Having announced last week that it would sell $250 million in five-year notes, World Acceptance reversed course today.
"While we are interested in diversifying our capital structure in order to maintain long-term flexibility," stated World CEO Sandy McLean in a press release, "we can afford to be patient, as this offering was opportunistic in nature. While a transaction could have been completed, we believe that the terms could be more favorable in the future, and we will potentially revisit an offering as appropriate."
So, no harm, no foul? Well, not exactly.
Banks are pulling back from making commercial loans to World Acceptance. When World renewed its credit agreement last fall, not every lender came back. BB&T dropped out, and TD Bank said that they would cease to participate after June 15th, 2015. In the short-term, there was no material impact upon World's capital structure. The loss of BB&T was made up by the other participating lenders. TD Bank's plans were on the other side of tax season.
Now it is a different story. TD North's exit provoked a new plan, announced on May 8th that contemplated a business with a $430 million line of credit and $250 million in notes due in 2020.
$430M plus $250M = $680M
I thought it was a curious idea to move from a revolving line and to a system of selling notes. Notes are less flexible that a credit line. Additionally, they may exact more interest expense. As is the case with any company involved with the under and unbanked, World's cash flows are very seasonal. A line is a great tool for such a model, as interest expense is only incurred as needed. At the end of 2015, the company was using almost $600 million of its $680 million line of credit.
With capital from those notes, World had sidestepped the issue of bank retreat. TD Bank left gracefully. The remaining banks reduced their commitments, as well.
Nonetheless, World has to get back to $680 million, and it will have to do so without TD or BB&T.
The future composition of its revolving line of credit will be a question for the set of banks which are a party to the 8th Amended Agreement ("the Eight Amendment to the Amended and Restated Revolving Credit Facility"). How will they react? Will they now turn around and replenish World's line? Will they do so, even as one of the participants in previous agreements now has intentions to withdraw?
The next table puts a "now and then" perspective on the recent history of World Acceptance and its bank partners. The center column is the amount of lending called for by the May 8th loan agreement. To the right is the level of participation by each bank during the 6th Amendment back in November 2012:
As you can see, all have been drawing their lines down. Two have dropped out entirely.
There is certainly room to speculate about why the sale of notes was called off. Did World expect to have difficulty finding people to buy those notes at a rate close to par? In the face of a lot of regulatory uncertainty, was this a bad time to try to get a loan?
Next question: Did Wells Fargo and the other lenders make World buy credit life and credit disability insurance?