UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-35503
Enova International, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
45-3190813 |
(State or other jurisdiction of Incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
175 West Jackson Blvd. Chicago, Illinois |
|
60604 |
(Address of principal executive offices) |
|
(Zip Code) |
(312) 568-4200
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☒ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
34,274,785 of the Registrant’s common shares, $.00001 par value, were outstanding as of October 30, 2018.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management with respect to the business, financial condition, operations and prospects of Enova International, Inc. and its subsidiaries (collectively, the “Company”). When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:
|
• |
the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render them unprofitable or impractical; |
|
• |
the effect of and compliance with domestic and international consumer credit, tax (including the enacted Tax Cuts and Jobs Act) and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom (“U.K.”); |
|
• |
changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority; |
|
• |
the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau; |
|
• |
our ability to process or collect payments through the Automated Clearing House system; |
|
• |
the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may operate; |
|
• |
the actions of third parties who provide, acquire or offer products and services to, from or for us; |
|
• |
public and regulatory perception of the consumer loan business, the receivables purchases industry and our business practices; |
|
• |
the effect of any current or future litigation proceedings and any judicial decisions or rulemaking that affects us, our products or the legality or enforceability of our arbitration agreements; |
|
• |
changes in demand for our services, changes in competition and the continued acceptance of the online channel by our customers; |
|
• |
changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance growth; |
|
• |
a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology and other business systems; |
|
• |
our ability to maintain an allowance or liability for estimated losses on loans and finance receivables that is adequate to absorb losses; |
|
• |
compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 and international anti-money laundering, trade and economic sanctions laws; |
|
• |
our ability to attract and retain qualified officers; |
|
• |
interest rate and foreign currency exchange rate fluctuations; |
|
• |
the time and costs associated with our exit from the Canadian and Australian markets; |
|
• |
cyber-attacks or security breaches; |
|
• |
acts of God, war or terrorism, pandemics and other events; |
|
• |
the ability to successfully integrate acquired businesses into our operations; |
|
• |
changes in the capital markets, including the debt and equity markets; |
|
• |
other risks and uncertainties described herein. |
The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business and cause actual results to differ materially from those expressed in any of our forward-looking statements. Additional information regarding these and other factors may be contained in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Readers of this report are encouraged to review all of the Risk Factors contained in the Company’s filings with the SEC to obtain more detail about the Company’s risks and uncertainties. All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depends on many events, some or all of which are not predictable or within the Company’s control. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The forward-looking statements in this report are made as of the date of this report, and the Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements in this report are expressly qualified in their entirety by the foregoing cautionary statements.
ENOVA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
|
|
|
|
Page |
|
|
|
||
Item 1. |
|
|
|
|
|
|
Consolidated Balance Sheets – September 30, 2018 and 2017 and December 31, 2017 |
|
1 |
|
|
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2018 and 2017 |
|
2 |
|
|
|
3 |
|
|
|
|
4 |
|
|
|
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017 |
|
5 |
|
|
|
6 |
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
40 |
Item 3. |
|
|
63 |
|
Item 4. |
|
|
63 |
|
|
|
|||
|
|
|||
|
|
|
||
Item 1. |
|
|
64 |
|
Item 1A. |
|
|
64 |
|
Item 2. |
|
|
65 |
|
Item 3. |
|
|
65 |
|
Item 4. |
|
|
66 |
|
Item 5. |
|
|
66 |
|
Item 6. |
|
|
66 |
|
|
|
|||
|
67 |
P ART I. FINANCIAL INFORMATION
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
(Unaudited)
|
|
September 30, |
|
|
December 31, |
|
||||||
|
|
2018 |
|
|
2017 |
|
|
2017 |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
164,122 |
|
|
$ |
110,054 |
|
|
$ |
68,684 |
|
Restricted cash (includes restricted cash of consolidated VIEs of $18,678, $22,161 and $21,696 as of September 30, 2018 and 2017 and December 31, 2017, respectively) |
|
|
20,897 |
|
|
|
29,866 |
|
|
|
29,460 |
|
Loans and finance receivables, net (includes loans of consolidated VIEs of $319,769, $296,478 and $282,724 and allowance for losses of $28,096, $22,115 and $22,728 as of September 30, 2018 and 2017 and December 31, 2017, respectively) |
|
|
838,783 |
|
|
|
637,736 |
|
|
|
704,705 |
|
Income taxes receivable |
|
|
45,639 |
|
|
|
9,319 |
|
|
|
4,092 |
|
Other receivables and prepaid expenses |
|
|
25,699 |
|
|
|
23,796 |
|
|
|
23,817 |
|
Property and equipment, net |
|
|
48,514 |
|
|
|
46,557 |
|
|
|
48,525 |
|
Goodwill |
|
|
267,013 |
|
|
|
267,015 |
|
|
|
267,015 |
|
Intangible assets, net |
|
|
3,523 |
|
|
|
4,593 |
|
|
|
4,325 |
|
Other assets |
|
|
12,078 |
|
|
|
10,842 |
|
|
|
8,837 |
|
Total assets |
|
$ |
1,426,268 |
|
|
$ |
1,139,778 |
|
|
$ |
1,159,460 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
76,188 |
|
|
$ |
78,897 |
|
|
$ |
77,123 |
|
Deferred tax liabilities, net |
|
|
46,321 |
|
|
|
20,681 |
|
|
|
12,108 |
|
Long-term debt (includes long-term debt of consolidated VIEs of $226,218, $186,533 and $211,406 and debt issuance costs of $1,659, $762 and $3,271, as of September 30, 2018 and 2017 and December 31, 2017, respectively) |
|
|
951,091 |
|
|
|
765,395 |
|
|
|
788,542 |
|
Total liabilities |
|
|
1,073,600 |
|
|
|
864,973 |
|
|
|
877,773 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.00001 par value, 250,000,000 shares authorized, 34,764,648, 33,828,668 and 33,932,673 shares issued and 34,274,785, 33,608,611 and 33,504,555 outstanding as of September 30, 2018 and 2017 and December 31, 2017, respectively |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Additional paid in capital |
|
|
44,657 |
|
|
|
26,749 |
|
|
|
29,781 |
|
Retained earnings |
|
|
327,744 |
|
|
|
257,812 |
|
|
|
264,695 |
|
Accumulated other comprehensive loss |
|
|
(12,468 |
) |
|
|
(7,017 |
) |
|
|
(7,086 |
) |
Treasury stock, at cost (489,863, 220,057 and 428,118 shares as of September 30, 2018 and 2017 and December 31, 2017, respectively) |
|
|
(7,265 |
) |
|
|
(2,739 |
) |
|
|
(5,703 |
) |
Total stockholders' equity |
|
|
352,668 |
|
|
|
274,805 |
|
|
|
281,687 |
|
Total liabilities and stockholders' equity |
|
$ |
1,426,268 |
|
|
$ |
1,139,778 |
|
|
$ |
1,159,460 |
|
See notes to consolidated financial statements.
1
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
801,478 |
|
|
$ |
600,045 |
|
Cost of Revenue |
|
|
163,763 |
|
|
|
107,341 |
|
|
|
393,810 |
|
|
|
269,087 |
|
Gross Profit |
|
|
130,116 |
|
|
|
110,537 |
|
|
|
407,668 |
|
|
|
330,958 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
36,011 |
|
|
|
27,000 |
|
|
|
93,133 |
|
|
|
69,993 |
|
Operations and technology |
|
|
28,260 |
|
|
|
27,163 |
|
|
|
80,993 |
|
|
|
72,512 |
|
General and administrative |
|
|
24,360 |
|
|
|
25,164 |
|
|
|
79,576 |
|
|
|
77,105 |
|
Depreciation and amortization |
|
|
3,688 |
|
|
|
3,533 |
|
|
|
11,363 |
|
|
|
10,396 |
|
Total Expenses |
|
|
92,319 |
|
|
|
82,860 |
|
|
|
265,065 |
|
|
|
230,006 |
|
Income from Operations |
|
|
37,797 |
|
|
|
27,677 |
|
|
|
142,603 |
|
|
|
100,952 |
|
Interest expense, net |
|
|
(20,244 |
) |
|
|
(18,292 |
) |
|
|
(59,272 |
) |
|
|
(52,526 |
) |
Foreign currency transaction gain (loss) |
|
|
27 |
|
|
|
65 |
|
|
|
(2,265 |
) |
|
|
354 |
|
Loss on early extinguishment of debt |
|
|
(12,469 |
) |
|
|
(14,927 |
) |
|
|
(17,179 |
) |
|
|
(14,927 |
) |
Income (Loss) before Income Taxes |
|
|
5,111 |
|
|
|
(5,477 |
) |
|
|
63,887 |
|
|
|
33,853 |
|
(Benefit from) provision for income taxes |
|
|
(10,193 |
) |
|
|
(2,109 |
) |
|
|
2,460 |
|
|
|
11,496 |
|
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.45 |
|
|
$ |
(0.10 |
) |
|
$ |
1.81 |
|
|
$ |
0.67 |
|
Diluted |
|
$ |
0.43 |
|
|
$ |
(0.10 |
) |
|
$ |
1.75 |
|
|
$ |
0.66 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
34,168 |
|
|
|
33,670 |
|
|
|
33,938 |
|
|
|
33,533 |
|
Diluted |
|
|
35,665 |
|
|
|
33,670 |
|
|
|
35,200 |
|
|
|
34,119 |
|
See notes to consolidated financial statements.
2
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Other comprehensive (loss) gain, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain (1) |
|
|
(1,563 |
) |
|
|
2,052 |
|
|
|
(3,760 |
) |
|
|
4,561 |
|
Reclassification of certain deferred tax effects |
|
|
— |
|
|
|
— |
|
|
|
(1,622 |
) |
|
|
— |
|
Total other comprehensive (loss) gain, net of tax |
|
|
(1,563 |
) |
|
|
2,052 |
|
|
|
(5,382 |
) |
|
|
4,561 |
|
Comprehensive Income (Loss) |
|
$ |
13,741 |
|
|
$ |
(1,316 |
) |
|
$ |
56,045 |
|
|
$ |
26,918 |
|
(1) |
Net of tax benefit (provision) of $456 and $(1,161) for the three months ended September 30, 2018 and 2017, respectively and $766 and $(2,578) for the nine months ended September 30, 2018 and 2017 , respectively . |
See notes to consolidated financial statements.
3
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
|||
|
|
Common Stock |
|
|
Paid in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury Stock, at cost |
|
|
Stockholders' |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
||||||||
Balance at December 31, 2016 |
|
|
33,365 |
|
|
$ |
— |
|
|
$ |
18,446 |
|
|
$ |
235,455 |
|
|
$ |
(11,578 |
) |
|
|
(71 |
) |
|
$ |
(624 |
) |
|
$ |
241,699 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
8,303 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,303 |
|
Shares issued under stock-based plans |
|
|
464 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,357 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,357 |
|
Foreign currency translation gain, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,561 |
|
|
|
— |
|
|
|
— |
|
|
|
4,561 |
|
Purchases of treasury shares, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(149 |
) |
|
|
(2,115 |
) |
|
|
(2,115 |
) |
Balance at September 30, 2017 |
|
|
33,829 |
|
|
$ |
— |
|
|
$ |
26,749 |
|
|
$ |
257,812 |
|
|
$ |
(7,017 |
) |
|
|
(220 |
) |
|
$ |
(2,739 |
) |
|
$ |
274,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
|
33,933 |
|
|
$ |
— |
|
|
$ |
29,781 |
|
|
$ |
264,695 |
|
|
$ |
(7,086 |
) |
|
|
(428 |
) |
|
$ |
(5,703 |
) |
|
$ |
281,687 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
8,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,149 |
|
Shares issued under stock-based plans |
|
|
832 |
|
|
|
— |
|
|
|
6,727 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,727 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61,427 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61,427 |
|
Foreign currency translation loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,760 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,760 |
) |
Purchases of treasury shares, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(62 |
) |
|
|
(1,562 |
) |
|
|
(1,562 |
) |
Reclassification of certain deferred tax effects |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,622 |
|
|
|
(1,622 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at September 30, 2018 |
|
|
34,765 |
|
|
$ |
— |
|
|
$ |
44,657 |
|
|
$ |
327,744 |
|
|
$ |
(12,468 |
) |
|
|
(490 |
) |
|
$ |
(7,265 |
) |
|
$ |
352,668 |
|
See notes to consolidated financial statements.
4
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11,363 |
|
|
|
10,396 |
|
Amortization of deferred loan costs and debt discount |
|
|
4,526 |
|
|
|
4,515 |
|
Cost of revenue |
|
|
393,810 |
|
|
|
269,087 |
|
Stock-based compensation expense |
|
|
8,149 |
|
|
|
8,303 |
|
Loss on early extinguishment of debt |
|
|
17,179 |
|
|
|
14,927 |
|
Deferred income taxes, net |
|
|
34,894 |
|
|
|
3,802 |
|
Other |
|
|
55 |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Finance and service charges on loans and finance receivables |
|
|
(24,465 |
) |
|
|
(10,232 |
) |
Other receivables and prepaid expenses |
|
|
(2,285 |
) |
|
|
(3,290 |
) |
Accounts payable and accrued expenses |
|
|
5,054 |
|
|
|
1,033 |
|
Current income taxes |
|
|
(41,547 |
) |
|
|
(9,601 |
) |
Net cash provided by operating activities |
|
|
468,160 |
|
|
|
311,297 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Loans and finance receivables originated or acquired |
|
|
(1,277,958 |
) |
|
|
(998,333 |
) |
Loans and finance receivables repaid |
|
|
772,020 |
|
|
|
672,474 |
|
Purchases of property and equipment |
|
|
(11,303 |
) |
|
|
(10,804 |
) |
Other investing activities |
|
|
93 |
|
|
|
1,798 |
|
Net cash used in investing activities |
|
|
(517,148 |
) |
|
|
(334,865 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Borrowings under revolving line of credit |
|
|
109,000 |
|
|
|
30,000 |
|
Repayments under revolving line of credit |
|
|
(109,000 |
) |
|
|
(30,000 |
) |
Borrowings under securitization facilities |
|
|
162,413 |
|
|
|
137,200 |
|
Repayments under securitization facilities |
|
|
(147,601 |
) |
|
|
(116,085 |
) |
Issuance of senior notes |
|
|
375,000 |
|
|
|
250,000 |
|
Repayments of senior notes |
|
|
(228,514 |
) |
|
|
(155,000 |
) |
Debt issuance costs paid |
|
|
(9,156 |
) |
|
|
(9,564 |
) |
Debt prepayment penalty paid |
|
|
(13,073 |
) |
|
|
(11,335 |
) |
Payment of promissory note |
|
|
(3,000 |
) |
|
|
— |
|
Proceeds from exercise of stock options |
|
|
6,727 |
|
|
|
— |
|
Treasury shares purchased |
|
|
(1,562 |
) |
|
|
(2,115 |
) |
Net cash provided by financing activities |
|
|
141,234 |
|
|
|
93,101 |
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
|
(5,371 |
) |
|
|
4,147 |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
86,875 |
|
|
|
73,680 |
|
Cash, cash equivalents and restricted cash at beginning of year |
|
|
98,144 |
|
|
|
66,240 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
185,019 |
|
|
$ |
139,920 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
Loans and finance receivables renewed |
|
$ |
282,486 |
|
|
$ |
234,258 |
|
See notes to consolidated financial statements.
5
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. |
Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The consolidated financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders’ equity and cash flows of the Company in the future. Intercompany transactions are eliminated. Certain amounts in the consolidated financial statements for prior years have been reclassified to conform to the current consolidated financial statement presentation.
