World Acceptance reports that a group of seven accommodating banks has agreed to provide the consumer finance company with a $630 million line of credit.
Those banks are:
- Wells Fargo (acting as lender, administrative agent, and collateral agent)
- Bank of America
- TD North
- Texas Capital Bank
- First Tennessee Bank
- Capital One Bank
- Bank of Montreal
There are a series of new clauses in the terms of the agreement. Some seem to indicate that the lenders are anxious about the future of World. For instance, one new section requires World to notify the banks of any potential action by a "governmental authority," as well as to alert the group if the CFPB makes any kind of additional request for information.
Similarly, the lenders want to make sure that World's outstanding loan portfolio remains healthy. As delinquencies and charge-offs increase, the maximum percentage of the line that World can draw drops. If approximately one in four loans (twenty-four percent) is either delinquent at the end of any month or has been charged-off in the last eight months, the terms of the agreement are violated.
In its most recent credit agreement, a clause existed that required World Acceptance to maintain a net worth (basically its shareholder equity) of at least $265 million. At the end of June, World's net worth was shrinking. In fact, it was dropping so much that the chance of a violation of the loan covenant seemed very real. It stood at only $284.3 million, and given the downward trajectory of its shares, $265 million was very much a possibility.
But by adding approximately $11 million in assets to their balance sheet during the next three months, World reported a slighted turnaround.
The previous agreement was not due to expire until November 2015. The new agreement runs through June 2016.
One Bank Drops Out, Another Signals an Intention to Withdraw Next Year
BB&T has asked World to repay all outstanding amounts due by World. TD North says that it will withdraw from the relationship on June 15th, 2015. In the latter case, the agreement stipulates that the other lenders will then increase their commitment on a pro-rate basis to the full sum of the credit line.