Item 1.01.
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Entry into a Material Definitive Agreement.
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Warehouse Facility
On June 20, 2017, Regional Management Corp. (the
Company
) and its wholly-owned subsidiary, Regional Management
Receivables II, LLC (the
Borrower
), entered into a Credit Agreement, by and among the Company, as servicer (the
Servicer
), the Borrower, the lenders from time to time parties thereto (the
Lenders
), Wells Fargo Bank, National Association (
Wells Fargo
), as account bank (the
Account Bank
), image file custodian, and backup servicer (the
Backup Servicer
), Wells
Fargo Bank, National Association, as administrative agent (the
Administrative Agent
), and Credit Suisse AG, New York Branch (
Credit Suisse
), as structuring and syndication agent (the
Credit
Agreement
). The Credit Agreement provides for a revolving $125 million warehouse facility, which is expandable to $150 million (the
Warehouse Facility
) and is secured by certain consumer loan receivables (the
Receivables
) that were directly originated by the Companys subsidiaries, Regional Finance Corporation of Alabama, Regional Finance Company of Georgia, LLC, Regional Finance Company of New Mexico, LLC, Regional Finance
Corporation of North Carolina, Regional Finance Company of Oklahoma, LLC, Regional Finance Corporation of South Carolina, Regional Finance Corporation of Tennessee, Regional Finance Corporation of Texas, and Regional Finance Company of Virginia, LLC
(each a
Seller
and
Subservicer
, and collectively the
Sellers
and
Subservicers
).
The following table summarizes material terms of the Warehouse Facility:
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|
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Facility Size
1
|
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$75 million (Credit Suisse Lender Group)
$50 million
(Wells Fargo Lender Group)
$125 million (Total)
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Total Advance Rate
|
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80%
2
|
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Interest Rate
|
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3-month
LIBOR + 3.35% per annum (Class A
Loans)
3
3-month
LIBOR + 4.35% per annum (Class B Loans)
4
|
|
|
Step-Up
Margin
|
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+1.00% per annum after termination of the Revolving Period
+3.50% per annum on or after an Event of Default
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Unused Commitment Fee Rate
5
|
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0.85% per annum if utilization is
£
33.33%
0.60% per annum if utilization is
³
33.33% but
£
66.67%
0.35% per annum if utilization is
³
66.67%
|
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Revolving Period
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18 months from June 20, 2017 (the
Closing Date
)
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Amortization Period
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12 months after the termination of the Revolving Period
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Maturity Date
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Upon termination of the Amortization Period
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1.
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The Commitment of the Credit Suisse Lender Group may, at the request of the Borrower, be increased by an aggregate amount of up to $25 million during the Revolving Period, with the consent of the Lenders in the
Credit Suisse Lender Group.
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2.
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Upon the occurrence and during the continuation of certain reporting or trigger events, the Total Advance Rate will decrease to 75%.
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3.
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Upon the satisfaction of certain milestones associated with the Companys conversion to a new loan origination and servicing system, the Class A margin decreases to 3.10% or 2.85%, as applicable.
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4.
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Upon the satisfaction of certain milestones associated with the Companys conversion to a new loan origination and servicing system, the Class B margin decreases to 4.10% or 3.85%, as applicable.
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5.
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For any interest period during which a securitization occurs and for the first interest period thereafter, the Unused Commitment Fee Rate shall be 0.35% per annum.
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In connection with the transactions contemplated by the Credit Agreement, on the Closing Date and on each subsequent funding date (the
Funding Date
), each Seller will sell and transfer Receivables and related assets (
Transferred Assets
) originated by it to the Company pursuant to a first tier purchase agreement, and in turn the Company will
sell and transfer Transferred Assets to the Borrower pursuant to a second tier purchase agreement. Recourse to each Seller and the Company is limited to an obligation of the applicable transferor to repurchase a Receivable if it is determined after
the applicable Funding Date that such Receivable was ineligible as of such Funding Date. A Receivable is deemed to be ineligible if, as of the applicable Funding Date, certain receivable eligibility criteria set forth in the Credit Agreement are not
met. The Borrower granted a lien on and security interest in all of its right, title, and interest in, to, and under the Transferred Assets and related collateral to the Administrative Agent, as agent for the Lenders.
In connection with the closing of the Warehouse Facility, the Borrower and the Company paid the
Lenders an upfront fee. In addition, the Borrower is required to pay interest at the applicable Interest Rate on the applicable loan balance from the Closing Date until the date such loan balance has been paid in full. The principal of the
applicable loan is payable in installments on each payment date, unless the Borrower exercises its right to prepay such loan. The Borrower has the right to prepay all or any portion of the loans without penalty, upon delivery of a prepayment notice
to the Administrative Agent, the agents, the Account Bank, and each hedge counterparty at least five business days prior to such prepayment. In connection with prepayment, the Borrower is required to pay to the secured parties certain breakage costs
that are attributable to any administrative loss, cost, or expense (but excluding lost profits) incurred by the secured parties.
On each
Funding Date, the Borrower will make certain representations and warranties as to the eligibility of each Receivable. The Company is required to repurchase from the Borrower any Receivable that was not an eligible Receivable as of the applicable
Funding Date. Separately, the Servicer is required to repurchase any Receivable that has been modified by the Servicer other than as permitted under the Credit Agreement. The Credit Agreement permits the Servicer to delegate in the ordinary
course of business any or all of its duties and obligations thereunder to one or more Subservicers, provided that (i) each Subservicer is responsible for servicing the Receivables in the state in which such Subservicer is located, and
(ii) the Servicer remains at all times responsible for the performance of each Subservicers duties and obligations. Each Subservicer will enter into a subservicing agreement with the Servicer. The Credit Agreement contains covenants that
require the Servicer with respect to any collection period to maintain certain delinquency ratios, extension ratios, and annualized
charge-off
ratios. A failure to maintain such ratios may result in a Level I
Trigger Event, Level II Trigger Event, or Level III Trigger Event. Upon the occurrence of a Level I Trigger Event followed by the delivery of written notice from the Administrative Agent (acting at the direction of the required Lenders), the
Servicer and the Backup Servicer must work with the Administrative Agent and the Lenders to take certain actions to centralize servicing, including establishing a lockbox and directing the obligors to remit all future payments to such lockbox.