The Company operates an internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing channels, the Company offers funds to its customers through a variety of unsecured loan and finance receivable products. The business is operated primarily through the internet to provide convenient, fully-automated financial solutions to its customers. The Company originates, arranges, guarantees or purchases consumer loans and provides financing to small businesses through a line of credit account, installment loan or receivables purchase agreement product (“RPAs”). Consumer loans include short-term loans, line of credit accounts and installment loans. RPAs represent a right to receive future receivables from a small business. “Loans and finance receivables” include consumer loans, small business lines of credit, small business installment loans and RPAs.
The Company consolidates any variable interest entity (“VIE”) where it has been determined it is the primary beneficiary. The primary beneficiary is the entity which has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
The consolidated financial statements presented as of September 30, 2018 and 2017 and for the three and nine-month periods ended September 30, 2018 and 2017 are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Operating results for the three and nine-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.
These consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 and related notes, which are included on Form 10-K filed with the SEC on February 26, 2018.
Restricted Cash
The Company includes funds to be used for future debt payments relating to its securitization transactions and escrow deposits in restricted cash.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet (in thousands):
|
|
September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Cash and cash equivalents |
|
$ |
164,122 |
|
|
$ |
110,054 |
|
Restricted cash |
|
|
20,897 |
|
|
|
29,866 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
185,019 |
|
|
$ |
139,920 |
|
Revenue Recognition
The Company recognizes revenue based on the financing products and services it offers and on loans it acquires. “Revenue” in the consolidated statements of income includes: interest income, finance charges, fees for services provided through the Company’s credit services organization and credit access business programs (“CSO programs”) (“CSO fees”), revenue on RPAs, service charges, draw fees, minimum billing fees, purchase fees, origination fees, late fees and non-sufficient funds fees as permitted by applicable laws and
6
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
pursuant to the agreement with the customer. For short-term loans that the Company offers, interest and finance charges are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognize d over the reporting period based upon the balance outstanding and the contractual interest rate, draw fees are recognized on an effective yield basis over the estimated outstanding period of the draw, and minimum billing fees are recognized when assessed to the customer. For installment loans, interest and origination fees are recognized on an effective yield basis over the term of the loan. For RPAs, revenue and purchase fees are recognized on an effective yield basis over the projected delivery term of t he agreements and fees are recognized when assessed. CSO fees are recognized on an effective yield basis over the term of the loan. Late and nonsufficient funds fees are recognized when assessed to the customer. Direct costs associated with originating loa ns and purchasing RPAs, such as third-party customer acquisition costs, are deferred and amortized against revenue on an effective yield basis over the term of the loan or the projected delivery term of the finance receivable. Short-term loans, line of cre dit accounts, installment loans, RPAs, unpaid and accrued interest, fees and revenue and deferred origination costs are included in “Loans and finance receivables, net” in the consolidated balance sheets.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with Accounting Standards Codification (“ASC”) 350, Goodwill, the Company tests goodwill and intangible assets with an indefinite life for potential impairment annually as of June 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount.
The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In assessing the qualitative factors, management considers relevant events and circumstances including but not limited to macroeconomic conditions, industry and market environment, overall financial performance of the Company, cash flow from operating activities, market capitalization and stock price. If the Company determines that the two-step quantitative impairment test is required, management uses the income approach to complete its annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for the Company that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2018 based on qualitative factors and determined that the fair value of its goodwill exceeded carrying value, and, as a result, no impairment existed at that date. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairments will not occur.
Reclassification of Accumulated Other Comprehensive Income to Net Income
In May 2009 and October 2009, the Company began providing services in Australia and Canada under the brand name DollarsDirect. Due to the small size of the Australian and Canadian markets and our limited operations there, we decided to exit those markets in 2016 and reallocate our resources to our other existing businesses. As a result, we stopped originating loans in those countries and have wound down our loan portfolios. During the quarter ended March 31, 2018, the Company continued the liquidation process of the legal entities related to Australia and Canada and recorded a $2.3 million loss to “Foreign currency transaction gain (loss)” in the consolidated statements of income to recognize the cumulative translation adjustment balance that had been previously recorded to “Accumulated other comprehensive loss” on the consolidated balance sheets.
Adopted Accounting Standards
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”) which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. ASU 2018-02 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018 with early adoption in any interim period permitted. The Company adopted this ASU in the first quarter of 2018 and, as a result, reclassified $1.6 million of accumulated other comprehensive income to retained earnings. The amount of the reclassification is reported as “Reclassification of certain deferred tax effects” on the consolidated statements of comprehensive income and the consolidated statements of stockholders’ equity.
7
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Acco unting (“ASU 2017-09”) clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”) to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective at the same time as the amendments in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Therefore, for public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company adopted ASU 2017-05 as of January 1, 2018. The adoption of ASU 2017-05 did not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides a screen to determine when an asset or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company adopted ASU 2017-01 as of January 1, 2018. The adoption of ASU 2017-01 did not have a material effect on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (“ASU 2016-18”). ASU 2016-18 clarifies certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 resulted in a $3.0 million decrease in net cash used in investing activities and a $0.5 million increase in the effect of exchange rates on cash for the nine months ended September 30, 2017.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company adopted ASU 2016-16 as of January 1, 2018. The adoption of ASU 2016-16 did not have a material effect on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU 2016-01 as of January 1, 2018. The adoption of ASU 2016‑01 did not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
8
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted this ASU under the modified-retrospective method effective January 1, 2018. The Company completed its assessment of the guidance and determined its loan and finance receivables are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU was not material to the Company’s consolidated financial statements.
Accounting Standards to be Adopted in Future Periods
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company does not expect that the adoption of ASU 2018-15 will have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect that the adoption of ASU 2017-04 will have a material effect on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016‑13”). The amendments in ASU 2016‑13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016‑13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is assessing the impact of ASU 2016‑13, which at the date of adoption will increase the allowance for credit losses with a resulting negative adjustment to retained earnings.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which provides targeted improvements to ASU 2016-02 by providing an additional optional transition method and a lessor practical expedient for lease and nonlease components. ASU 2016-02 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Upon adoption of ASU 2016-02 in the quarter ending March 31, 2019, the Company will use the optional transition method permitted by ASU 2018-11. The Company expects to report higher assets and liabilities as a result of including additional leases on the consolidated balance sheet. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the consolidated statements of income or the consolidated statements of stockholders' equity.
2. |
Acquisitions |
On June 23, 2015, the Company completed the purchase of certain assets of a company operating as The Business Backer, LLC, which purchases discounted future accounts receivables from small businesses in the United States through RPAs, which provide working capital for small businesses. The total consideration of $26.4 million was comprised of $17.7 million in cash at closing, a $3.0 million promissory note (included in “Accounts payable and accrued expenses” in the consolidated balance sheets) and estimated contingent consideration of $5.7 million based on future earn-out opportunities. The promissory note and all accrued but unpaid interest was paid on June 22, 2018. The contingent purchase consideration was recorded at its estimated fair value at the date of acquisition based upon the Company’s assessment of the probable earnings attributable to the business as defined in the purchase agreement. To the extent operating results exceeded the Company’s estimate, additional contingent consideration would have been due, however the total consideration paid could not exceed $71 million. The contingent purchase consideration was revalued each reporting period with changes in fair value of the contingent consideration obligations recognized as a gain or loss on fair value remeasurement in our consolidated statements of income. The fair value of the contingent purchase consideration was remeasured as of December 31, 2016 and a gain from the fair value remeasurement of $3.3 million was recognized. Based on future expected
9
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of September 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.
This purchase was not material to the Company’s consolidated financial statements. The operating results of the purchased assets, which were not material, have been included in the Company’s consolidated financial statements from the date of acquisition.
3. |
Loans and Finance Receivables, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Loans and Finance Receivables |
Revenue generated from the Company’s loans and finance receivables for the three and nine months ended September 30, 2018 and 2017 was as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Short-term loans |
|
$ |
57,851 |
|
|
$ |
49,875 |
|
|
$ |
161,538 |
|
|
$ |
144,074 |
|
Line of credit accounts |
|
|
98,666 |
|
|
|
68,889 |
|
|
|
256,633 |
|
|
|
187,172 |
|
Installment loans and RPAs |
|
|
137,107 |
|
|
|
98,929 |
|
|
|
382,264 |
|
|
|
268,069 |
|
Total loans and finance receivables revenue |
|
|
293,624 |
|
|
|
217,693 |
|
|
|
800,435 |
|
|
|
599,315 |
|
Other |
|
|
255 |
|
|
|
185 |
|
|
|
1,043 |
|
|
|
730 |
|
Total revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
801,478 |
|
|
$ |
600,045 |
|
Current and Delinquent Loans and Finance Receivables
The Company classifies its loans and finance receivables as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.
The Company does not accrue interest on delinquent loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent loans generally may not be renewed, and if, during its attempt to collect on a delinquent loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.
Allowance and Liability for Estimated Losses on Loans and Finance Receivables
The Company monitors the performance of its loan and finance receivable portfolios and maintains either an allowance or liability for estimated losses on loans and finance receivables (including revenue, fees and/or interest) at a level estimated to be adequate to absorb losses inherent in the portfolio. The allowance for losses on the Company’s owned loans and finance receivables reduces the outstanding loans and finance receivables balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its CSO programs is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
In determining the allowance or liability for estimated losses on loans and finance receivables, the Company applies a documented systematic methodology. In calculating the allowance or liability for receivable losses, outstanding loans and finance receivables are divided into discrete groups of short-term loans, line of credit accounts, installment loans and RPAs and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period, which
10
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
represents the average amount of time between the first occurrence of a loss event and the charge-off of a loan or RPA. The factors the Company considers to a ssess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis. The roll-rate methodology is based on delinquency statu s, payment history and recency factors to estimate future charge-offs.
The Company fully reserves for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charges off loans and finance receivables between 60 – 65 days delinquent. If a loan or finance receivable is deemed uncollectible before it is fully reserved, it is charged off at that point. Loans and finance receivables classified as delinquent generally have an age of one to 64 days from the date any portion of the receivable became delinquent, as defined above. Recoveries on loans and finance receivables previously charged to the allowance are credited to the allowance when collected.
The components of Company-owned loans and finance receivables at September 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):
|
|
As of September 30, 2018 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Current receivables |
|
$ |
46,679 |
|
|
$ |
203,960 |
|
|
$ |
638,910 |
|
|
$ |
889,549 |
|
Delinquent receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
10,270 |
|
|
|
2,531 |
|
|
|
12,801 |
|
Receivables on non-accrual status |
|
|
31,829 |
|
|
|
2,394 |
|
|
|
53,795 |
|
|
|
88,018 |
|
Total delinquent receivables |
|
|
31,829 |
|
|
|
12,664 |
|
|
|
56,326 |
|
|
|
100,819 |
|
Total loans and finance receivables, gross |
|
|
78,508 |
|
|
|
216,624 |
|
|
|
695,236 |
|
|
|
990,368 |
|
Less: Allowance for losses |
|
|
(23,004 |
) |
|
|
(41,478 |
) |
|
|
(87,103 |
) |
|
|
(151,585 |
) |
Loans and finance receivables, net |
|
$ |
55,504 |
|
|
$ |
175,146 |
|
|
$ |
608,133 |
|
|
$ |
838,783 |
|
|
|
As of September 30, 2017 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Current receivables |
|
$ |
40,588 |
|
|
$ |
146,891 |
|
|
$ |
480,522 |
|
|
$ |
668,001 |
|
Delinquent receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
5,913 |
|
|
|
3,382 |
|
|
|
9,295 |
|
Receivables on non-accrual status |
|
|
27,131 |
|
|
|
1,885 |
|
|
|
36,484 |
|
|
|
65,500 |
|
Total delinquent receivables |
|
|
27,131 |
|
|
|
7,798 |
|
|
|
39,866 |
|
|
|
74,795 |
|
Total loans and finance receivables, gross |
|
|
67,719 |
|
|
|
154,689 |
|
|
|
520,388 |
|
|
|
742,796 |
|
Less: Allowance for losses |
|
|
(19,161 |
) |
|
|
(26,810 |
) |
|
|
(59,089 |
) |
|
|
(105,060 |
) |
Loans and finance receivables, net |
|
$ |
48,558 |
|
|
$ |
127,879 |
|
|
$ |
461,299 |
|
|
$ |
637,736 |
|
|
|
As of December 31, 2017 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Current receivables |
|
$ |
45,552 |
|
|
$ |
161,070 |
|
|
$ |
537,634 |
|
|
$ |
744,256 |
|
Delinquent receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent payment amounts (1) |
|
|
— |
|
|
|
7,696 |
|
|
|
3,635 |
|
|
|
11,331 |
|
Receivables on non-accrual status |
|
|
28,120 |
|
|
|
1,302 |
|
|
|
42,740 |
|
|
|
72,162 |
|
Total delinquent receivables |
|
|
28,120 |
|
|
|
8,998 |
|
|
|
46,375 |
|
|
|
83,493 |
|
Total loans and finance receivables, gross |
|
|
73,672 |
|
|
|
170,068 |
|
|
|
584,009 |
|
|
|
827,749 |
|
Less: Allowance for losses |
|
|
(19,917 |
) |
|
|
(31,148 |
) |
|
|
(71,979 |
) |
|
|
(123,044 |
) |
Loans and finance receivables, net |
|
$ |
53,755 |
|
|
$ |
138,920 |
|
|
$ |
512,030 |
|
|
$ |
704,705 |
|
(1) |
Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one payment and RPA customers who have not delivered agreed upon receivables. See “Current and Delinquent Loans and Finance Receivables” above for additional information. |
11
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and nine mont hs ended September 30, 2018 and 2017 were as follows (dollars in thousands):
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Allowance for losses for Company-owned loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
18,861 |
|
|
$ |
31,050 |
|
|
$ |
71,873 |
|
|
$ |
121,784 |
|
Cost of revenue |
|
|
26,080 |
|
|
|
46,749 |
|
|
|
90,782 |
|
|
|
163,611 |
|
Charge-offs |
|
|
(27,906 |
) |
|
|
(40,010 |
) |
|
|
(90,090 |
) |
|
|
(158,006 |
) |
Recoveries |
|
|
6,071 |
|
|
|
3,689 |
|
|
|
14,829 |
|
|
|
24,589 |
|
Effect of foreign currency translation |
|
|
(102 |
) |
|
|
— |
|
|
|
(291 |
) |
|
|
(393 |
) |
Balance at end of period |
|
$ |
23,004 |
|
|
$ |
41,478 |
|
|
$ |
87,103 |
|
|
$ |
151,585 |
|
Liability for third-party lender-owned loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,883 |
|
|
$ |
— |
|
|
$ |
209 |
|
|
$ |
2,092 |
|
Increase in liability |
|
|
94 |
|
|
|
— |
|
|
|
58 |
|
|
|
152 |
|
Balance at end of period |
|
$ |
1,977 |
|
|
$ |
— |
|
|
$ |
267 |
|
|
$ |
2,244 |
|
|
|
Three Months Ended September 30, 2017 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Allowance for losses for Company-owned loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
15,688 |
|
|
$ |
22,847 |
|
|
$ |
45,304 |
|
|
$ |
83,839 |
|
Cost of revenue |
|
|
23,724 |
|
|
|
23,439 |
|
|
|
60,102 |
|
|
|
107,265 |
|
Charge-offs |
|
|
(25,521 |
) |
|
|
(22,708 |
) |
|
|
(57,228 |
) |
|
|
(105,457 |
) |
Recoveries |
|
|
5,082 |
|
|
|
3,232 |
|
|
|
10,630 |
|
|
|
18,944 |
|
Effect of foreign currency translation |
|
|
188 |
|
|
|
— |
|
|
|
281 |
|
|
|
469 |
|
Balance at end of period |
|
$ |
19,161 |
|
|
$ |
26,810 |
|
|
$ |
59,089 |
|
|
$ |
105,060 |
|
Liability for third-party lender-owned loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,761 |
|
|
$ |
— |
|
|
$ |
180 |
|
|
$ |
1,941 |
|
Increase (decrease) in liability |
|
|
125 |
|
|
|
— |
|
|
|
(49 |
) |
|
|
76 |
|
Balance at end of period |
|
$ |
1,886 |
|
|
$ |
— |
|
|
$ |
131 |
|
|
$ |
2,017 |
|
|
|
Nine Months Ended September 30, 2018 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Allowance for losses for Company-owned loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
19,917 |
|
|
$ |
31,148 |
|
|
$ |
71,979 |
|
|
$ |
123,044 |
|
Cost of revenue |
|
|
67,011 |
|
|
|
103,343 |
|
|
|
223,470 |
|
|
|
393,824 |
|
Charge-offs |
|
|
(82,006 |
) |
|
|
(103,371 |
) |
|
|
(251,040 |
) |
|
|
(436,417 |
) |
Recoveries |
|
|
18,332 |
|
|
|
10,358 |
|
|
|
43,820 |
|
|
|
72,510 |
|
Effect of foreign currency translation |
|
|
(250 |
) |
|
|
— |
|
|
|
(1,126 |
) |
|
|
(1,376 |
) |
Balance at end of period |
|
$ |
23,004 |
|
|
$ |
41,478 |
|
|
$ |
87,103 |
|
|
$ |
151,585 |
|
Liability for third-party lender-owned loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
2,105 |
|
|
$ |
— |
|
|
$ |
153 |
|
|
$ |
2,258 |
|
(Decrease) increase in liability |
|
|
(128 |
) |
|
|
— |
|
|
|
114 |
|
|
|
(14 |
) |
Balance at end of period |
|
$ |
1,977 |
|
|
$ |
— |
|
|
$ |
267 |
|
|
$ |
2,244 |
|
12
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
Nine Months Ended September 30, 2017 |
|
|||||||||||||
|
|
Short-term |
|
|
Line of Credit |
|
|
Installment Loans and |
|
|
|
|
|
|||
|
|
Loans |
|
|
Accounts |
|
|
RPAs |
|
|
Total |
|
||||
Allowance for losses for Company-owned loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
17,770 |
|
|
$ |
26,594 |
|
|
$ |
54,581 |
|
|
$ |
98,945 |
|
Cost of revenue |
|
|
55,865 |
|
|
|
63,138 |
|
|
|
150,063 |
|
|
|
269,066 |
|
Charge-offs |
|
|
(70,962 |
) |
|
|
(73,252 |
) |
|
|
(177,002 |
) |
|
|
(321,216 |
) |
Recoveries |
|
|
16,009 |
|
|
|
10,330 |
|
|
|
30,782 |
|
|
|
57,121 |
|
Effect of foreign currency translation |
|
|
479 |
|
|
|
— |
|
|
|
665 |
|
|
|
1,144 |
|
Balance at end of period |
|
$ |
19,161 |
|
|
$ |
26,810 |
|
|
$ |
59,089 |
|
|
$ |
105,060 |
|
Liability for third-party lender-owned loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1,716 |
|
|
$ |
— |
|
|
$ |
280 |
|
|
$ |
1,996 |
|
Increase (decrease) in liability |
|
|
170 |
|
|
|
— |
|
|
|
(149 |
) |
|
|
21 |
|
Balance at end of period |
|
$ |
1,886 |
|
|
$ |
— |
|
|
$ |
131 |
|
|
$ |
2,017 |
|
Guarantees of Consumer Loans
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of September 30, 2018 and 2017 and December 31, 2017, the amount of consumer loans guaranteed by the Company was $30.1 million, $28.9 million and $34.1 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $2.2 million, $2.0 million and $2.3 million, as of September 30, 2018 and 2017 and December 31, 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
Bank Program Loans
In order to leverage its online lending platform, the Company launched a program with a bank in 2016 to provide technology, marketing services, and loan servicing for near-prime unsecured consumer installment loans. Under the program, the Company receives marketing and servicing fees while the bank receives an origination fee. The bank has the ability to sell the loans it originates to the Company. The Company does not guarantee the performance of the loans originated by the bank.
