Business Context and Reporting Period
This Form 8-K Current Report was filed by Rent-A-Center, Inc. (RAC) on August 2, 2010. The filing discloses the entry into a material definitive agreement by ColorTyme Finance, Inc., a wholly owned subsidiary of RAC, to provide financing to franchisees of ColorTyme, Inc.
Key Financial Metrics
- New Financing Capacity: The new agreement with Citibank, N.A. provides up to $25 million in aggregate financing for qualifying franchisees.
- Current Utilization: There are no amounts currently outstanding under the new Citibank Financing Agreement as of August 2, 2010.
- Outstanding Debt (Prior Facility): Approximately $11.2 million was outstanding under the previous Wells Fargo Capital Finance, LLC facility as of August 2, 2010.
- Guarantees: Both RAC and ColorTyme Finance, Inc. have executed unconditional guaranty agreements covering the aggregate obligations of franchisee borrowers under the new facility.
Material Changes Versus Prior Period
The primary material change is the replacement of the existing franchisee financing agreement with Wells Fargo Capital Finance, LLC by a new agreement with Citibank, N.A. The company expects to complete the refinancing of all amounts outstanding under the Wells Fargo facility no later than September 30, 2010.
Outlook, Risks, and Contingencies
The filing outlines specific default provisions: upon an event of default by a franchisee or certain other events, Citibank may assign the loans and collateral to ColorTyme Finance, Inc. In such an event, Finance would pay the outstanding debt to Citibank and succeed to Citibank's rights, including the right to foreclose on collateral. The filing notes that the description of the agreement is qualified by reference to the full text of the agreement filed as Exhibit 10.1.
Key Facts for Investor Verification
- Verify the terms of the $25 million Citibank facility in Exhibit 10.1, specifically interest rates and covenants.
- Confirm the timeline for the full transition from the Wells Fargo facility to the Citibank facility by September 30, 2010.
- Assess the impact of the unconditional guarantees provided by RAC and its subsidiary on the company's overall credit exposure.
- Review the definition of "events of default" that would trigger the assignment of loans and collateral to the company.