This afternoon, World Acceptance announced the details of its new credit agreement ("the Ninth Amendment to the Amended and Restated Revolving Credit Agreement").
Not that it bothers me, but this must be a rough day inside World's offices in Spartanburg. The banks who make debt available to World are putting the high-cost lender on a borrowing diet. It appears that they are no longer interested in steadily refinancing loans to World Acceptance at higher and higher amounts. In other words, no more rollovers. The irony here is that 71 percent of consumer loans made by World are refinanced.
In the new era of debt starvation, World's line will decrease to $600 million immediately, and then by $100 million in each of the next two Aprils. By 2017, World's credit line will be down to $400 million.
The other significant takeaway here is that TDNorth did go ahead and pull out, as they had signaled they would do earlier in this year. In doing so, they join BB&T.
Adding insult to injury, the banks also said that they would increase the price of debt for World. Their interest rate will increase by 100 basis points.
There is also some language in a debt covenant that reflects new uneasiness about World's brushes with the CFPB. The banks added a clause that can put World in violation of the terms of the loan if a "Regulatory Event" occurs:
“Regulatory Event” mean: either a (x) a “Level One Regulatory Event”, which shall comprise the formal commencement by written notice by any federal or state Governmental Authority of any inquiry, investigation, legal action or similar proceeding against any of the Borrower or its Subsidiaries challenging its authority to originate, hold, own, service, collect or enforce Finance Receivables generally or any category or group of Finance Receivables that is material to the business of such Borrower or such Subsidiary, or otherwise alleging any material non-compliance by any of the Borrower or its Subsidiaries with any applicable laws related to originating, holding, collecting, servicing or enforcing Finance Receivables generally or any category or group of Finance Receivables that is material to the business of such Borrower or such Subsidiary (which shall include, without limitation, the issuance of a civil investigative demand by the Consumer Financial Protection Bureau that meets the criteria set forth above), which inquiry, investigation, legal action or proceeding is not released or terminated in a manner reasonably acceptable to the Administrative Agent within thirty (30) calendar days of commencement thereof;
If all it takes for World to lose its access to capital is a Civil Investigative Demand from the CFPB, then the company is one step away from life support.
Given that, it shouldn't be much of a surprise that World's shares dropped like a rock in a river this morning.