Business Context and Reporting Period
Company: Cohen & Company Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 20, 2018
Event: Entry into a Material Definitive Agreement (Item 1.01) and Creation of a Direct Financial Obligation (Item 2.03).
On November 20, 2018, ViaNova Capital Group LLC, an indirect majority-owned subsidiary of Cohen & Company Inc., entered into a Warehousing Credit and Security Agreement with LegacyTexas Bank. This facility supports the subsidiary's business of buying, aggregating, and distributing residential transition loans.
Key Financial Metrics and Terms
- Facility Size: Up to $12.5 million in aggregate loans.
- Interest Rate: LIBOR (with a 1.50% floor) plus 4.0% for residential transition loans or 5.0% for aged residential transition loans.
- Maturity Date: November 15, 2019.
- Commitment Fee: 0.25% per annum on the undrawn portion, commencing February 14, 2019. The fee is waived if usage is 50% or greater of the commitment or if aggregate advances equal the full commitment amount.
- Collateral: Secured by a lien on Pledged Mortgage Loans and related assets. Additionally, a cash deposit equal to 2% of the $12.5 million commitment ($250,000) was placed in a non-interest bearing account.
Material Changes and Covenants
The filing does not report changes to historical revenue, profit, or cash flow. Instead, it establishes new financial obligations and restrictive covenants effective November 16, 2018. The Borrower must maintain the following financial conditions:
- Adjusted Tangible Net Worth: Not less than $3 million at any time.
- Unrestricted Cash: Not less than $1.5 million at any time.
- Indebtedness to Adjusted Tangible Net Worth Ratio: Not less than 15.00:1.00 at any time.
- Net Income: No negative net income for three consecutive months, beginning with the period ended June 30, 2019.
Outlook, Risks, and Contingencies
Use of Proceeds: Loans must be used to fund short-term mortgages for developers purchasing and renovating residential 1-4 family properties or to purchase such mortgages from correspondents.
Events of Default:
- If a default is specific to a Pledged Mortgage Loan, the Borrower must repay the related advance within five business days of obtaining knowledge of the default.
- If a default is not specific to a loan, the Lender may declare all Loans and liabilities immediately due and payable.
The filing text does not provide specific management commentary on future revenue guidance or general market outlook beyond the terms of this specific credit facility.
Investor Verification Checklist
- Verify the subsidiary's current Adjusted Tangible Net Worth and unrestricted cash levels against the $3 million and $1.5 million covenants, respectively.
- Confirm the current LIBOR rate to calculate the effective interest cost (LIBOR + 4.0% or 5.0% with a 1.50% floor).
- Review the full text of the Warehousing Credit and Security Agreement (Exhibit 10.1) for additional customary covenants and representations.
- Monitor the subsidiary's net income performance starting from the quarter ended June 30, 2019, to ensure compliance with the three-month negative income restriction.