One the eve of tax season, Liberty Tax has secured a large increase on its revolving line of credit from a consortium of big banks.
Details on the Big Bank Financing
On December 28th, the SEC released an 8-K which reported that Liberty had secured a new revolving credit line and term loan agreement. SunTrust was the lead bank among a consortium of eight big banks who as a whole have extended a
$143.5 million line of credit to JTH Financial and six of its subsidiaries. The other seven were only listed as lenders, whereas SunTrust acted as both the swing line lender and as the administrative agent.
As you can see, each bank is supplying Liberty will millions of dollars.
How much money is this to a company of Liberty's size? Certainly, it is a lot more than Liberty might need for investment in its own infrastructure. In 2012, Liberty only had $107 million in revenue. To put in terms of household finances, this is akin to a bank deciding to give a line of credit of $143,000 to a family with about $100,000 in income.
The new debt comes through a modification to a prior contract. While the new LOC is for $143.5 million, additional term loans bring the total sum to $167.25 million. According to a note in the updated agreement, Liberty has already asked to have its revolving line of credit increased by $38.35 million. However, language within opens up the possibility for even more money. In all, the agreement gives Liberty the right to increase the total revolver by $70 million.
The revolving line includes a swing line facility. A swing line is a unique financial instrument that can be placed within a revolving line of credit. It is meant to give a borrower access to its line on a daily basis. It acts as something akin to a corporate credit card. However, the swing line has a distinct origin: all lenders share in the repayments from a revolver but the swing line is funded by only the entities lists as swing line lenders. The swing line is the most flexible form of capital. Normally, the swing lender and the administrative agent are filled by the entity.
This is fairly complicated, but the basic gist is that the money supplied by SunTrust to Liberty will be the most liquid and thus the funds most appropriate for a RAL-style product. Swinglines fund an operation with capital demands that are constant but also given to rapid swings. For a business that advances money to customers that it had not met less than one day prior, a swingline is the perfect product.
The subsidiaries that are collectively listed as borrowers: JTH Holding (parent), JTH Tax, Inc., LTS Properties, LLC., LTS Software, INC., Wefile Inc., JTH Financial, LLC., and JTH Properties 1632, LLC.
There is a unique story behind the last borrower. It appears that the lenders wanted more collateral given that they were increasing the total line of credit. Thus, while the filing does not indicate that such a quid pro quo existed, Liberty appears to have created JTH Properties 1632 LLC for the sole purpose of enhancing the real property on its balance sheet. JTH Properties 1632 LLC purchased 1632 Corporate Landing Park in September 2012.
The building was a 10,270 square foot office building on 3.5 acres of land zoned as light industrial. It was formerly the home of Oceana Sensor Technologies. It was listed at auction and sold in September. The building had a tax value of $1.361,900. At this point, it is not clear what price Liberty paid to purchase the building. Nonetheless, in a December 26th amendment to the April 30, 2012 agreement, 1632 granted a security interest to all of its assets to the lenders.
Liberty has put up all of its assets against this loan. What is interesting, though, is that they also agreed to put up any assets that they acquire in the future (provided that those assets are worth at least $1 million).
Here is the language: "It is the intent of the parties that the Obligations shall be secured by substantially all of the assets of the Borrowers and its Domestic Subsidiaries, including real and other properties acquired subsequent to the closing date."
Note: On the day after the IRS announces that it is pushing back returns until January 30th, no one is answering the phone at JTH Financial, Liberty Tax Marketing, and Liberty Tax Investor Relations.
I believe that there is a relationship between this new financing and a new advance program at Liberty. A local preparer has indicated that Liberty will be rolling out a new secured credit card for its consumers. While that would certainly have to be made in connection with a bank, the non-bank sub JTH Financial could use the capital that it can now access from this financing to send advances to filers.