Business Context and Reporting Period
This Form 8-K, filed on June 14, 2017, by Regional Management Corp. (a Delaware corporation), reports material definitive agreements entered into on June 20, 2017, and the execution of a separation agreement with a former executive. The Company operates as a consumer finance company originating and servicing loans through various state-based subsidiaries.
Key Financial Metrics and Agreements
Warehouse Facility
- Facility Size: $125 million revolving facility, expandable to $150 million.
- Lenders: Credit Suisse Lender Group ($75 million) and Wells Fargo Lender Group ($50 million).
- Advance Rate: 80% (subject to reduction to 75% upon certain trigger events).
- Interest Rates: 3-month LIBOR + 3.35% (Class A Loans) or + 4.35% (Class B Loans), with potential margin reductions upon system conversion milestones.
- Term: 18-month revolving period followed by a 12-month amortization period.
- Unused Commitment Fee: Ranges from 0.35% to 0.85% per annum based on utilization levels.
Senior Revolving Credit Facility
- Facility Size: Up to $638.0 million, expandable to $700.0 million via accordion provision.
- Borrowing Base: Up to 85% of secured eligible finance receivables and 70% of unsecured eligible finance receivables.
- Interest Rates: LIBOR (1-6 month) + 3.00% (increasing to 3.25% if availability <10%) with a 1.00% LIBOR floor; or Prime + 2.00% (increasing to 2.25% if availability <10%).
- Unused Line Fee: 0.50% per annum (decreases to 0.375% if average outstanding balance exceeds $413.0 million).
- Maturity: June 20, 2020.
Executive Separation
Jody L. Anderson resigned as President and Chief Operating Officer effective May 15, 2017. A separation agreement was executed on June 14, 2017, providing for:
- 30 days of base salary in lieu of notice.
- 12 months of base salary paid over 18 months.
- Pro-rated 2017 short-term incentive bonus (subject to performance goals).
- COBRA health insurance premiums for 12 months.
- Outplacement services up to $10,000 and attorney fee reimbursement up to $5,000.
Material Changes and Covenants
The Company established new financing structures to support its loan origination and securitization activities. The Senior Revolving Credit Facility was amended to permit the entry into the new Warehouse Facility and future asset-backed securitization transactions. Capital One, N.A. is no longer a lender under the Senior Revolving Credit Facility.
Covenants and Triggers:
- Warehouse Facility: Requires maintenance of specific delinquency, extension, and charge-off ratios. Failure may trigger centralization of servicing or other remedies.
- Senior Facility: Requires maintenance of minimum tangible net worth of $125 million, minimum liquidity of $10 million, and a maximum debt-to-tangible net worth ratio of 4.0 to 1.0. It also includes restrictions on distributions and additional indebtedness.
Guidance, Outlook, and Risks
The filing does not contain specific financial guidance or forward-looking revenue projections. Management is scheduled to present at the JMP Securities 2017 Financial Services and Real Estate Conference on June 22, 2017.
Risks and Contingencies:
- Trigger Events: Both facilities contain events of default that could lead to acceleration of debt, including non-payment, covenant breaches, insolvency, or failure to maintain minimum financial ratios.
- Recourse: The Company is obligated to repurchase receivables deemed ineligible or modified in violation of the Credit Agreement.
- Related Party Transactions: Lenders under both facilities have provided and may continue to provide investment banking and advisory services to the Company.
Investor Verification Checklist
- Verify the current utilization levels of the $125 million Warehouse Facility and the $638 million Senior Revolving Credit Facility.
- Confirm the Company's compliance with the minimum tangible net worth ($125 million) and liquidity ($10 million) covenants.
- Review the status of the loan origination and servicing system conversion to determine if interest rate margin reductions have been triggered.
- Assess the impact of the departure of the President and COO on operational continuity and future strategic execution.
- Examine the delinquency and charge-off ratios to ensure no Level I, II, or III Trigger Events have been activated under the Warehouse Facility.