021. The ABL Facility provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with BBVA USA to ensure any transition away from LIBOR will have minimal impact on our financial condition. We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition. Monroe Term Loan On October 19, 2020, QRHC and certain of its domestic subsidiaries entered into a Credit Agreement (the “Credit Agreement”) , dated as of October 19, 2020, with Monroe Capital Management Advisors, LLC (“Monroe Capital”), as administrative agent for the lenders thereto
•
A senior secured term loan facility in the principal amount of $11.5 million. The senior secured term loan at the LIBOR Rate for LIBOR Loans plus the Applicable Margin; provided, that if the provision of LIBOR Loans becomes unlawful or unavailable, then interest will be payable at a rate per annum equal to the Base Rate from time to time in effect plus the Applicable Margin for Base Rate Loans. The maturity date of the term loan facility is October 19, 2025 (the "Maturity Date"). The senior secured term loan will amortize in aggregate annual amounts equal to 1.00% of the original principal amount of the senior secured term loan facility with the balance payable on the Maturity Date. Proceeds of the senior secured term loan were permitted to be used in connection with the Acquisition.
•
A delayed draw term loan facility in the maximum principal amount of $12.5 million. Loans under the delayed draw term loan facility may be requested at any time until October 19, 2021. Pricing and maturity for the outstanding principal amount of the delayed draw term loan shall be the same as for the senior secured term loan. Proceeds of the delayed draw term loan are to be used for Permitted Acquisitions (as defined in the Credit Agreement).
•
An accordion term loan facility in the maximum principal amount of $40.0 million. Loans under the accordion loan facility may be requested at any time until the Maturity Date. Each accordion term loan shall be on the same terms as those applicable to the senior secured term loan. Proceeds of accordion term loans are permitted to be used for Permitted Acquisitions. The Credit Agreement contains certain financial covenants, including a minimum fixed charge coverage ratio and a senior net leverage ratio. In addition, the Credit Agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements. The Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, change of control, and failure of any guaranty or security document supporting the Credit Agreement to be in full force and effect. Upon the occurrence of an event of default, the outstanding obligations under the Credit Agreement may be accelerated and become immediately due and payable. At the same time as the borrowing of the $11.5 million under the Credit Agreement, in a separate agreement, we issued Monroe Capital a warrant to purchase 500,000 shares of QRHC’s common stock exercisable immediately. For the $12.5 million delayed draw term loan facility, we will issue a separate warrant to purchase 350,000 shares upon drawing on this facility or on October 19, 2021, whichever occurs first, or upon certain other events. Both warrants have an exercise price of $1.50 per share and an expiration date of March 19, 2028. We estimated the value of the 500,000-share warrant issued using the Black Scholes option pricing model and recorded a debt discount of approximately $766,000 which is being amortized over the term of the Credit Agreement. We also executed a letter agreement that provides that the warrant holder will receive minimum net proceeds of $1 million less any net proceeds received from the sale of the warrant shares, which is conditional on the full exercise and sale of all the warrant shares at the same time and upon a date two years after the closing date of the agreement. Green Remedies Promissory Note On October 19, 2020, we issued an unsecured subordinated promissory note to the seller of Green Remedies in the aggregate principal amount of $2,684,250, payable commencing on January 1, 2021 in quarterly installments through October 1, 2025 and subject to an interest rate of 3.0% per annum. Interest Expense The amount of interest expense related to borrowings for the three months ended March 31, 2021 and 2020 was $348,307 and $60,845, respectively. Debt issuance costs of $1,757,856 are being amortized to interest expense over the lives of the related debt arrangements. As of March 31, 2021, the unamortized portion of the debt issuance costs was $1,581,811. The amount of interest expense related to the amortization of debt issuance costs for was $88,718 and $23,475, respectively. Debt discount (“OID”) of $1,674,178 is being amortized to interest expense Other long-term liabilities, net
March 31,
December 31,
2021
2020
(Unaudited)
Deferred seller consideration, net
$
1,035,309
$
986,028
Deferred consideration - earn-out
440,000
440,000
Operating lease liability
373,706
543,564
Other
4,167
4,167
$
1,853,182
$
1,973,759
We recorded deferred consideration in connection with the Acquisition as further described in Note 3. At March 31, 2021 and December 31, 2020 the unamortized portion of OID on the deferred consideration was $306,816 and $356,097, respectively. The non-current portion of deferred consideration payable to the seller is payable in either cash or shares of our common stock at our option. The earn-out is not to exceed $2,250,000 over an earn-out period, as defined in the Asset Purchase Agreement. We valued the earn-out liability at $440,000 using a Monte Carlo simulation. |