4. |
Investment in Unconsolidated Investee |
The Company records an investment in the preferred stock of a privately-held developing financial services entity under the cost method. The carrying value of the Company’s investment in this unconsolidated investee was $6.7 million as of September 30, 2018 and 2017 and December 31, 2017, and was held in “Other assets” in the Company’s consolidated balance sheets. The Company evaluates this investment for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the investment below carrying value. Based on the Company’s evaluation of this investment at September 30, 2018, the Company determined that an impairment loss was not probable at that date.
13
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. |
Long-term debt |
The Company’s long-term debt instruments and balances outstanding as of September 30, 2018 and 2017 and December 31, 2017 were as follows (dollars in thousands):
|
|
September 30, |
|
|
December 31, |
|
||||||
|
|
2018 |
|
|
2017 |
|
|
2017 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization notes |
|
$ |
226,218 |
|
|
$ |
186,533 |
|
|
$ |
211,406 |
|
9.75% senior notes due 2021 |
|
|
115,821 |
|
|
|
342,407 |
|
|
|
342,558 |
|
8.50% senior notes due 2024 |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
250,000 |
|
8.50% senior notes due 2025 |
|
|
375,000 |
|
|
|
— |
|
|
|
— |
|
Subtotal |
|
|
967,039 |
|
|
|
778,940 |
|
|
|
803,964 |
|
Less: Long-term debt issuance costs |
|
|
(15,948 |
) |
|
|
(13,545 |
) |
|
|
(15,422 |
) |
Total long-term debt |
|
$ |
951,091 |
|
|
$ |
765,395 |
|
|
$ |
788,542 |
|
8.50% Senior Unsecured Notes Due 2025
On September 19, 2018, the Company issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”). The 2025 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2025 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. The 2025 Senior Notes were sold at a price of 100%. The 2025 Senior Notes will mature on September 15, 2025. The 2025 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of the Company’s domestic subsidiaries.
The 2025 Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to September 15, 2021 at 100% of the aggregate principal amount of 2025 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs the Company’s 2025 Notes (the “2025 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 15, 2021 at the premium, if any, specified in the 2025 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 15, 2021, at its option, the Company may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2025 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2025 Senior Notes Indenture.
The 2025 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
The Company used a portion of the net proceeds of the 2025 Senior Notes offering to retire $178.5 million of the remaining outstanding 9.75% senior notes due 2021 (the “2021 Senior Notes) through a cash tender offer, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of its outstanding debt securities. In October 2018, the Company used a portion of the remaining net proceeds of the 2025 Senior Notes to redeem the remaining $116.5 million principal balance of the 2021 Senior Notes.
As of September 30, 2018, the carrying amount of the 2025 Senior Notes was $368.4 million, which includes unamortized issuance costs of $6.6 million. The issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of September 15, 2025. The total interest expense recognized for the nine months ended September 30, 2018 was $1.1 million, of which less than $0.1 million represented the non-cash amortization of the issuance costs .
8.50% Senior Unsecured Notes Due 2024
On September 1, 2017, the Company issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on
14
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by certain of the Company’s domestic subsidiaries.
The 2024 Senior Notes are redeemable at the Company’s option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs the Company’s 2024 Notes (the “2024 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at its option, the Company may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.
The 2024 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
The Company used the net proceeds of the 2024 Senior Notes offering to retire a portion of its outstanding 9.75% senior notes due 2021, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of its outstanding debt securities.
As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2024 Senior Notes was $243.6 million, $242.5 million and $242.8 million, respectively, which includes unamortized issuance costs of $6.4 million, $7.5 million and $7.2 million, respectively. The issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of September 1, 2024. The total interest expense recognized for the nine months ended September 30, 2018 and 2017 was $16.7 million and $1.9 million, respectively, of which $0.8 million and $0.1 million, respectively, represented the non-cash amortization of the issuance costs .
Consumer Loan Securitization
2018-1 Facility
On July 23, 2018, the Company and several of its subsidiaries entered into a receivables funding (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes unsecured consumer installment loans (“Receivables”) that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “2018‑1 Debtor”) and serviced by another subsidiary of the Company.
The 2018‑1 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018‑1 Facility is non-recourse to the Company and matures on July 22, 2023.
The 2018‑1 Facility is governed by a loan and security agreement, dated as of July 23, 2018, between the 2018‑1 Lender and the 2018‑1 Debtor. The 2018-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum is initially 4.00%. In addition, the 2018‑1 Debtor paid certain customary upfront closing fees to the 2018‑1 Lender. Interest payments on the 2018‑1 Facility will be made monthly. The 2018‑1 Debtor shall be permitted to prepay the 2018‑1 Facility, subject to certain fees and conditions. In the event of prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later than July 22, 2023, the final maturity date.
All amounts due under the 2018‑1 Facility are secured by all of the 2018‑1 Debtor’s assets, which include the Receivables transferred to the 2018‑1 Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2018‑1 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2018‑1 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 2018‑1 Debtor.
15
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of September 30, 2018, the carrying amount of the 2018 ‑1 Facility was $46.6 million. In connection with the issuance of the 2018 ‑1 Fac ility, the Company incurred debt issuance costs of approximately $1.4 million. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest exp ense over a period of 60 months, the term of the 2018 ‑1 Facility. The total interest expense recognized was $0.5 million for the nine months ended September 30, 2018, of which $0.1 million represented the non-cash amortization of the issuance costs .
2016-1 Facility
On January 15, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (as amended, the “2016-1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”), and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016-1 Securitization Facility securitizes Receivables that have been, or will be, originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria. Under the 2016-1 Securitization Facility, Receivables are sold to EFR 2016-1, LLC, a wholly-owned special purpose subsidiary (the “Issuer”), and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.
On October 20, 2017 (the “Amendment Closing Date”), the Company and certain of its subsidiaries amended and restated the 2016‑1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under the Company’s NetCredit brand and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of the Company.
In connection with the amendment and restatement, all of the outstanding notes issued by the Issuer prior to the Amendment Closing Date were redeemed and the Issuer issued an initial term note with an initial principal amount of $181.1 million (the “2017 Initial Term Note”) and variable funding notes (the “2017 Variable Funding Notes”) with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million with the consent of the holders of the 2017 Variable Funding Notes. As described below, the Issuer will subsequently issue term notes (the “2017 Term Notes” and, together with the 2017 Initial Term Note and the 2017 Variable Funding Notes the “2017 Securitization Notes”) at the end of each calendar quarter. The maximum principal amount of the 2017 Securitization Notes that may be outstanding at any time under the Amended Facility is $275 million.
On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to the Company and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).
The 2017 Securitization Notes are issued pursuant to an amended and restated indenture, dated as of the Amendment Closing Date, between the Issuer and the Indenture Trustee. The 2017 Securitization Notes bear interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus 7.50%. In addition, the Issuer paid certain customary upfront closing fees to the Administrative Agent and will pay customary annual commitment and other fees to the purchasers under the Amended Facility. Subject to certain exceptions, the Issuer is not permitted to prepay or redeem any of the 2017 Securitization Notes prior to April 15, 2019 except for a one-time prepayment of the 2017 Securitization Notes related to a removal of Receivables in an amount no greater than $100 million. Following such date, the Issuer is permitted to voluntarily prepay any of the 2017 Securitization Notes, subject to an optional redemption premium. Interest and principal payments on the 2017 Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the 2017 Final Maturity Date.
All amounts due under the 2017 Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to the Issuer, related rights under the Receivables, specified bank accounts and certain other related collateral.
The Amended Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination provisions which provide for the acceleration of the 2017 Securitization Notes under the Amended Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations,
16
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness. From time to time, the Company repurchases Receivables at its discretion or under the terms of the Amended Facility.
On October 25, 2017, the Issuer and the Indenture Trustee amended the Amended Facility to permit a holder of a 2017 Term Note or the 2017 Initial Term Note to exchange such notes for notes with an alternative structure with terms not materially different to the Issuer than the exchanged Term Notes or Initial Term Notes.
As of September 30, 2018 and 2017 and December 31, 2017 , the carrying amount of the Amended Facility or 2016-1 Securitization Facility was $162.9 million, $173.7 million and $193.0 million, respectively, which included unamortized issuance costs of $1.7 million, $0.8 million and $3.3 million, respectively. The issuance costs related to the Amended Facility are being amortized to interest expense over a period of three years. The total interest expense recognized related to the Amended Facility and the 2016-1 Securitization facility was $14.5 million, of which $1.6 million represented the non-cash amortization of the issuance costs, and $11.4 million, of which $1.1 million represented the non-cash amortization of the issuance costs for the nine months ended September 30, 2018 and 2017 , respectively.
2016-2 Facility
On December 1, 2016, the Company and certain of its subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “Debtor”) and serviced by another subsidiary of the Company.
The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016‑2 Facility to $40 million. The 2016‑2 Facility is non-recourse to the Company and matures on December 1, 2019.
The 2016‑2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor. The 2016‑2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum was initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the 2016‑2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016‑2 Facility prior to October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016‑2 Facility without penalty. Any remaining amounts outstanding will be payable no later than December 1, 2019.
All amounts due under the 2016‑2 Facility are secured by all of the Debtor’s assets, which include the Receivables transferred to the Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.
As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2016‑2 Facility was $15.1 million, $12.1 million and $15.1 million, respectively. In connection with the issuance of the 2016‑2 Facility, the Company incurred debt issuance costs of approximately $0.2 million. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 36 months, the term of the 2016‑2 Facility. The total interest expense recognized was $1.7 million and $1.4 million for the nine months ended September 30, 2018 and 2017, respectively, of which $0.1 million represented the non-cash amortization of the issuance costs for each of the nine months ended September 30, 2018 and 2017.
Revolving Credit Facility
On June 30, 2017, the Company and certain of its operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as Joint Lead Arrangers and joint lead bookrunners, and Green Bank, N.A., as lender (as amended the “2017 Credit Agreement”). On
17
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as lender in the syndicate of lenders f rom the 2017 Credit Agreement.
The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement is $75 million (an increase from $40 million) and its maturity date is May 1, 2020. The Company had no outstanding borrowings under the 2017 Credit Agreement as of September 30, 2018 and 2017 and December 31, 2017.
The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. The Company had outstanding letters of credit under the 2017 Credit Agreement of $3.6 million, $8.0 million and $8.0 million as of September 30, 2018 and 2017 and December 31, 2017, respectively. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.
The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to the Company’s property, the amount of dividends and other distributions, fundamental changes to the Company or its business and certain other activities of the Company. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also provides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.
In connection with the issuance and amendment of the 2017 Credit Agreement the Company incurred debt issuance costs of approximately $2.5 million, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of September 30, 2018 is included in “Other assets” in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 34 months, the term of the 2017 Credit Agreement.
9.75% Senior Unsecured Notes Due 2021
On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021. The 2021 Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The 2021 Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity and will mature on June 1, 2021.
During the nine months ended September 30, 2018, the Company repurchased $228.5 million principal amount of the 2021 Senior Notes for aggregate cash consideration of $241.6 million plus accrued interest. In connection with these purchases, the Company recorded a loss on extinguishment of debt of approximately $17.2 million ($13.6 million net of tax), which is included in “Loss on early extinguishment of debt” in the consolidated statements of income. In September 2018, the Company issued a conditional full notice of redemption (the “Redemption Notice”) to redeem the remaining $116.5 million of 2021 Senior Notes principal outstanding. The Company paid the remaining balance in October 2018 (see Note 16 for additional information) .
