Item 1.01. Entry into a Material Definitive Agreement.
Restructuring Support Agreement
On August 31, 2021, Atlas Financial Holdings, Inc. (the “Company”) entered into a Restructuring Support Agreement (the “RSA”) with holders of approximately 48% (the “Supporting Noteholders”) of the Company’s 6.625% senior unsecured notes due 2022 (the “Notes”) issued pursuant to that certain Indenture dated as of April 26, 2017, as amended and supplemented by the First Supplemental Indenture of even date (the “Indenture”) between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”).
The RSA memorializes the agreed-upon terms for a financial restructuring through an exchange of the Notes on the terms and conditions set forth in the Exchange Term Sheet attached as an exhibit to the RSA (the “Note Exchange”). The RSA contemplates that the Note Exchange will be effectuated through (i) a scheme of arrangement in respect of the Notes pursuant to section 86 of Part IV of the Companies Act (2021 Revision) of the Cayman Islands (the “Scheme”) and (ii) a recognition proceeding with respect to the Scheme pursuant to chapter 15 of title 11 of the United States Code. Under the terms of the RSA, the Note Exchange is expected to be completed by March 1, 2022, resulting in a one-for-one note exchange with a five-year extension of the stated maturity and other agreed modifications. The Company expects that the contemplated exchange will enable it to satisfy its obligations under the new notes and create value for stakeholders.
Each Supporting Noteholder is fully supportive of the proposed Note Exchange and has agreed, as reflected in the RSA, to, among other things, (i) work in good faith with the Company and its advisors to implement the Note Exchange as soon as possible in a manner consistent with the terms of the RSA; (ii) support the Note Exchange and vote and exercise any powers or rights available to it in favor of any matter requiring approval to the extent necessary to implement the Note Exchange; (iii) not take, direct, encourage, assist or support (or procure that any other person takes, directs, encourages, assist or supports) any action which would, or would reasonably be expected to, breach or be inconsistent with the RSA or the Note Exchange, or delay, impede, or prevent the implementation or consummation thereof; (iv) oppose any party or person from taking any Restricted Actions (as defined in the RSA); (v) negotiate in good faith and use commercially reasonable efforts to execute and implement the Definitive Restructuring Documents (as defined in and consistent with the RSA) to which it is required to be a party and coordinate its activities with the other parties (to the extent practicable and subject to the terms of the RSA) in respect of all matters concerning the implementation and consummation of the RSA; and (vi) cooperate with and assist the Company in obtaining additional support for the Note Exchange from the Company’s stakeholders. The RSA allows other holders of the Notes to accede to the RSA and become Supporting Noteholders.
The RSA may be terminated upon the occurrence of certain events set forth in the RSA, including if the Note Exchange is not effectuated by March 1, 2022.
DLA Piper LLP (US) is acting as restructuring legal counsel to the Company, together with Conyers Dill & Pearman LLP retained as Cayman Islands local counsel, in connection with the Note Exchange.
Although the Company intends to pursue the Note Exchange in accordance with the terms set forth in the RSA, there can be no assurance that the Company will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA, on different terms or at all.
Credit Agreement
On September 1, 2021, the Company and certain of its subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Convertible Senior Secured Delayed-Draw Credit Agreement (the “Credit Agreement”), agented by Sheridan Road Partners, LLC (in such capacity, the “Agent”), with certain Supporting Noteholders named therein as lenders (the “Lenders”), pursuant to which the Lenders made available to the Borrowers a term loan facility in the aggregate principal amount of $3,000,000 (the “Term Loans”). The Lenders will advance $2 million of the Term Loans shortly after closing (subject to the satisfaction by Borrowers of certain funding conditions), and $1 million under delayed draws of the Term Loans may be accessed by the Borrowers within 18 months of closing, in each case, subject to the terms and conditions set forth in the Credit Agreement. The Borrowers can use the proceeds of the Term Loans for funding the pending exchange of the Notes and for payments of certain agreed upon permitted expenditures. Interest will accrue on the funded Term Loans at 12% per annum and may be paid in cash or in kind; provided, that upon the occurrence and during the continuance of an event of default, the interest rate would be increased to 14% per annum and any such interest must be paid in cash by the Borrowers. The term of the term loan facility is 24 months.
As a set-up fee for the term loan facility, 2,750,000 ordinary shares, $0.003 par value per share, of the Company (the “ordinary shares”) were issued to the lenders upon execution of the agreement, and up to an additional 2,250,000 ordinary shares may be issued in connection with the delayed draws, if utilized. In addition, borrowed principal can be converted at any time into
ordinary shares at the applicable Lender’s discretion at a rate of $0.35 per share, and upon such conversion, interest payable under the Credit Agreement that is deemed to be part of the principal amount of the Term Loans pursuant to the Credit Agreement, if any, may be paid in cash in the Borrowers’ discretion or converted into ordinary shares at the same rate as the principal.
Under the Credit Agreement, the Borrowers have the option at any time to prepay the Term Loans in whole or in part subject to the payment of certain yield protection payments. The Lenders have the right to demand prepayment, along with payment of certain yield protection payments, upon the occurrence of an event of default, change of control, sale of certain assets of the Borrowers, a casualty event, eminent domain, or condemnation, in each case, subject to certain negotiated limitations.
The Credit Agreement requires the Borrowers to comply with customary affirmative and negative covenants, including covenants governing and restricting indebtedness, liens, investments, sales of assets, distributions, and fundamental changes in the Borrowers’ organizational structure and line of business and maintaining certain levels of liquidity. Upon the funding of the $2 million in Term Loans, the Agent, on behalf of the Lenders, will have a first priority perfected security interest in and against substantially all of the assets of the Borrowers to guarantee the payment in full of the Term Loans and all other obligations under the Credit Agreement and related loan documentation. Such security will include equity pledges granted by the applicable Borrowers in favor of the Agent, on behalf of the Lenders, in the Company’s direct and indirect subsidiaries American Insurance Acquisition Inc., Anchor Group Management Inc., Anchor Holdings Group, Inc., optOn Digital IP Inc., optOn Insurance Agency Inc., UBI Holdings Inc. and Plainview Premium Finance Company, Inc. Upon payment in full of the Term Loans, the Company would have no further obligations to the Agent and the Lenders under the Credit Agreement and other related loan documentation other than the obligation to register the ordinary shares issued pursuant to the Credit Agreement, and the security interest granted by the Borrowers in favor of the Agent, on behalf of the Lenders, would be released.
The RSA and the Credit Agreement are filed as Exhibits 10.1 and 10.2, respectively, to this Current Report. The descriptions of the RSA and the Credit Agreement do not purport to be complete and are qualified in their entirety by reference to the RSA and the Credit Agreement filed herewith as exhibits to this Current Report.