The Credit Agreement contains customary servicer termination events (subject to certain materiality thresholds and cure periods), including
among others, (a) failure by the Servicer to deliver any collections or make any payment, transfer, or deposit, (b) a merger or consolidation of the Servicer in breach of the Credit Agreement, (c) failure to deliver a monthly report
or monthly loan tape,
(d) non-compliance
with covenants, (e) breach of a representation or warranty, and (f) an insolvency event involving the Servicer, in each case if the Company is the
Servicer. The remedies for such servicer termination events are also customary for this type of transaction and include termination and replacement of the Servicer as servicer under the Credit Agreement.
The Credit Agreement also contains customary termination events (subject to certain materiality thresholds and cure periods), including among
others,
(a) non-payment,
(b) non-compliance
with covenants, (c) failure of the Administrative Agent to maintain a first prior perfected security interest
in any material portion of the collateral, (d) a servicer termination event, (e) a breach of a representation or warranty, (f) an insolvency event involving the Company, the Borrower, or the Sellers, (g) a change in control of
the Company or the Borrower, (h) an event of default under a material financing agreement of the Company, the Borrower, or the Sellers, (i) failure of the Company, as Servicer, to maintain a 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, and (j) the Company, the Borrower, or the Sellers have one or more final
non-appealable
judgments
entered against it by a court of competent jurisdiction in excess of the specified monetary thresholds. The remedies for such termination events are also customary for this type of transaction and include acceleration of the Borrowers
outstanding obligations under the Credit Agreement.
The Lenders under the Credit Agreement (and their respective affiliates) have in the
past provided and/or may in the future provide investment banking, underwriting, lending, commercial banking, trust, and other advisory services to the Company and its subsidiaries and affiliates. These parties have received, and may in the future
receive, customary compensation from the Company and its subsidiaries and affiliates for such services.
The foregoing summary of the
material terms of the Credit Agreement is qualified in its entirety by reference to the copy of the Credit Agreement filed as Exhibit 10.1 to this Current Report on Form
8-K
(the
Form
8-K
) and incorporated herein by reference.
Senior Revolving Credit Facility
On June 20, 2017, the Company and certain of its subsidiaries entered into a Sixth Amended and Restated Loan and Security
Agreement (the
Loan Agreement
) with a syndicate of banks comprised of Bank of America, N.A., BMO Harris Financing, Inc., First Tennessee Bank National Association, Texas Capital Bank, N.A., Wells Fargo Bank, National Association,
Capital Bank Corporation, Synovus Bank, and BankUnited, N.A., and Bank of America, N.A. as Agent. Capital One, N.A. is no longer a lender under the Loan Agreement. The Loan Agreement provides for a senior revolving credit facility
of up to $638.0 million, with a borrowing base of up to 85% of secured eligible finance receivables and up to 70% of unsecured eligible finance receivables, in each case, subject to
adjustment at certain credit quality levels. The Loan Agreement has an accordion provision that allows for the expansion of the senior revolving credit facility to up to $700.0 million. Borrowings under the facility bear interest, payable
monthly, at rates equal to LIBOR of a maturity the Company elects between one and six months, with a LIBOR floor of 1.00%, plus a margin of 3.00%, increasing to 3.25% when the availability percentage is less than 10%. Alternatively, the Company may
pay interest at a rate based on the prime rate plus a margin of 2.00%, increasing to 2.25% when the availability percentage is less than 10%. The Company also pays an unused line fee of 0.50% per annum, payable monthly. This fee decreases to 0.375%
when the average outstanding balance exceeds $413.0 million. The senior revolving credit facility matures on June 20, 2020, and is collateralized by certain of the Companys assets, including certain of its finance receivables and the
equity interests of certain of its subsidiaries.
The Loan Agreement permits the Company to enter into the Warehouse Facility and, subject
to certain conditions, to enter into one or more asset-backed securitization transactions using Warehouse Facility collateral. The Loan Agreement also contains certain restrictive covenants, including maintenance of specified interest coverage and
debt ratios, restrictions on distributions, limitations on other indebtedness, maintenance of a minimum allowance for credit losses, and certain other restrictions. The Loan Agreement contains customary events of default. If an event of default
occurs and is continuing, the lenders holding more than
66-2/3%
of the outstanding amount of the commitments and advances under the senior revolving credit facility may accelerate amounts due under the Loan
Agreement (except in the case of a bankruptcy or insolvency event of default, in which case such amounts shall automatically become due and payable).
The foregoing summary of the material terms of the Loan Agreement is qualified in its entirety by reference to the copy of the Loan Agreement
filed as Exhibit 10.2 to this Form
8-K
and incorporated herein by reference.
The lenders under
the Loan Agreement (and their respective subsidiaries or affiliates) have in the past provided and/or may in the future provide investment banking, underwriting, lending, commercial banking, trust, and other advisory services to the Company and its
subsidiaries and affiliates. These parties have received, and may in the future receive, customary compensation from the Company and its subsidiaries and affiliates for such services.
On June 20, 2017, the Company issued a press release announcing the Credit Agreement and the Loan Agreement. A copy of this press release
is filed as Exhibit 99.1 hereto and incorporated herein by reference.