As of September 30, 2018 and 2017 and December 31, 2017, the carrying amount of the 2021 Senior Notes was $114.5 million, $337.1 million and $337.6 million, respectively, which included an unamortized discount of $0.7 million, $2.6 million and $2.4 million, respectively, and unamortized issuance costs of $1.3 million, $5.3 million and $4.9 million, respectively. The discount and issuance costs are being amortized to interest expense over a period of seven years, through the maturity date of June 1, 2021. The total interest expense recognized for the nine months ended September 30, 2018 and 2017 was $22.6 million and $38.0 million, respectively, of which $0.4 million and $0.6 million, respectively represented the non-cash amortization of the discount and $0.9 million and $1.5 million, respectively, represented the non-cash amortization of the issuance costs.
Weighted-average interest rates on long-term debt were 9.80% and 10.58% during the nine months ended September 30, 2018 and 2017, respectively.
As of September 30, 2018 and 2017 and December 31, 2017, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreement(s).
18
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
6. |
Income Taxes |
The Company’s effective tax rate for the nine months ended September 30, 2018, decreased to 3.9% from 34.0% for the nine months ended September 30, 2017. The decrease was attributable to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% resulting from the Tax Cuts and Jobs Act, which was enacted into law on December 22, 2017.
With respect to the estimated tax effects related to the timing of certain prior year tax deductions mentioned above, an increase in unrecognized tax benefits was recorded in the current quarter. As of September 30, 2018, the balance of unrecognized tax benefits was $13.9 million ($13.8 million net of the federal benefit of state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. The Company had $0.6 million ($0.6 million net of the federal benefit of state matters) of unrecognized tax benefits as of September 30, 2017. The Company believes it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. The Company records interest and penalties related to tax matters as income tax expense in the consolidated statement of income.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):
|
|
2017 |
|
|
2018 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Balance, beginning of period |
|
$ |
562 |
|
|
$ |
631 |
|
|
$ |
727 |
|
|
$ |
812 |
|
|
$ |
863 |
|
Increases related to prior year tax positions |
|
|
67 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,956 |
|
Decreases related to prior year tax positions |
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Increases related to current year tax positions |
|
|
13 |
|
|
|
96 |
|
|
|
85 |
|
|
|
51 |
|
|
|
38 |
|
Balance, end of period |
|
$ |
631 |
|
|
$ |
727 |
|
|
$ |
812 |
|
|
$ |
863 |
|
|
$ |
13,855 |
|
The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. The Internal Revenue Service (the ”IRS”) audits for tax years 2011 through 2014 were concluded with no adjustments to the Company’s consolidated financial statements. The 2017, 2016 and 2015 tax years are open to examination by the IRS. The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed.
19
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
7. |
Accumulated Other Comprehensive Loss |
There were no amounts reclassified out of accumulated other comprehensive loss, net of tax for the three months ended September 30, 2018 and 2017.
The following table sets forth the components of accumulated other comprehensive loss, net of tax for the nine months ended September 30, 2018 and 2017 (in thousands):
|
|
Foreign |
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
gain (loss) |
|
|
Total |
|
||
Balance at December 31, 2016 |
|
$ |
(11,578 |
) |
|
$ |
(11,578 |
) |
Other comprehensive income, before reclassifications and tax |
|
|
7,139 |
|
|
|
7,139 |
|
Tax impact |
|
|
(2,578 |
) |
|
|
(2,578 |
) |
Balance at September 30, 2017 |
|
$ |
(7,017 |
) |
|
$ |
(7,017 |
) |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
$ |
(7,086 |
) |
|
$ |
(7,086 |
) |
Other comprehensive loss, before reclassifications and tax |
|
|
(6,869 |
) |
|
|
(6,869 |
) |
Tax impact |
|
|
1,547 |
|
|
|
1,547 |
|
Australia and Canada liquidation (1) |
|
|
2,343 |
|
|
|
2,343 |
|
Tax impact |
|
|
(781 |
) |
|
|
(781 |
) |
Reclassification of certain deferred tax effects (2) |
|
|
(1,622 |
) |
|
|
(1,622 |
) |
Balance at September 30, 2018 |
|
$ |
(12,468 |
) |
|
$ |
(12,468 |
) |
(1) |
Amount reclassified from accumulated other comprehensive loss represents the realization of foreign currency translation losses on the Company’s Australia and Canada businesses for the nine months ended September 30, 2018. These amounts were recorded in “Foreign currency transaction gain (loss)” on the consolidated statements of income. See Note 1 for additional information. |
(2) |
Amount reclassified from accumulated other comprehensive loss represents stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. These amounts were recorded to retained earnings on the consolidated balance sheets. See Note 1 for additional information. |
8. |
Earnings Per Share |
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period. Restricted stock units issued under the Company’s stock-based employee compensation plans are included in diluted shares upon the granting of the awards even though the vesting of shares will occur over time.
The following table sets forth the reconciliation of numerators and denominators of basic and diluted earnings per share computations for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average basic shares |
|
|
34,168 |
|
|
|
33,670 |
|
|
|
33,938 |
|
|
|
33,533 |
|
Shares applicable to stock-based compensation |
|
|
1,497 |
|
|
|
— |
|
|
|
1,262 |
|
|
|
586 |
|
Total weighted average diluted shares |
|
|
35,665 |
|
|
|
33,670 |
|
|
|
35,200 |
|
|
|
34,119 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic |
|
$ |
0.45 |
|
|
$ |
(0.10 |
) |
|
$ |
1.81 |
|
|
$ |
0.67 |
|
Net income (loss) per share – diluted |
|
$ |
0.43 |
|
|
$ |
(0.10 |
) |
|
$ |
1.75 |
|
|
$ |
0.66 |
|
20
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended September 30, 2018, 18,213 shares of common stock underlying stock options and 3,558 shares of common stock underlying restricted stock units were excluded from the calculation of dil uted net income per share because their effect would have been antidilutive. For the three months ended September 30, 2017 , 2,138,180 shares of common stock underlying stock options and 1,592,937 shares of common stock underlying restricted stock units were excluded from the calculation of diluted net income per share because their effect would have been antidilutive. For the nine months ended September 30, 2018 and 2017 , 403,319 and 1,552,045 sha res of common stock underlying stock options, respectively, and 100,698 and 242,677 shares of common stock underlying restricted stock units, respectively, were excluded from the calculation of diluted net income per share because their effect would have b een antidilutive.
9. |
Operating Segment Information |
The Company provides online financial services to alternative credit consumers and small businesses in the United States, United Kingdom and Brazil and has one reportable segment, which is composed of the Company’s domestic and international operations and corporate services. Corporate services primarily includes personnel, occupancy and other operating expenses for shared functions, such as executive management, technology, analytics, business development, legal and licensing, compliance, risk management, internal audit, human resources, payroll, treasury, finance, accounting, and tax. Corporate Services assets primarily include: corporate property and equipment, nonqualified savings plan assets, marketable securities, restricted cash and prepaid expenses. The Company has aggregated all components of its business into a single reportable segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the type of customer and the nature of the regulatory environment.
The following tables present information on the Company’s domestic, international operations and corporate services as of and for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
251,054 |
|
|
$ |
181,584 |
|
|
$ |
677,658 |
|
|
$ |
504,326 |
|
International |
|
|
42,825 |
|
|
|
36,294 |
|
|
|
123,820 |
|
|
|
95,719 |
|
Total revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
801,478 |
|
|
$ |
600,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
63,409 |
|
|
$ |
55,767 |
|
|
$ |
223,351 |
|
|
$ |
176,402 |
|
International |
|
|
513 |
|
|
|
(1,983 |
) |
|
|
3,301 |
|
|
|
3,939 |
|
Corporate services |
|
|
(26,125 |
) |
|
|
(26,107 |
) |
|
|
(84,049 |
) |
|
|
(79,389 |
) |
Total income from operations |
|
$ |
37,797 |
|
|
$ |
27,677 |
|
|
$ |
142,603 |
|
|
$ |
100,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,800 |
|
|
$ |
1,634 |
|
|
$ |
5,555 |
|
|
$ |
4,692 |
|
International |
|
|
358 |
|
|
|
396 |
|
|
|
1,101 |
|
|
|
1,136 |
|
Corporate services |
|
|
1,530 |
|
|
|
1,503 |
|
|
|
4,707 |
|
|
|
4,568 |
|
Total depreciation and amortization |
|
$ |
3,688 |
|
|
$ |
3,533 |
|
|
$ |
11,363 |
|
|
$ |
10,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,927 |
|
|
$ |
2,231 |
|
|
$ |
6,131 |
|
|
$ |
4,271 |
|
International |
|
|
1,186 |
|
|
|
1,281 |
|
|
|
3,140 |
|
|
|
3,401 |
|
Corporate services |
|
|
1,125 |
|
|
|
1,991 |
|
|
|
2,032 |
|
|
|
3,132 |
|
Total expenditures for property and equipment |
|
$ |
4,238 |
|
|
$ |
5,503 |
|
|
$ |
11,303 |
|
|
$ |
10,804 |
|
21
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Property and equipment, net |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
19,360 |
|
|
$ |
22,541 |
|
International |
|
|
9,056 |
|
|
|
7,106 |
|
Corporate services |
|
|
20,098 |
|
|
|
16,910 |
|
Total property and equipment, net |
|
$ |
48,514 |
|
|
$ |
46,557 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,079,652 |
|
|
$ |
899,495 |
|
International |
|
|
138,217 |
|
|
|
126,583 |
|
Corporate services |
|
|
208,399 |
|
|
|
113,700 |
|
Total assets |
|
$ |
1,426,268 |
|
|
$ |
1,139,778 |
|
Geographic Information
The following table presents the Company’s revenue by geographic region for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
251,054 |
|
|
$ |
181,584 |
|
|
$ |
677,658 |
|
|
$ |
504,326 |
|
United Kingdom |
|
|
36,564 |
|
|
|
30,679 |
|
|
|
105,563 |
|
|
|
82,528 |
|
Other international countries |
|
|
6,261 |
|
|
|
5,615 |
|
|
|
18,257 |
|
|
|
13,191 |
|
Total revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
801,478 |
|
|
$ |
600,045 |
|
The Company’s long-lived assets, which consist of the Company’s property and equipment, were $48.5 million and $46.6 million at September 30, 2018 and 2017, respectively. The operations for the Company’s domestic and international businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.
10. |
Commitments and Contingencies |
Litigation
On April 23, 2018, the Commonwealth of Virginia, through Attorney General Mark R. Herring, filed a lawsuit in the Circuit Court for the County of Fairfax, Virginia against NC Financial Solutions of Utah, LLC (“NC Utah”), a subsidiary of the Company. The lawsuit alleges violations of the Virginia Consumer Protection Act (“VCPA”) relating to NC Utah’s communications with customers, collections of certain payments, its loan agreements, and the rates it charged to Virginia borrowers. The plaintiff is seeking to enjoin NC Utah from continuing its current lending practices in Virginia, restitution, civil penalties, and costs and expenses in connection with the same. Neither the likelihood of an unfavorable decision nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, Contingencies–Loss Contingencies–Glossary, for this litigation. The Company carefully considered applicable Virginia law before NC Utah began lending in Virginia and, as a result, believes that the Plaintiff’s claims in the complaint are without merit and intends to vigorously defend this lawsuit.
The Company is also involved in certain routine legal proceedings, claims and litigation matters encountered in the ordinary course of its business. Certain of these matters may be covered to an extent by insurance or by indemnification agreements with third parties. The Company has recorded accruals in its consolidated financial statements for those matters in which it is probable that it has incurred a loss and the amount of the loss, or range of loss, can be reasonably estimated. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.
Headquarters Relocation
During 2014 the Company accelerated the lease expiration date for approximately 86,000 rentable square feet at its prior headquarters office space effective June 30, 2015. The Company relocated to its current headquarters in 2015 and recognized an expense of $3.7 million which was included as “General and administrative expense” and consisted of a lease exit liability of $2.9 million for the
22
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
remaining lease payments, net of estimated sublease income of $1.7 million, and $0.8 million for the removal of property and restoration costs related to the prior headquarters lease. The Company d id not incur further material costs related to the relocation.
The following table is a summary of the exit and disposal activity and liability balances as a result of the headquarters relocation for the twelve months ended December 31, 2017 (in thousands):
|
|
Lease Termination Costs |
|
|
Other Exit Costs |
|
|
Total |
|
|||
Balance at January 1, 2017 |
|
$ |
637 |
|
|
$ |
135 |
|
|
$ |
772 |
|
Payments |
|
|
(554 |
) |
|
|
(9 |
) |
|
|
(563 |
) |
Adjustments |
|
|
(83 |
) |
|
|
(126 |
) |
|
|
(209 |
) |
Balance at December 31, 2017 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
11 . |
Derivative Instruments |
The Company periodically uses derivative instruments to manage risk from changes in market conditions that may affect the Company’s financial performance. The Company has primarily used derivative instruments to manage its primary market risks, which are interest rate risk and foreign currency exchange rate risk.
The Company has periodically used forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Brazil. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in “Foreign currency transaction gain (loss)” in the Company’s consolidated statements of income. As of September 30, 2018, the Company did not manage its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in the United Kingdom or Brazil.
The Company had no outstanding derivative instruments as of September 30, 2018 and 2017.
The following table presents information related to the Company’s derivative instruments as of December 31, 2017 (in thousands):
Non-designated derivatives:
|
|
As of December 31, 2017 |
|
|||||||||||||
|
|
|
|
|
|
Gross Amounts |
|
|
Gross Amounts |
|
|
Net Amounts of Assets |
|
|||
|
|
|
|
|
|
of Recognized |
|
|
Offset in the |
|
|
Presented in the |
|
|||
|
|
Notional |
|
|
Financial |
|
|
Consolidated |
|
|
Consolidated Balance |
|
||||
Forward currency exchange contracts |
|
Amount |
|
|
Instruments |
|
|
Balance Sheets (1) |
|
|
Sheets (2) |
|
||||
Assets |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Liabilities |
|
$ |
12,039 |
|
|
$ |
55 |
|
|
$ |
— |
|
|
$ |
55 |
|
(1) |
As of December 31, 2017, the Company had no gross amounts of recognized derivative instruments that the Company makes an accounting policy election not to offset. In addition, there was no financial collateral related to the Company’s derivatives. The Company has no assets or liabilities that are subject to an enforceable master netting agreement or similar arrangement. |
(2) |
Represents the fair value of forward currency contracts, which is recorded in “Accounts payable and accrued expenses” in the consolidated balance sheets. |
The following table presents information on the effect of derivative instruments on the consolidated results of operations and accumulated other comprehensive income (“AOCI”) for the nine months ended September 30, 2018 and 2017 (dollars in thousands):
|
|
Gains (Losses) |
|
|
|
|
|
|
|
|
|
|
Gains (Losses) |
|
||||||||||
|
|
Recognized in |
|
|
Gains (Losses) |
|
|
Reclassified From |
|
|||||||||||||||
|
|
Income |
|
|
Recognized in AOCI |
|
|
AOCI into Income |
|
|||||||||||||||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|||||||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||||
Non-designated derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts (1) |
|
$ |
243 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
243 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
23
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) |
The gains (losses) on these derivatives substantially offset the (losses) gains on the economically hedged portion of the foreign intercompany balances. |
12. |
Related Party Transactions |
An officer of the Company, who resigned effective July 1, 2018, had an ongoing ownership interest in the small business from which the Company acquired certain assets and assumed certain liabilities in June 2015 (see Note 2 for additional information). Pursuant to the acquisition, a subsidiary of the Company issued a promissory note to the small business in the amount of $3.0 million (the “Promissory Note”) and granted the company an opportunity to earn certain contingent purchase consideration (see Note 2 for additional information), both of which were guaranteed by the Company. The Promissory Note accrued interest at a rate of 4.0% per annum and the total outstanding principal and accrued interest of $3.4 million was paid on June 22, 2018. During the nine months ended September 30, 2018 and 2017, the Company incurred interest expense of $62 thousand and $95 thousand, respectively, related to the Promissory Note. In addition, as a condition precedent to the acquisition, a subsidiary of the Company executed a Transition Services Agreement with the small business from which the Company acquired certain assets whereby it agreed to provide certain transition services to the business for three years following the acquisition. During the nine months ended September 30, 2018 and 2017, the Company was paid $20 thousand and $24 thousand, respectively, for such services.
