Business Context and Reporting Period
Sezzle Inc. (SEZL), an emerging growth company incorporated in Delaware, filed this Form 8-K on April 19, 2024, to report the entry into a material definitive agreement. The filing details a new senior secured asset-based revolving credit facility entered into by Sezzle Funding SPE II, LLC, a wholly owned indirect subsidiary of the Company.
Key Financial Metrics and Facility Terms
- Facility Capacity: Up to $150.0 million.
- Maturity Date: April 19, 2027.
- Minimum Utilization: $60.0 million.
- Interest Rate: 3-month Term SOFR plus 6.75%.
- Advance Rate: 85% of available receivable balance; increases to 90% if the Weighted Average Loss Rate of the three most recent Seasoned Vintages is less than 3.00%.
- Prior Debt Repaid: $72 million outstanding under the previous facility with Bastion Funding IV, LLC.
- Guarantees: Obligations are guaranteed by Sezzle Funding SPE II Parent, LLC, with a limited guaranty and indemnity provided by Sezzle Inc.
Material Changes Versus Prior Period
The Company replaced its existing revolving credit facility with a new agreement. The new facility increases the total borrowing capacity from the prior $72 million outstanding balance to a potential $150.0 million. The transaction was funded using proceeds from the new facility to repay the prior facility in full.
Guidance, Risks, and Covenants
The Credit Agreement includes restrictive covenants limiting the Borrower's ability to incur additional indebtedness, make restricted payments, acquire assets, create liens, or engage in mergers and consolidations. The Limited Guaranty imposes financial maintenance covenants on the Consolidated Group regarding tangible net worth, liquidity, and leverage. Failure to meet these covenants constitutes an event of default. Additional events of default include a change of control or if ratios pertaining to defaulted or past-due collateral receivables exceed pre-determined levels.
Investor Verification Checklist
- Verify the current Weighted Average Loss Rate of recent vintages to determine if the 90% advance rate threshold is met.
- Review the specific definitions of "tangible net worth," "liquidity," and "leverage" in the Limited Guaranty to assess covenant compliance risks.
- Confirm the actual drawdown amount against the $60.0 million minimum utilization requirement.
- Examine the impact of the 6.75% spread over SOFR on future interest expense relative to the prior facility.