Presurance Holdings, Inc. Debt Disclosure

8. Debt

As of December 31, 2021, the Company’s debt is comprised of three instruments: $24.4 million of publicly traded senior unsecured notes which were issued in 2018, a $10.0 million line of credit which commenced in June 2018, and $10.5 million of privately placed Subordinated Notes.  A summary of the Company's outstanding debt is as follows (dollars in thousands):

Senior unsecured notes

The Company issued $25.3 million of Notes in 2018.  The Notes bear an interest rate of 6.75% per annum, payable quarterly at the end of March, June, September and December and mature on September 30, 2023.  The Company may redeem the Notes, in whole or in part, at face value at any time after September 30, 2021.

The Company did not repurchase any of the Notes during 2021. The Company repurchased 36,761 units of the Notes in the public market during 2020 with a face value of $919,000.  The Notes were repurchased at a discount to face value, which resulted in a $260,000 gain on extinguishment in 2020.  This gain was reflected in the Consolidated Statement of Operations as Other gains.

Subordinated Notes

The Company also has outstanding $10.5 million of Subordinated Notes maturing on September 30, 2038.  The Subordinated Notes bear an interest rate of 7.5% per annum until September 30, 2023, and 12.5% thereafter, and allow for four quarterly interest payment deferrals.  Interest is payable quarterly at the end of March, June, September and December.  Beginning September 30, 2021, the Company may redeem the Subordinated Notes, in whole or in part, for a call premium of $1.1 million.  The call premium escalates each quarter to ultimately $1.75 million on September 30, 2023, then steps up to $3.05 million on December 31, 2023, and increases quarterly at a 12.5% per annum rate thereafter.  

As of December 31, 2021, the carrying value of the Notes and Subordinated Notes are offset by $455,000 and $862,000 of debt issuance costs, respectively.  The debt issuance costs will be amortized through interest expense over the life of the loans.

The Subordinated Notes contain various restrictive financial debt covenants that relate to the Company’s minimum tangible net worth, minimum fixed-charge coverage ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios.  At December 31, 2021, the Company was in compliance with all of its financial debt covenants.

Line of credit

The Company maintains a $10.0 million line of credit with a national bank (the “Lender”).  The line of credit bears interest at LIBOR plus 2.75% per annum, payable monthly.  The agreement includes several financial debt covenants, including a minimum tangible net worth, a minimum fixed-charge coverage ratio, and minimum statutory risk-based capital levels.  As of December 31, 2021, the Company had no outstanding balance on the Company’s line of credit (including the PPP loan described below) and was in compliance with all of its financial debt covenants.  On June 18, 2021, the line of credit was renewed with a maturity of December 1, 2022.

Paycheck Protection Program loan

On April 24, 2020, the Company received a $2.7 million loan from the line of credit Lender pursuant to the Paycheck Protection Program of the CARES Act administered by the U.S. Small Business Administration (“SBA”). The Company received notice from the SBA that the loan was 100% forgiven, including accrued interest, on July 8, 2021. This resulted in a $2.8 million gain that is included in Other Gains on the Consolidated Statement of Operations.