In October 2017, the Company entered into an agreement for direct mail production and fulfillment services with a marketing services company where David Fisher, the Company’s Chief Executive Officer and Chairman of the Board, also serves as a member of the marketing services company’s board of directors. During the nine months ended September 30, 2018, the Company paid $6.8 million to the agency. As of September 30, 2018, the Company owed the agency $1.4 million related to services provided.
13. |
Variable Interest Entities |
As part of the Company’s overall funding strategy and as part of its efforts to support its liquidity from sources other than its traditional capital market sources, the Company has established a securitization program through the 2016-1, 2016-2 and 2018-1 Securitization Facilities. The Company transferred certain consumer loan receivables to wholly owned, bankruptcy-remote special purpose subsidiaries (VIEs), which issue term notes backed by the underlying consumer loan receivables and are serviced by another wholly owned subsidiary.
The Company is required to evaluate the VIEs for consolidation. The Company has the ability to direct the activities of the VIEs that most significantly impact the economic performance of the entities as the servicer of the securitized loan receivables. Additionally, the Company has the right to receive residual payments, which expose it to potentially significant losses and returns. Accordingly, the Company determined it is the primary beneficiary of the VIEs and is required to consolidate them.
The assets and liabilities related to the VIEs are included in the Company’s consolidated financial statements and are accounted for as secured borrowings.
The Company parenthetically discloses on its consolidated balance sheets the VIEs’ assets that can only be used to settle the VIEs’ obligations and the VIE liabilities if the VIEs’ creditors have no recourse against the Company’s general credit. The carrying amounts of consolidated VIE assets and liabilities associated with the Company’s securitization entities were as follows (dollars in thousands):
|
|
September 30, |
|
|
December 31, |
|
||||||
|
|
2018 |
|
|
2017 |
|
|
2017 |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
120 |
|
|
$ |
— |
|
|
$ |
— |
|
Restricted cash |
|
|
18,678 |
|
|
|
22,161 |
|
|
|
21,696 |
|
Loans and finance receivables, net |
|
|
291,673 |
|
|
|
274,363 |
|
|
|
259,996 |
|
Other receivables and prepaid expenses |
|
|
2,381 |
|
|
|
— |
|
|
|
— |
|
Other assets |
|
|
2,228 |
|
|
|
2,056 |
|
|
|
178 |
|
Total assets |
|
$ |
315,080 |
|
|
$ |
298,580 |
|
|
$ |
281,870 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
2,514 |
|
|
$ |
1,793 |
|
|
$ |
1,671 |
|
Long-term debt |
|
|
224,559 |
|
|
|
185,771 |
|
|
|
208,135 |
|
Total liabilities |
|
$ |
227,073 |
|
|
$ |
187,564 |
|
|
$ |
209,806 |
|
24
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
14. |
Fair Value Measurements |
Recurring Fair Value Measurements
In accordance with ASC 820, Fair Value Measurements and Disclosures, certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
During the nine months ended September 30, 2018 and 2017, there were no transfers of assets or liabilities in or out of Level 1, Level 2 or Level 3 fair value measurements. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and 2017 and December 31, 2017 are as follows (dollars in thousands):
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2018 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified savings plan assets (1) |
|
$ |
2,214 |
|
|
$ |
2,214 |
|
|
$ |
— |
|
|
$ |
— |
|
Total |
|
$ |
2,214 |
|
|
$ |
2,214 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2017 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified savings plan assets (1) |
|
$ |
1,443 |
|
|
$ |
1,443 |
|
|
$ |
— |
|
|
$ |
— |
|
Contingent consideration |
|
|
(2,358 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,358 |
) |
Total |
|
$ |
(915 |
) |
|
$ |
1,443 |
|
|
$ |
— |
|
|
$ |
(2,358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2017 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency exchange contracts |
|
$ |
(55 |
) |
|
$ |
— |
|
|
$ |
(55 |
) |
|
$ |
— |
|
Non-qualified savings plan assets (1) |
|
|
1,460 |
|
|
|
1,460 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
1,405 |
|
|
$ |
1,460 |
|
|
$ |
(55 |
) |
|
$ |
— |
|
(1) |
The non-qualified savings plan assets are included in “Other receivables and prepaid expenses” in the Company’s consolidated balance sheets and have an offsetting liability of equal amount, which is included in “Accounts payable and accrued expenses” in the Company’s consolidated balance sheets. |
The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This analysis reflects the contractual terms of the purchase agreement and utilizes assumptions with regard to future earnings, probabilities of achieving such future earnings, the timing of expected payments and a discount rate. Significant increases with respect to assumptions as to future earnings and probabilities of achieving such future earnings would result in a higher fair value measurement while an increase in the discount rate would result in a lower fair value measurement. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. Based on future expected earnings, the Company did not expect to pay any additional contingent consideration and recorded an adjustment to write-off the remaining liability in 2017. As of September 30, 2018 the Company had not made and was no longer potentially liable for any contingent payments related to this acquisition.
The changes in the fair value of the contingent consideration, which is a Level 3 liability measured at fair value on a recurring basis, are summarized in the table below for the nine months ended September 30, 2017 (dollars in thousands):
25
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|||||
|
|
Contingent consideration |
|
|
Total |
|
||
Balance at December 31, 2016 |
|
$ |
2,358 |
|
|
$ |
2,358 |
|
Adjustments |
|
|
— |
|
|
|
— |
|
Balance at September 30, 2017 |
|
$ |
2,358 |
|
|
$ |
2,358 |
|
Fair Value Measurements on a Non-Recurring Basis
The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a non-recurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At September 30, 2018 and 2017 and December 31, 2017 , there were no assets or liabilities recorded at fair value on a non-recurring basis.
26
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial assets and liabilities as of September 30, 2018 and 2017 and December 31, 2017 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2018 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
164,122 |
|
|
$ |
164,122 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
230,650 |
|
|
|
— |
|
|
|
— |
|
|
|
230,650 |
|
Installment loans and RPAs, net (1)(4) |
|
|
608,133 |
|
|
|
— |
|
|
|
— |
|
|
|
637,880 |
|
Restricted cash (5) |
|
|
20,897 |
|
|
|
20,897 |
|
|
|
— |
|
|
|
— |
|
Investment in unconsolidated investee (2)(3) |
|
|
6,703 |
|
|
|
— |
|
|
|
— |
|
|
|
6,703 |
|
Total |
|
$ |
1,030,505 |
|
|
$ |
185,019 |
|
|
$ |
— |
|
|
$ |
875,233 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
2,244 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,244 |
|
Securitization Notes |
|
|
226,218 |
|
|
|
— |
|
|
|
228,819 |
|
|
|
— |
|
9.75% senior notes due 2021 |
|
|
115,821 |
|
|
|
— |
|
|
|
121,657 |
|
|
|
— |
|
8.50% senior notes due 2024 |
|
|
250,000 |
|
|
|
— |
|
|
|
253,125 |
|
|
|
— |
|
8.50% senior notes due 2025 |
|
|
375,000 |
|
|
|
— |
|
|
|
371,250 |
|
|
|
— |
|
Total |
|
$ |
969,283 |
|
|
$ |
— |
|
|
$ |
974,851 |
|
|
$ |
2,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2017 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
110,054 |
|
|
$ |
110,054 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
176,437 |
|
|
|
— |
|
|
|
— |
|
|
|
176,437 |
|
Installment loans and RPAs, net (1)(4) |
|
|
461,299 |
|
|
|
— |
|
|
|
— |
|
|
|
496,377 |
|
Restricted cash (5) |
|
|
29,866 |
|
|
|
29,866 |
|
|
|
— |
|
|
|
— |
|
Investment in unconsolidated investee (2)(3) |
|
|
6,703 |
|
|
|
— |
|
|
|
— |
|
|
|
6,703 |
|
Total |
|
$ |
784,359 |
|
|
$ |
139,920 |
|
|
$ |
— |
|
|
$ |
679,517 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
2,017 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,017 |
|
Promissory note |
|
|
3,000 |
|
|
|
— |
|
|
|
— |
|
|
|
3,245 |
|
Securitization Notes |
|
|
186,533 |
|
|
|
— |
|
|
|
189,005 |
|
|
|
— |
|
9.75% senior notes due 2021 |
|
|
342,407 |
|
|
|
— |
|
|
|
363,796 |
|
|
|
— |
|
8.50% senior notes due 2024 |
|
|
250,000 |
|
|
|
— |
|
|
|
252,000 |
|
|
|
— |
|
Total |
|
$ |
783,957 |
|
|
$ |
— |
|
|
$ |
804,801 |
|
|
$ |
5,262 |
|
27
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Fair Value Measurements Using |
|
||||||||||
|
|
2017 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
68,684 |
|
|
$ |
68,684 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term loans and line of credit accounts, net (1) |
|
|
192,675 |
|
|
|
— |
|
|
|
— |
|
|
|
192,675 |
|
Installment loans and RPAs, net (1)(4) |
|
|
512,030 |
|
|
|
— |
|
|
|
— |
|
|
|
544,799 |
|
Restricted cash (5) |
|
|
29,460 |
|
|
|
29,460 |
|
|
|
— |
|
|
|
— |
|
Investment in unconsolidated investee (2)(3) |
|
|
6,703 |
|
|
|
— |
|
|
|
— |
|
|
|
6,703 |
|
Total |
|
$ |
809,552 |
|
|
$ |
98,144 |
|
|
$ |
— |
|
|
$ |
744,177 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated losses on consumer loans guaranteed by the Company |
|
$ |
2,258 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,258 |
|
Promissory note |
|
|
3,000 |
|
|
|
— |
|
|
|
— |
|
|
|
3,287 |
|
Securitization Notes |
|
|
211,406 |
|
|
|
— |
|
|
|
215,063 |
|
|
|
— |
|
9.75% senior notes due 2021 |
|
|
342,558 |
|
|
|
— |
|
|
|
365,700 |
|
|
|
— |
|
8.50% senior notes due 2024 |
|
|
250,000 |
|
|
|
— |
|
|
|
255,000 |
|
|
|
— |
|
Total |
|
$ |
809,222 |
|
|
$ |
— |
|
|
$ |
835,763 |
|
|
$ |
5,545 |
|
(1) |
Short-term loans, line of credit accounts, installment loans and RPAs are included in “Loans and finance receivables, net” in the consolidated balance sheets. |
(2) |
Investment in unconsolidated investee is included in “Other assets” in the consolidated balance sheets. |
(3) |
See Note 4 for additional information related to the investment in unconsolidated investee. |
(4) |
Installment loan and RPAs, net include $291.7 million, $274.4 million and $260.0 million in net assets of consolidated VIEs as of September 30, 2018 and 2017 and December 31, 2017, respectively. |
(5) |
Restricted cash includes $18.7 million, $22.2 million and $21.7 million in assets of consolidated VIEs as of September 30, 2018 and 2017 and December 31, 2017, respectively. |
Cash and cash equivalents and restricted cash bear interest at market rates and have original maturities of less than 90 days. The carrying amount of cash and cash equivalents and restricted cash approximates fair value.
Short-term loans, line of credit accounts, installment loans and RPAs are carried in the consolidated balance sheet net of the allowance for estimated losses, which is calculated by applying historical loss rates combined with recent default trends to the gross receivable balance. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The unobservable inputs used to calculate the fair value of these receivables include historical loss rates, recent default trends and estimated remaining loan term; therefore, the carrying value approximates the fair value. The fair value of installment loans and RPAs is estimated using discounted cash flow analyses, which consider interest rates on loans and discounts offered for receivables with similar terms to customers with similar credit quality, the timing of expected payments, estimated customer default rates and/or valuations of comparable portfolios. As of September 30, 2018 and 2017 and December 31, 2017, the fair value of the Company’s installment loans and RPAs was greater than the carrying value of these loans and finance receivables. Unsecured installment loans typically have terms between two and 60 months. RPAs typically have estimated delivery terms between six and 18 months.
The Company measures the fair value of its investment in unconsolidated investee using Level 3 inputs. Because the unconsolidated investee is a private company and financial information is limited, the Company estimates the fair value based on the best available information at the measurement date. As of September 30, 2018 and 2017 and December 31, 2017, the Company estimated the fair value of its investment to be approximately equal to the book value.
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans the Company arranges for consumers on the third-party lenders’ behalf and is required to purchase any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company was $2.2 million, $2.0 million and $2.3 million as of September 30, 2018 and 2017 and December 31, 2017, respectively. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.
28
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Company measured the fair value of the Promissory Note using Level 3 inputs. The fair value of the Promissory Note was estimated using a discounted cash flow analysis. There was no outstanding balance for the Promis sory Note as of September 30, 2018. As of September 30, 2017 and December 31, 2017, the Promissory Note had a higher fair value than the carrying value.
The Company measures the fair value of its Securitization Notes using Level 2 inputs. The fair value of the Company’s Securitization Notes is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017 , the Company’s Securitization Notes had a higher fair value than the carrying value.
The Company measures the fair value of its 9.75% senior notes due 2021 using Level 2 inputs. The fair value of the Company’s 9.75% senior notes due 2021 is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017 , the Company’s 9.75% senior notes due 2021 had a higher fair value than the carrying value .
The Company measures the fair value of its 8.50% senior notes due 2024 using Level 2 inputs. The fair value of the Company’s 8.50% senior notes due 2024 is estimated based on quoted prices in markets that are not active. As of September 30, 2018 and 2017 and December 31, 2017 , the Company’s 8.50% s enior notes due 2024 had a higher fair value than the carrying value.
The Company measures the fair value of its 8.50% senior notes due 2025 using Level 2 inputs. The fair value of the Company’s 8.50% senior notes due 2025 is estimated based on quoted prices in markets that are not active. As of September 30, 2018, the Company’s 8.50% s enior notes due 2025 had a lower fair value than the carrying value.
15. |
Condensed Consolidating Financial Statements |
The Company’s 2021 Senior Notes are unconditionally guaranteed by certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”) and are not secured by its other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned, all guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee arrangements, the Company is required, in accordance with Rule 3-10 of Regulation S-X, to present the following condensed consolidating financial statements.
The condensed consolidating financial statements reflect the investments in subsidiaries of the Company using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Condensed consolidating financial statements of Enova International, Inc. (the “Parent”), its Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of September 30, 2018 and 2017 and December 31, 2017 and for the periods ended September 30, 2018 and 2017 are shown on the following pages.
