Business Context and Reporting Period
This Form 8-K, dated July 20, 2021, reports the completion of the business combination between FG New America Acquisition Corp. (FGNA) and Opportunity Financial, LLC (OppFi). Upon closing, FGNA changed its name to OppFi Inc. and adopted an "Up-C" structure. The company's Class A common stock (OPFI) and warrants (OPFI WS) began trading on the NYSE on July 21, 2021. The filing also details the adoption of new governance documents, the entry into material agreements, and the appointment of a new board of directors and executive officers.
Key Financial Metrics
Transaction Consideration: The aggregate value of consideration paid to OppFi members was approximately $806.5 million, consisting of:
- Cash Consideration: $91.6 million (derived from FGNA's trust account after redemptions).
- Equity Consideration: 96,987,093 shares of newly authorized Class V Voting Stock.
Capital Structure Post-Closing:
- Class A Common Stock: 12,977,690 shares outstanding.
- Class V Voting Stock: 96,987,093 shares outstanding (held by OppFi members).
- Warrants: 15,339,437 warrants outstanding.
Historical Performance (Q1 2021 Unaudited):
- Total Revenue: $84.3 million.
- Net Revenue: $61.9 million.
- Earnings Before Taxes (EBT): $24.4 million.
- Ending Receivables: $245.3 million.
- Total Net Originations: $99.8 million.
Debt Facilities: The company maintains several credit facilities, including a $50 million term loan with Atalaya (maturing 2025), a $175 million revolving facility with Ares (maturing 2024), and other revolving facilities with BMO Harris and Atalaya totaling up to $100 million in capacity.
Material Changes vs. Prior Period
Accounting Policy Change: Effective January 1, 2021, OppFi adopted ASU 2016-13 and elected the fair value option to account for installment finance receivables. This transition resulted in:
- Release of the allowance for estimated losses and unamortized net deferred origination costs.
- Finance receivables are now carried at fair value with changes recognized directly in earnings.
- Origination fees and costs are no longer eligible for deferral.
Operational Metrics (Q1 2021 vs. Q1 2020):
- Net Originations: Decreased from $124.1 million to $99.8 million.
- Bank Partner Originations: Increased as a percentage of total net originations from 65.1% to 76.1%.
- Net Charge-Offs: Improved significantly, decreasing from 45.9% to 30.1% of average receivables.
- Auto-Approval Rate: Increased from 20.5% to 41.3%.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary: Management believes the fair value accounting option better reflects the portfolio's value and aligns with risk-based pricing. The company intends to retain earnings for business operations and does not anticipate paying cash dividends in the foreseeable future.
Material Agreements:
- Tax Receivable Agreement (TRA): The Company agreed to pay OppFi members 90% of the tax savings realized from basis adjustments. Obligations may accelerate upon change of control or material breach.
- Investor Rights Agreement: Provides the Members' Representative the right to nominate five directors and establishes lock-up periods for certain shares.
- Employment Agreements: New agreements were executed for executive officers, including President Neville Crawley, featuring base salary, performance bonuses, and equity grants.
Risks and Contingencies:
- Controlled Company Status: OppFi Inc. qualifies as a "controlled company" under NYSE rules (Members own ~88% of voting power), allowing exemptions from certain corporate governance requirements regarding independent directors and committees.
- Debt Covenants: Credit facilities are subject to borrowing bases, financial covenants (e.g., debt-to-EBITDA, fixed charge coverage), and events of default that could accelerate repayment.
- Forward-Looking Statements: Risks include the impact of COVID-19, regulatory changes, competition, and the ability to maintain NYSE listing.
- Tax Receivable Agreement Liability: Verify the potential cash outflow obligations under the TRA, which could impact future liquidity.
- Debt Covenant Compliance: Review the specific financial covenants (minimum tangible net worth, leverage ratios) in the Atalaya, Ares, and BMO credit agreements to assess refinancing risk.
- Accounting Transition Impact: Analyze the pro forma financial data to understand the volatility introduced by the fair value accounting option on the income statement.
- Ownership Concentration: Confirm the voting power dynamics, noting that the Schwartz family and affiliates control approximately 88% of the voting stock, limiting minority shareholder influence on governance.
- Lock-Up Periods: Review the Investor Rights Agreement for restrictions on the sale of shares by founders and members (9 to 24 months).