29
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2018
(dollars in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
99,862 |
|
|
$ |
63,530 |
|
|
$ |
730 |
|
|
$ |
— |
|
|
$ |
164,122 |
|
Restricted cash |
|
|
— |
|
|
|
2,219 |
|
|
|
18,678 |
|
|
|
— |
|
|
|
20,897 |
|
Loans and finance receivables, net |
|
|
— |
|
|
|
547,110 |
|
|
|
291,673 |
|
|
|
— |
|
|
|
838,783 |
|
Income taxes receivable |
|
|
135,283 |
|
|
|
(89,676 |
) |
|
|
32 |
|
|
|
— |
|
|
|
45,639 |
|
Other receivables and prepaid expenses |
|
|
110 |
|
|
|
22,373 |
|
|
|
3,216 |
|
|
|
— |
|
|
|
25,699 |
|
Property and equipment, net |
|
|
— |
|
|
|
48,103 |
|
|
|
411 |
|
|
|
— |
|
|
|
48,514 |
|
Goodwill |
|
|
— |
|
|
|
267,013 |
|
|
|
— |
|
|
|
— |
|
|
|
267,013 |
|
Intangible assets, net |
|
|
— |
|
|
|
3,523 |
|
|
|
— |
|
|
|
— |
|
|
|
3,523 |
|
Investment in subsidiaries |
|
|
502,430 |
|
|
|
64,237 |
|
|
|
— |
|
|
|
(566,667 |
) |
|
|
— |
|
Intercompany receivable |
|
|
347,844 |
|
|
|
— |
|
|
|
— |
|
|
|
(347,844 |
) |
|
|
— |
|
Other assets |
|
|
1,658 |
|
|
|
8,192 |
|
|
|
2,228 |
|
|
|
— |
|
|
|
12,078 |
|
Total assets |
|
$ |
1,087,187 |
|
|
$ |
936,624 |
|
|
$ |
316,968 |
|
|
$ |
(914,511 |
) |
|
$ |
1,426,268 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
8,079 |
|
|
$ |
64,250 |
|
|
$ |
3,859 |
|
|
$ |
— |
|
|
$ |
76,188 |
|
Intercompany payables |
|
|
— |
|
|
|
315,308 |
|
|
|
32,536 |
|
|
|
(347,844 |
) |
|
|
— |
|
Income taxes currently payable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Deferred tax liabilities, net |
|
|
(92 |
) |
|
|
46,803 |
|
|
|
(390 |
) |
|
|
— |
|
|
|
46,321 |
|
Long-term debt |
|
|
726,532 |
|
|
|
— |
|
|
|
224,559 |
|
|
|
— |
|
|
|
951,091 |
|
Total liabilities |
|
|
734,519 |
|
|
|
426,361 |
|
|
|
260,564 |
|
|
|
(347,844 |
) |
|
|
1,073,600 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
352,668 |
|
|
|
510,263 |
|
|
|
56,404 |
|
|
|
(566,667 |
) |
|
|
352,668 |
|
Total liabilities and stockholders' equity |
|
$ |
1,087,187 |
|
|
$ |
936,624 |
|
|
$ |
316,968 |
|
|
$ |
(914,511 |
) |
|
$ |
1,426,268 |
|
30
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2017
(dollars in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
54,055 |
|
|
$ |
50,996 |
|
|
$ |
5,003 |
|
|
$ |
— |
|
|
$ |
110,054 |
|
Restricted cash |
|
|
— |
|
|
|
7,705 |
|
|
|
22,161 |
|
|
|
— |
|
|
|
29,866 |
|
Loans and finance receivables, net |
|
|
— |
|
|
|
351,627 |
|
|
|
286,109 |
|
|
|
— |
|
|
|
637,736 |
|
Income taxes receivable |
|
|
105,140 |
|
|
|
(95,852 |
) |
|
|
31 |
|
|
|
— |
|
|
|
9,319 |
|
Other receivables and prepaid expenses |
|
|
245 |
|
|
|
21,271 |
|
|
|
2,280 |
|
|
|
— |
|
|
|
23,796 |
|
Property and equipment, net |
|
|
— |
|
|
|
45,925 |
|
|
|
632 |
|
|
|
— |
|
|
|
46,557 |
|
Goodwill |
|
|
— |
|
|
|
267,015 |
|
|
|
— |
|
|
|
— |
|
|
|
267,015 |
|
Intangible assets, net |
|
|
— |
|
|
|
4,593 |
|
|
|
— |
|
|
|
— |
|
|
|
4,593 |
|
Investment in subsidiaries |
|
|
362,991 |
|
|
|
45,924 |
|
|
|
— |
|
|
|
(408,915 |
) |
|
|
— |
|
Intercompany receivable |
|
|
343,514 |
|
|
|
— |
|
|
|
— |
|
|
|
(343,514 |
) |
|
|
— |
|
Other assets |
|
|
1,826 |
|
|
|
6,960 |
|
|
|
2,056 |
|
|
|
— |
|
|
|
10,842 |
|
Total assets |
|
$ |
867,771 |
|
|
$ |
706,164 |
|
|
$ |
318,272 |
|
|
$ |
(752,429 |
) |
|
$ |
1,139,778 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
13,795 |
|
|
$ |
62,348 |
|
|
$ |
2,754 |
|
|
$ |
— |
|
|
$ |
78,897 |
|
Intercompany payables |
|
|
— |
|
|
|
252,154 |
|
|
|
91,360 |
|
|
|
(343,514 |
) |
|
|
— |
|
Deferred tax liabilities, net |
|
|
(453 |
) |
|
|
21,634 |
|
|
|
(500 |
) |
|
|
— |
|
|
|
20,681 |
|
Long-term debt |
|
|
579,624 |
|
|
|
— |
|
|
|
185,771 |
|
|
|
— |
|
|
|
765,395 |
|
Total liabilities |
|
|
592,966 |
|
|
|
336,136 |
|
|
|
279,385 |
|
|
|
(343,514 |
) |
|
|
864,973 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
274,805 |
|
|
|
370,028 |
|
|
|
38,887 |
|
|
|
(408,915 |
) |
|
|
274,805 |
|
Total liabilities and stockholders' equity |
|
$ |
867,771 |
|
|
$ |
706,164 |
|
|
$ |
318,272 |
|
|
$ |
(752,429 |
) |
|
$ |
1,139,778 |
|
31
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2017
(dollars in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
12,183 |
|
|
$ |
54,659 |
|
|
$ |
1,842 |
|
|
$ |
— |
|
|
$ |
68,684 |
|
Restricted cash |
|
|
— |
|
|
|
7,764 |
|
|
|
21,696 |
|
|
|
— |
|
|
|
29,460 |
|
Loans and finance receivables, net |
|
|
— |
|
|
|
442,516 |
|
|
|
262,189 |
|
|
|
— |
|
|
|
704,705 |
|
Income taxes receivable |
|
|
114,494 |
|
|
|
(110,852 |
) |
|
|
450 |
|
|
|
— |
|
|
|
4,092 |
|
Other receivables and prepaid expenses |
|
|
833 |
|
|
|
20,731 |
|
|
|
2,253 |
|
|
|
— |
|
|
|
23,817 |
|
Property and equipment, net |
|
|
— |
|
|
|
47,965 |
|
|
|
560 |
|
|
|
— |
|
|
|
48,525 |
|
Goodwill |
|
|
— |
|
|
|
267,015 |
|
|
|
— |
|
|
|
— |
|
|
|
267,015 |
|
Intangible assets, net |
|
|
— |
|
|
|
4,325 |
|
|
|
— |
|
|
|
— |
|
|
|
4,325 |
|
Investment in subsidiaries |
|
|
388,538 |
|
|
|
63,956 |
|
|
|
— |
|
|
|
(452,494 |
) |
|
|
— |
|
Intercompany receivable |
|
|
354,457 |
|
|
|
— |
|
|
|
— |
|
|
|
(354,457 |
) |
|
|
— |
|
Other assets |
|
|
1,785 |
|
|
|
6,874 |
|
|
|
178 |
|
|
|
— |
|
|
|
8,837 |
|
Total assets |
|
$ |
872,290 |
|
|
$ |
804,953 |
|
|
$ |
289,168 |
|
|
$ |
(806,951 |
) |
|
$ |
1,159,460 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
10,336 |
|
|
$ |
64,541 |
|
|
$ |
2,246 |
|
|
$ |
— |
|
|
$ |
77,123 |
|
Intercompany payables |
|
|
— |
|
|
|
331,425 |
|
|
|
23,032 |
|
|
|
(354,457 |
) |
|
|
— |
|
Deferred tax liabilities, net |
|
|
(140 |
) |
|
|
12,726 |
|
|
|
(478 |
) |
|
|
— |
|
|
|
12,108 |
|
Long-term debt |
|
|
580,407 |
|
|
|
— |
|
|
|
208,135 |
|
|
|
— |
|
|
|
788,542 |
|
Total liabilities |
|
|
590,603 |
|
|
|
408,692 |
|
|
|
232,935 |
|
|
|
(354,457 |
) |
|
|
877,773 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
281,687 |
|
|
|
396,261 |
|
|
|
56,233 |
|
|
|
(452,494 |
) |
|
|
281,687 |
|
Total liabilities and stockholders' equity |
|
$ |
872,290 |
|
|
$ |
804,953 |
|
|
$ |
289,168 |
|
|
$ |
(806,951 |
) |
|
$ |
1,159,460 |
|
32
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2018
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
— |
|
|
$ |
251,593 |
|
|
$ |
42,286 |
|
|
$ |
— |
|
|
$ |
293,879 |
|
Cost of Revenue |
|
|
— |
|
|
|
130,719 |
|
|
|
33,044 |
|
|
|
— |
|
|
|
163,763 |
|
Gross Profit |
|
|
— |
|
|
|
120,874 |
|
|
|
9,242 |
|
|
|
— |
|
|
|
130,116 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
— |
|
|
|
34,725 |
|
|
|
1,286 |
|
|
|
— |
|
|
|
36,011 |
|
Operations and technology |
|
|
2 |
|
|
|
26,567 |
|
|
|
1,691 |
|
|
|
— |
|
|
|
28,260 |
|
General and administrative |
|
|
75 |
|
|
|
23,450 |
|
|
|
835 |
|
|
|
— |
|
|
|
24,360 |
|
Depreciation and amortization |
|
|
— |
|
|
|
3,648 |
|
|
|
40 |
|
|
|
— |
|
|
|
3,688 |
|
Total Expenses |
|
|
77 |
|
|
|
88,390 |
|
|
|
3,852 |
|
|
|
— |
|
|
|
92,319 |
|
(Loss) Income from Operations |
|
|
(77 |
) |
|
|
32,484 |
|
|
|
5,390 |
|
|
|
— |
|
|
|
37,797 |
|
Interest expense, net |
|
|
(14,680 |
) |
|
|
14 |
|
|
|
(5,578 |
) |
|
|
— |
|
|
|
(20,244 |
) |
Foreign currency transaction gain (loss) |
|
|
29 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
27 |
|
Loss on early extinguishment of debt |
|
|
(12,469 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,469 |
) |
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries |
|
|
(27,197 |
) |
|
|
32,496 |
|
|
|
(188 |
) |
|
|
— |
|
|
|
5,111 |
|
Provision for (benefit from) income taxes |
|
|
4,750 |
|
|
|
(12,135 |
) |
|
|
(2,808 |
) |
|
|
— |
|
|
|
(10,193 |
) |
(Loss) Income before Equity in Net Earnings of Subsidiaries |
|
|
(31,947 |
) |
|
|
44,631 |
|
|
|
2,620 |
|
|
|
— |
|
|
|
15,304 |
|
Net earnings of subsidiaries |
|
|
47,251 |
|
|
|
2,620 |
|
|
|
— |
|
|
|
(49,871 |
) |
|
|
— |
|
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
47,251 |
|
|
$ |
2,620 |
|
|
$ |
(49,871 |
) |
|
$ |
15,304 |
|
Other comprehensive (loss) gain, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain |
|
|
(1,563 |
) |
|
|
(1,499 |
) |
|
|
(63 |
) |
|
|
1,562 |
|
|
|
(1,563 |
) |
Total other comprehensive (loss) gain, net of tax |
|
|
(1,563 |
) |
|
|
(1,499 |
) |
|
|
(63 |
) |
|
|
1,562 |
|
|
|
(1,563 |
) |
Comprehensive Income (Loss) |
|
$ |
13,741 |
|
|
$ |
45,752 |
|
|
$ |
2,557 |
|
|
$ |
(48,309 |
) |
|
$ |
13,741 |
|
33
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2017
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
— |
|
|
$ |
178,908 |
|
|
$ |
40,374 |
|
|
$ |
(1,404 |
) |
|
$ |
217,878 |
|
Cost of Revenue |
|
|
— |
|
|
|
79,349 |
|
|
|
27,992 |
|
|
|
— |
|
|
|
107,341 |
|
Gross Profit |
|
|
— |
|
|
|
99,559 |
|
|
|
12,382 |
|
|
|
(1,404 |
) |
|
|
110,537 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
— |
|
|
|
26,423 |
|
|
|
577 |
|
|
|
— |
|
|
|
27,000 |
|
Operations and technology |
|
|
— |
|
|
|
22,911 |
|
|
|
4,252 |
|
|
|
— |
|
|
|
27,163 |
|
General and administrative |
|
|
131 |
|
|
|
25,746 |
|
|
|
691 |
|
|
|
(1,404 |
) |
|
|
25,164 |
|
Depreciation and amortization |
|
|
— |
|
|
|
3,486 |
|
|
|
47 |
|
|
|
— |
|
|
|
3,533 |
|
Total Expenses |
|
|
131 |
|
|
|
78,566 |
|
|
|
5,567 |
|
|
|
(1,404 |
) |
|
|
82,860 |
|
(Loss) Income from Operations |
|
|
(131 |
) |
|
|
20,993 |
|
|
|
6,815 |
|
|
|
— |
|
|
|
27,677 |
|
Interest expense, net |
|
|
(14,238 |
) |
|
|
(33 |
) |
|
|
(4,021 |
) |
|
|
— |
|
|
|
(18,292 |
) |
Foreign currency transaction gain |
|
|
65 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
Loss on early extinguishment of debt |
|
|
(14,927 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,927 |
) |
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries |
|
|
(29,231 |
) |
|
|
20,960 |
|
|
|
2,794 |
|
|
|
— |
|
|
|
(5,477 |
) |
(Benefit from) provision for income taxes |
|
|
(9,760 |
) |
|
|
6,746 |
|
|
|
905 |
|
|
|
— |
|
|
|
(2,109 |
) |
(Loss) Income before Equity in Net Earnings of Subsidiaries |
|
|
(19,471 |
) |
|
|
14,214 |
|
|
|
1,889 |
|
|
|
— |
|
|
|
(3,368 |
) |
Net earnings of subsidiaries |
|
|
16,103 |
|
|
|
1,889 |
|
|
|
— |
|
|
|
(17,992 |
) |
|
|
— |
|
Net (Loss) Income |
|
$ |
(3,368 |
) |
|
$ |
16,103 |
|
|
$ |
1,889 |
|
|
$ |
(17,992 |
) |
|
$ |
(3,368 |
) |
Other comprehensive gain (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
2,052 |
|
|
|
1,304 |
|
|
|
749 |
|
|
|
(2,053 |
) |
|
|
2,052 |
|
Total other comprehensive gain (loss), net of tax |
|
|
2,052 |
|
|
|
1,304 |
|
|
|
749 |
|
|
|
(2,053 |
) |
|
|
2,052 |
|
Comprehensive (Loss) Income |
|
$ |
(1,316 |
) |
|
$ |
17,407 |
|
|
$ |
2,638 |
|
|
$ |
(20,045 |
) |
|
$ |
(1,316 |
) |
34
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2018
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
— |
|
|
$ |
681,126 |
|
|
$ |
120,352 |
|
|
$ |
— |
|
|
$ |
801,478 |
|
Cost of Revenue |
|
|
— |
|
|
|
314,476 |
|
|
|
79,334 |
|
|
|
— |
|
|
|
393,810 |
|
Gross Profit |
|
|
— |
|
|
|
366,650 |
|
|
|
41,018 |
|
|
|
— |
|
|
|
407,668 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
— |
|
|
|
90,255 |
|
|
|
2,878 |
|
|
|
— |
|
|
|
93,133 |
|
Operations and technology |
|
|
5 |
|
|
|
77,647 |
|
|
|
3,341 |
|
|
|
— |
|
|
|
80,993 |
|
General and administrative |
|
|
207 |
|
|
|
76,511 |
|
|
|
2,858 |
|
|
|
— |
|
|
|
79,576 |
|
Depreciation and amortization |
|
|
— |
|
|
|
11,238 |
|
|
|
125 |
|
|
|
— |
|
|
|
11,363 |
|
Total Expenses |
|
|
212 |
|
|
|
255,651 |
|
|
|
9,202 |
|
|
|
— |
|
|
|
265,065 |
|
(Loss) Income from Operations |
|
|
(212 |
) |
|
|
110,999 |
|
|
|
31,816 |
|
|
|
— |
|
|
|
142,603 |
|
Interest expense, net |
|
|
(42,685 |
) |
|
|
(431 |
) |
|
|
(16,156 |
) |
|
|
— |
|
|
|
(59,272 |
) |
Foreign currency transaction gain (loss) |
|
|
84 |
|
|
|
(2,349 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,265 |
) |
Loss on early extinguishment of debt |
|
|
(17,179 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,179 |
) |
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries |
|
|
(59,992 |
) |
|
|
108,219 |
|
|
|
15,660 |
|
|
|
— |
|
|
|
63,887 |
|
(Benefit from) provision for income taxes |
|
|
(2,310 |
) |
|
|
4,167 |
|
|
|
603 |
|
|
|
— |
|
|
|
2,460 |
|
(Loss) Income before Equity in Net Earnings of Subsidiaries |
|
|
(57,682 |
) |
|
|
104,052 |
|
|
|
15,057 |
|
|
|
— |
|
|
|
61,427 |
|
Net earnings of subsidiaries |
|
|
119,109 |
|
|
|
15,057 |
|
|
|
— |
|
|
|
(134,166 |
) |
|
|
— |
|
Net Income (Loss) |
|
$ |
61,427 |
|
|
$ |
119,109 |
|
|
$ |
15,057 |
|
|
$ |
(134,166 |
) |
|
$ |
61,427 |
|
Other comprehensive (loss) gain, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain |
|
|
(3,760 |
) |
|
|
(5,272 |
) |
|
|
(110 |
) |
|
|
5,382 |
|
|
|
(3,760 |
) |
Reclassification of certain deferred tax effects |
|
|
(1,622 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,622 |
) |
Total other comprehensive (loss) gain, net of tax |
|
|
(5,382 |
) |
|
|
(5,272 |
) |
|
|
(110 |
) |
|
|
5,382 |
|
|
|
(5,382 |
) |
Comprehensive Income (Loss) |
|
$ |
56,045 |
|
|
$ |
113,837 |
|
|
$ |
14,947 |
|
|
$ |
(128,784 |
) |
|
$ |
56,045 |
|
35
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2017
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
— |
|
|
$ |
497,081 |
|
|
$ |
106,902 |
|
|
$ |
(3,938 |
) |
|
$ |
600,045 |
|
Cost of Revenue |
|
|
— |
|
|
|
197,281 |
|
|
|
71,806 |
|
|
|
— |
|
|
|
269,087 |
|
Gross Profit |
|
|
— |
|
|
|
299,800 |
|
|
|
35,096 |
|
|
|
(3,938 |
) |
|
|
330,958 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
— |
|
|
|
68,686 |
|
|
|
1,307 |
|
|
|
— |
|
|
|
69,993 |
|
Operations and technology |
|
|
— |
|
|
|
65,090 |
|
|
|
7,422 |
|
|
|
— |
|
|
|
72,512 |
|
General and administrative |
|
|
265 |
|
|
|
76,060 |
|
|
|
4,718 |
|
|
|
(3,938 |
) |
|
|
77,105 |
|
Depreciation and amortization |
|
|
— |
|
|
|
10,261 |
|
|
|
135 |
|
|
|
— |
|
|
|
10,396 |
|
Total Expenses |
|
|
265 |
|
|
|
220,097 |
|
|
|
13,582 |
|
|
|
(3,938 |
) |
|
|
230,006 |
|
(Loss) Income from Operations |
|
|
(265 |
) |
|
|
79,703 |
|
|
|
21,514 |
|
|
|
— |
|
|
|
100,952 |
|
Interest expense, net |
|
|
(40,780 |
) |
|
|
(97 |
) |
|
|
(11,649 |
) |
|
|
— |
|
|
|
(52,526 |
) |
Foreign currency transaction gain |
|
|
349 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
354 |
|
Loss on early extinguishment of debt |
|
|
(14,927 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,927 |
) |
(Loss) Income before Income Taxes and Equity in Net Earnings of Subsidiaries |
|
|
(55,623 |
) |
|
|
79,611 |
|
|
|
9,865 |
|
|
|
— |
|
|
|
33,853 |
|
(Benefit from) provision for income taxes |
|
|
(18,889 |
) |
|
|
27,034 |
|
|
|
3,351 |
|
|
|
— |
|
|
|
11,496 |
|
(Loss) Income before Equity in Net Earnings of Subsidiaries |
|
|
(36,734 |
) |
|
|
52,577 |
|
|
|
6,514 |
|
|
|
— |
|
|
|
22,357 |
|
Net earnings of subsidiaries |
|
|
59,091 |
|
|
|
6,514 |
|
|
|
— |
|
|
|
(65,605 |
) |
|
|
— |
|
Net Income (Loss) |
|
$ |
22,357 |
|
|
$ |
59,091 |
|
|
$ |
6,514 |
|
|
$ |
(65,605 |
) |
|
$ |
22,357 |
|
Other comprehensive gain (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
4,561 |
|
|
|
4,197 |
|
|
|
365 |
|
|
|
(4,562 |
) |
|
|
4,561 |
|
Total other comprehensive gain (loss), net of tax |
|
|
4,561 |
|
|
|
4,197 |
|
|
|
365 |
|
|
|
(4,562 |
) |
|
|
4,561 |
|
Comprehensive Income (Loss) |
|
$ |
26,918 |
|
|
$ |
63,288 |
|
|
$ |
6,879 |
|
|
$ |
(70,167 |
) |
|
$ |
26,918 |
|
36
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2018
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Cash Flows from Operating Activities |
|
$ |
(50,389 |
) |
|
$ |
547,588 |
|
|
$ |
(13,982 |
) |
|
$ |
(15,057 |
) |
|
$ |
468,160 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance receivables originated or acquired |
|
|
— |
|
|
|
(1,277,958 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,277,958 |
) |
Securitized loans transferred |
|
|
— |
|
|
|
242,087 |
|
|
|
(242,087 |
) |
|
|
— |
|
|
|
— |
|
Loans and finance receivables repaid |
|
|
— |
|
|
|
517,805 |
|
|
|
254,215 |
|
|
|
— |
|
|
|
772,020 |
|
Purchases of property and equipment |
|
|
— |
|
|
|
(11,232 |
) |
|
|
(71 |
) |
|
|
— |
|
|
|
(11,303 |
) |
Capital contributions to subsidiaries |
|
|
— |
|
|
|
14,776 |
|
|
|
— |
|
|
|
(14,776 |
) |
|
|
— |
|
Other investing activities |
|
|
— |
|
|
|
93 |
|
|
|
— |
|
|
|
— |
|
|
|
93 |
|
Net cash (used in) provided by investing activities |
|
|
— |
|
|
|
(514,429 |
) |
|
|
12,057 |
|
|
|
(14,776 |
) |
|
|
(517,148 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Payments for) proceeds from member's equity |
|
|
— |
|
|
|
(15,057 |
) |
|
|
(14,776 |
) |
|
|
29,833 |
|
|
|
— |
|
Debt issuance costs paid |
|
|
(510 |
) |
|
|
(6,624 |
) |
|
|
(2,022 |
) |
|
|
— |
|
|
|
(9,156 |
) |
Debt prepayment penalty |
|
|
(13,073 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,073 |
) |
Payment of promissory note |
|
|
— |
|
|
|
(3,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,000 |
) |
Treasury shares purchased |
|
|
(1,562 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,562 |
) |
Issuance of Senior Notes |
|
|
375,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
375,000 |
|
Repayments of Senior Notes |
|
|
(228,514 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(228,514 |
) |
Borrowings under revolving line of credit |
|
|
109,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
109,000 |
|
Repayments under revolving line of credit |
|
|
(109,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(109,000 |
) |
Borrowings under securitization facility |
|
|
— |
|
|
|
— |
|
|
|
162,413 |
|
|
|
— |
|
|
|
162,413 |
|
Repayments under securitization facility |
|
|
— |
|
|
|
— |
|
|
|
(147,601 |
) |
|
|
— |
|
|
|
(147,601 |
) |
Proceeds from exercise of stock options |
|
|
6,727 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,727 |
|
Net cash provided by (used in) financing activities |
|
|
138,068 |
|
|
|
(24,681 |
) |
|
|
(1,986 |
) |
|
|
29,833 |
|
|
|
141,234 |
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
(5,152 |
) |
|
|
(219 |
) |
|
|
— |
|
|
|
(5,371 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
87,679 |
|
|
|
3,326 |
|
|
|
(4,130 |
) |
|
|
— |
|
|
|
86,875 |
|
Cash, cash equivalents and restricted cash at beginning of year |
|
|
12,183 |
|
|
|
62,423 |
|
|
|
23,538 |
|
|
|
— |
|
|
|
98,144 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
99,862 |
|
|
$ |
65,749 |
|
|
$ |
19,408 |
|
|
$ |
— |
|
|
$ |
185,019 |
|
37
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017
(in thousands)
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
||
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Cash Flows from Operating Activities |
|
$ |
(17,931 |
) |
|
$ |
346,948 |
|
|
$ |
(8,712 |
) |
|
$ |
(9,008 |
) |
|
$ |
311,297 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance receivables originated or acquired |
|
|
— |
|
|
|
(974,211 |
) |
|
|
(24,122 |
) |
|
|
— |
|
|
|
(998,333 |
) |
Securitized loans transferred |
|
|
— |
|
|
|
201,518 |
|
|
|
(201,518 |
) |
|
|
— |
|
|
|
— |
|
Loans and finance receivables repaid |
|
|
— |
|
|
|
467,011 |
|
|
|
205,463 |
|
|
|
— |
|
|
|
672,474 |
|
Purchases of property and equipment |
|
|
— |
|
|
|
(10,651 |
) |
|
|
(153 |
) |
|
|
— |
|
|
|
(10,804 |
) |
Capital contributions to subsidiaries |
|
|
— |
|
|
|
(11,785 |
) |
|
|
— |
|
|
|
11,785 |
|
|
|
— |
|
Other investing activities |
|
|
— |
|
|
|
1,798 |
|
|
|
— |
|
|
|
— |
|
|
|
1,798 |
|
Net cash (used in) provided by investing activities |
|
|
— |
|
|
|
(326,320 |
) |
|
|
(20,330 |
) |
|
|
11,785 |
|
|
|
(334,865 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Payments for) proceeds from member's equity |
|
|
— |
|
|
|
(9,008 |
) |
|
|
11,785 |
|
|
|
(2,777 |
) |
|
|
— |
|
Debt issuance costs paid |
|
|
(9,564 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,564 |
) |
Debt prepayment penalty |
|
|
(11,335 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,335 |
) |
Treasury shares purchased |
|
|
(2,115 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,115 |
) |
Issuance of Senior Notes |
|
|
250,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
250,000 |
|
Repayments of Senior Notes |
|
|
(155,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(155,000 |
) |
Borrowings under revolving line of credit |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Repayments under revolving line of credit, net |
|
|
(30,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,000 |
) |
Borrowings under securitization facility |
|
|
— |
|
|
|
— |
|
|
|
137,200 |
|
|
|
— |
|
|
|
137,200 |
|
Repayments under securitization facility |
|
|
— |
|
|
|
— |
|
|
|
(116,085 |
) |
|
|
— |
|
|
|
(116,085 |
) |
Net cash provided by (used in) financing activities |
|
|
71,986 |
|
|
|
(9,008 |
) |
|
|
32,900 |
|
|
|
(2,777 |
) |
|
|
93,101 |
|
Effect of exchange rates on cash |
|
|
— |
|
|
|
4,186 |
|
|
|
(39 |
) |
|
|
— |
|
|
|
4,147 |
|
Net increase in cash and cash equivalents |
|
|
54,055 |
|
|
|
15,806 |
|
|
|
3,819 |
|
|
|
— |
|
|
|
73,680 |
|
Cash and cash equivalents at beginning of year |
|
|
— |
|
|
|
42,895 |
|
|
|
23,345 |
|
|
|
— |
|
|
|
66,240 |
|
Cash and cash equivalents at end of period |
|
$ |
54,055 |
|
|
$ |
58,701 |
|
|
$ |
27,164 |
|
|
$ |
— |
|
|
$ |
139,920 |
|
16. |
Subsequent Events |
Subsequent events have been reviewed through the date these financial statements were available to be issued.
2018-A Notes
On October 25, 2018, the Company announced that an indirect subsidiary intends to offer, subject to market and other customary conditions, $95,000,000 Class A Asset Backed Notes (the “Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “Class B Notes” and, collectively with the Class A Notes, the “2018-A Notes”), with an anticipated closing date of on or about October 31, 2018 (the “2018-A Closing Date”). The Class A Notes will bear interest at 4.20% and the Class B Notes will bear interest at 7.37%. The 2018-A Notes will be backed by a pool of Receivables and will represent obligations of the issuer only. The 2018-A Notes will not be guaranteed by the Company.
The net proceeds of the offering of the 2018-A Notes on the 2018-A Closing Date will be used to acquire the Receivables from the Company, fund a reserve account and pay fees and expenses incurred in connection with the transaction.
The 2018-A Notes will be offered only to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act and to certain persons outside of the United States in compliance with Regulation S under the Securities Act. The 2018-A Notes have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
38
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2018-2 Facility
On October 23, 2018, the Company and several of its subsidiaries entered into a receivables funding agreement (the “2018-2 Facility”) with Credit Suisse AG, New York Branch, as agent (the “Agent”). The 2018-2 Facility collateralizes Receivables that have been and will be originated or acquired under the Company’s NetCredit brand by several of the Company’s subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018-2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of the Company (the “2018-2 Debtor”) and serviced by another subsidiary of the Company.
The 2018-2 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018-2 Facility is non-recourse to the Company and matures on October 23, 2022.
The 2018-2 Facility is governed by a loan and security agreement, dated as of October 23, 2018, between the Agent, the 2018-2 Debtor and certain other lenders and agent parties thereto. The 2018-2 Facility bears interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus an applicable margin, which rate per annum is 3.75%. In addition, the 2018-2 Debtor paid certain customary upfront closing fees to the Agent. Interest payments on the 2018-2 Facility will be made monthly. The 2018-2 Debtor shall be permitted to prepay the 2018-2 Facility, subject to certain fees and conditions. Any remaining amounts outstanding will be payable no later than October 23, 2022, the final maturity date.
All amounts due under the 2018-2 Facility are secured by all of the 2018-2 Debtor’s assets, which include the Receivables transferred to the 2018-2 Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2018-2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions that provide for the acceleration of the 2018-2 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the Receivables and defaults under other material indebtedness of the 2018-2 Debtor.
Redemption of 2021 Senior Notes
On October 11, 2018, the Company redeemed the remaining $116.5 million in principal amount of the outstanding 2021 Senior Notes. The redemption price of the 2021 Senior Notes, as set forth in the 2021 Senior Notes Indenture, was equal to 104.875% of the principal amount of such 2021 Senior Notes redeemed, plus accrued and unpaid interest thereon. In connection with these purchases, the Company recorded a loss on extinguishment of debt of approximately $7.6 million, which will be included in “Loss on early extinguishment of debt” in the consolidated statements of income.
Amendment of 2017 Credit Agreement
On October 5, 2018, the Company and certain of its operating subsidiaries entered into an amendment of the 2017 Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement is secured by domestic receivables and amends the Company’s existing credit facility that was entered into on June 30, 2017 (as previously amended, the “Original Credit Facility”).
The Amended Credit Agreement, amongst other changes, increases the borrowing limit to $125 million from $75 million in the Original Credit Facility and expands the definition of eligible accounts. The maturity date of May 1, 2020, and the interest rate on borrowings of prime rate plus 1.00%, however, remain the same as the Original Credit Facility. In addition, Axos Bank, as lender, in the Amended Credit Agreement joins the syndicate of lenders from the Original Credit Facility that includes TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as joint lead arrangers and joint lead bookrunners, and Green Bank, N.A. and Pacific Western Bank, as lenders.
39
The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, of Enova International, Inc. and its subsidiaries should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
BUSINESS OVERVIEW
We are a leading technology and analytics company focused on providing online financial services to consumers and small businesses. In 2017, we extended approximately $2.1 billion in credit to borrowers. As of September 30, 2018, we offered or arranged loans or draws on lines of credit to consumers in 32 states in the United States and in the United Kingdom and Brazil. We also offered financing to small businesses in all 50 states and Washington D.C. in the United States. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans or provide financing, allowing us to offer consumers and small businesses credit or financing when and how they want it. Our customers include the large and growing number of consumers who and small businesses which have bank accounts but use alternative financial services because of their limited access to more traditional credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and through September 30, 2018, we have completed over 46.3 million customer transactions and collected more than 24 terabytes of currently accessible customer behavior data since launch, allowing us to better analyze and underwrite our specific customer base. We have significantly diversified our business over the past several years having expanded the markets we serve and the financing products we offer. These financing products include short-term loans, line of credit accounts, installment loans and receivables purchase agreements (“RPAs”).
We believe our customers highly value our products and services as an important component of their personal or business finances because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our business to our advanced and innovative technology systems, the proprietary analytical models we use to predict the performance of loans and finance receivables, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees.
We have developed proprietary underwriting systems based on data we have collected over our 14 years of experience. These systems employ advanced risk analytics to decide whether to approve financing transactions, to structure the amount and terms of the financings we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, purchase, marketing and collection decisions.
Our flexible and scalable technology platform allows us to process and complete customers’ transactions quickly and efficiently. In 2017, we processed approximately 3.9 million transactions, and we continue to grow our loans and finance receivable portfolios and increase the number of customers we serve through desktop, tablet and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In 2012, we launched a new product in the United States designed to serve near-prime customers, and in April 2014 we introduced a similar product in the United Kingdom. In June 2014, we launched our business in Brazil, where we lend to borrowers through a local Brazilian financing structure. In addition, in July 2014, we introduced a new line of credit product in the United States to serve the needs of small businesses. In June 2015, we further expanded our product offering by acquiring certain assets of a company that provides financing to small businesses by offering RPAs (see Note 2 in the Notes to Consolidated Financial Statements included in this report). In May 2017, we expanded products available to small businesses by offering installment loans. These new products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In the nine-month period ended September 30, 2018, we derived 84.6% of our total revenue from the United States and 15.4% of our total revenue internationally, with 85.3% of international revenue (representing 13.2% of our total revenue) generated in the United Kingdom.
We have been able to consistently acquire new customers and successfully generate repeat business from returning customers when they need financing. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct
40
marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our 24/7 availability to accept applications with quick approval decisions are important to our customers.
Once a potential customer submits an application, we quickly provide a credit or purchase decision. If a loan or financing is approved, we or our lending partners typically fund the loan or financing the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our well-trained customer service team. All of our operations, from customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a customer has a need for our products in the future. We have developed a series of sophisticated proprietary scoring models to support our various products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of customer transactions while actively managing risk and the related quality of our loan and finance receivable portfolios. We believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as evidenced by our history of strong growth and stable portfolio quality.
PRODUCTS AND SERVICES
Our online financing products and services provide customers with a deposit of funds into their bank account in exchange for a commitment to repay the amount deposited plus fees, interest and/or revenue. We originate, arrange, guarantee or purchase short-term consumer loans, line of credit accounts, installment loans and RPAs. We have one reportable segment that includes all of our online financial services.
|
• |
Short-term consumer loans. Short-term consumer loans are unsecured loans written by us or by a third-party lender through our credit services organization and credit access business programs, which we refer to as our CSO programs, that we arrange and guarantee. As of September 30, 2018, we offered or arranged short-term consumer loans in 17 states in the United States and in the United Kingdom. Short-term consumer loans generally have terms of seven to 90 days, with proceeds promptly deposited in the customer’s bank account in exchange for a pre-authorized debit from their account. Due to the credit risk and high transaction costs of serving our customer segment, the interest and/or fees we charge are generally considered to be higher than the interest or fees charged to consumers with superior credit histories by banks and similar lenders who are typically unwilling to make unsecured loans to alternative credit consumers. Our short-term consumer loans contributed approximately 20.2% of our total revenue for the nine months ended September 30, 2018 and 24.0% for the nine months ended September 30, 2017. |
|
• |
Line of credit accounts . As of September 30, 2018, we offered new consumer line of credit accounts in seven states (and continue to service existing line of credit accounts in one additional state) in the United States and business line of credit accounts in 36 states in the United States, which allow customers to draw on their unsecured line of credit in increments of their choosing up to their credit limit. Customers may pay off their account balance in full at any time or make required minimum payments in accordance with the terms of their line of credit account. As long as the customer’s account is in good standing and has credit available, customers may continue to borrow on their line of credit. Our line of credit accounts contributed approximately 32.0% of our total revenue for the nine months ended September 30, 2018 and 31.2% for the nine months ended September 30, 2017. |
|
• |
Installment loans . Installment loans are longer-term loans that require the outstanding principal balance to be paid down in multiple installments. We offer, or arrange through our CSO programs or market and purchase through our Bank program, multi-payment unsecured consumer installment loan products in 17 states in the United States and small business installment loans in 18 states. We also offer multi-payment unsecured consumer installment loan products in the United Kingdom and Brazil. Terms for our installment loan products range between two and 60 months. These loans generally have higher principal amounts than short-term loans. Loans may be repaid early at any time with no additional prepayment charges. Installment loans that we originated and purchased contributed approximately 46.5% of our total revenue for the nine months ended September 30, 2018 and 42.7% for the nine months ended September 30, 2017. |
|
• |
Receivables purchase agreements . Under RPAs, small businesses receive funds in exchange for a portion of the business’s future receivables at an agreed upon discount. In contrast, lending is a commitment to repay principal and interest. A small business customer who enters into a RPA commits to delivering a percentage of its receivables through ACH or wire debits or by splitting credit card receipts until all purchased receivables are delivered. We offer RPAs in all 50 states and in Washington D.C. in the United States. Revenue earned from RPAs contributed 1.2% of our total revenue for the nine months ended September 30, 2018 and 2.0% for the nine months ended September 30, 2017. |
|
• |
CSO Programs . Through our CSO programs, we provide services related to third-party lenders’ short-term and installment consumer loan products by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under our CSO programs include credit-related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents (“CSO loans”). Under our CSO programs, we guarantee consumer loan payment obligations to the third party lender in the event the customer defaults on the loan. When a consumer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the consumer, to provide certain services, one of which is to guarantee the consumer’s obligation to |
41
|
repay the loan received by the consumer from the third-party lender if the consumer fails to do so. For CSO loans, each lender is responsible for providing the criteria by which the consumer’s application is underwritten and, if approved, determining the amount of the consumer loan. We in turn are responsible for assessing whether or not we will guarantee such loan. The guarantee represents an obligation to purchase specific short-term loans, which generally have terms of less than 90 days, and specific installment loans, which have terms of four to 12 months, if they go into default. |
As of September 30, 2018 and 2017, the outstanding amount of active short-term consumer loans originated by third-party lenders under the CSO programs was $25.5 million and $24.2 million, respectively, which were guaranteed by us.
As of September 30, 2018 and 2017, the outstanding amount of active installment loans originated by third-party lenders under the CSO programs was $4.6 million and $4.7 million, respectively, which were guaranteed by us.
|
• |
Bank program . In March 2016, we launched a program with a state-chartered bank where we provide technology, loan servicing and marketing services to the bank. Our bank partner offered unsecured consumer installment loans with an annual percentage rate (“APR”) at or below 36%. We also had the ability to purchase loans originated through this program. In May 2018, as a result of a change in the law in Ohio, our bank partner suspended lending and we suspended purchasing loans through this program. Revenue generated from this program for the nine months ended September 30, 2018 and 2017 was 1.9% and 2.1% of our total revenue, respectively. |
|
• |
Analytics-as-a-Service. In 2016, we launched a product that uses our proprietary technology and analytics capabilities to offer businesses a solution for real-time decisioning at scale. |
OUR MARKETS
We currently provide our services in the following countries:
|
• |
United States. We began our online business in the United States in May 2004. As of September 30, 2018, we provided services in all 50 states and Washington D.C. We market our financing products under the names CashNetUSA at www.cashnetusa.com, NetCredit at www.netcredit.com, Headway Capital at www.headwaycapital.com and The Business Backer at www.businessbacker.com. |
|
• |
United Kingdom. We provide services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, Pounds to Pocket at www.poundstopocket.co.uk and On Stride Financial at www.onstride.co.uk. We began our QuickQuid short-term consumer loan business in July 2007, our Pounds to Pocket installment loan business in September 2010, and our On Stride near-prime installment loan business in April 2014. |
|
• |
Brazil. On June 30, 2014, we launched our business in Brazil where we provide installment loans to borrowers under the name Simplic at www.simplic.com.br. We plan to continue to invest and expand our lending in Brazil. |
Our internet websites and the information contained therein or connected thereto are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q.
RECENT REGULATORY DEVELOPMENTS
On July 24, 2018, the Ohio Legislature passed House Bill 123, a bill that places limits on short-term loans and extensions of credit. The legislation sets specific limits for fees, charges and interest that can be assessed on small loans with a maximum loan amount of $1,000 and an overall cap on fees, charges and interest of 60% of the loan amount. The governor of Ohio signed the legislation into law on July 30, 2018, and it will apply to credit extended beginning on April 27, 2019. Management does not anticipate that the legislation will have a material adverse effect on the Company. We cannot currently assess the likelihood of any future unfavorable federal, state, local or international legislation or regulations being proposed or enacted that could affect our products and services.
CRITICAL ACCOUNTING POLICIES
T here have been no changes in critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2017 .
Recent Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements included in this report for a discussion of recent accounting pronouncements.
42
RESULTS OF OPERATIONS
HIGHLIGHTS
Our financial results for the three-month period ended September 30, 2018, or the current quarter, are summarized below.
|
• |
Consolidated total revenue increased $76.0 million, or 34.9%, to $293.9 million in the current quarter compared to $217.9 million for the three months ended September 30, 2017, or the prior year quarter. Domestic revenue increased $69.5 million, or 38.3%, to $251.1 million in the current quarter from $181.6 million for the prior year quarter and international revenue increased $6.5 million, or 18.0%, to $42.8 million from $36.3 million. |
|
• |
Consolidated gross profit increased $19.6 million, or 17.7%, to $130.1 million in the current quarter compared to $110.5 million in the prior year quarter. |
|
• |
Consolidated income from operations increased $10.1 million, or 36.6%, to $37.8 million in the current quarter, compared to $27.7 million in the prior year quarter. |
|
• |
Consolidated net income was $15.3 million in the current quarter compared to a net loss of $3.4 million in the prior year quarter. Consolidated diluted income per share was $0.43 in the current quarter compared to diluted loss per share of $0.10 in the prior year quarter. |
43
OVERVIEW
The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance receivables revenue |
|
$ |
293,624 |
|
|
$ |
217,693 |
|
|
$ |
800,435 |
|
|
$ |
599,315 |
|
Other |
|
|
255 |
|
|
|
185 |
|
|
|
1,043 |
|
|
|
730 |
|
Total Revenue |
|
|
293,879 |
|
|
|
217,878 |
|
|
|
801,478 |
|
|
|
600,045 |
|
Cost of Revenue |
|
|
163,763 |
|
|
|
107,341 |
|
|
|
393,810 |
|
|
|
269,087 |
|
Gross Profit |
|
|
130,116 |
|
|
|
110,537 |
|
|
|
407,668 |
|
|
|
330,958 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
36,011 |
|
|
|
27,000 |
|
|
|
93,133 |
|
|
|
69,993 |
|
Operations and technology |
|
|
28,260 |
|
|
|
27,163 |
|
|
|
80,993 |
|
|
|
72,512 |
|
General and administrative |
|
|
24,360 |
|
|
|
25,164 |
|
|
|
79,576 |
|
|
|
77,105 |
|
Depreciation and amortization |
|
|
3,688 |
|
|
|
3,533 |
|
|
|
11,363 |
|
|
|
10,396 |
|
Total Expenses |
|
|
92,319 |
|
|
|
82,860 |
|
|
|
265,065 |
|
|
|
230,006 |
|
Income from Operations |
|
|
37,797 |
|
|
|
27,677 |
|
|
|
142,603 |
|
|
|
100,952 |
|
Interest expense, net |
|
|
(20,244 |
) |
|
|
(18,292 |
) |
|
|
(59,272 |
) |
|
|
(52,526 |
) |
Foreign currency transaction gain (loss) |
|
|
27 |
|
|
|
65 |
|
|
|
(2,265 |
) |
|
|
354 |
|
Loss on early extinguishment of debt |
|
|
(12,469 |
) |
|
|
(14,927 |
) |
|
|
(17,179 |
) |
|
|
(14,927 |
) |
Income (Loss) before Income Taxes |
|
|
5,111 |
|
|
|
(5,477 |
) |
|
|
63,887 |
|
|
|
33,853 |
|
(Benefit from) provision for income taxes |
|
|
(10,193 |
) |
|
|
(2,109 |
) |
|
|
2,460 |
|
|
|
11,496 |
|
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Diluted net income (loss) per share |
|
$ |
0.43 |
|
|
$ |
(0.10 |
) |
|
$ |
1.75 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and finance receivables revenue |
|
|
99.9 |
% |
|
|
99.9 |
% |
|
|
99.9 |
% |
|
|
99.9 |
% |
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Total Revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost of Revenue |
|
|
55.7 |
|
|
|
49.3 |
|
|
|
49.1 |
|
|
|
44.8 |
|
Gross Profit |
|
|
44.3 |
|
|
|
50.7 |
|
|
|
50.9 |
|
|
|
55.2 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
12.2 |
|
|
|
12.4 |
|
|
|
11.6 |
|
|
|
11.7 |
|
Operations and technology |
|
|
9.6 |
|
|
|
12.5 |
|
|
|
10.1 |
|
|
|
12.1 |
|
General and administrative |
|
|
8.3 |
|
|
|
11.5 |
|
|
|
10.0 |
|
|
|
12.9 |
|
Depreciation and amortization |
|
|
1.3 |
|
|
|
1.6 |
|
|
|
1.4 |
|
|
|
1.7 |
|
Total Expenses |
|
|
31.4 |
|
|
|
38.0 |
|
|
|
33.1 |
|
|
|
38.4 |
|
Income from Operations |
|
|
12.9 |
|
|
|
12.7 |
|
|
|
17.8 |
|
|
|
16.8 |
|
Interest expense, net |
|
|
(6.9 |
) |
|
|
(8.4 |
) |
|
|
(7.4 |
) |
|
|
(8.8 |
) |
Foreign currency transaction gain (loss) |
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
0.1 |
|
Loss on early extinguishment of debt |
|
|
(4.3 |
) |
|
|
(6.8 |
) |
|
|
(2.1 |
) |
|
|
(2.5 |
) |
Income (Loss) before Income Taxes |
|
|
1.7 |
|
|
|
(2.5 |
) |
|
|
8.0 |
|
|
|
5.6 |
|
Provision for (benefit from) income taxes |
|
|
(3.5 |
) |
|
|
(1.0 |
) |
|
|
0.3 |
|
|
|
1.9 |
|
Net Income (Loss) |
|
|
5.2 |
% |
|
|
(1.5 |
%) |
|
|
7.7 |
% |
|
|
3.7 |
% |
NON-GAAP DISCLOSURE
In addition to the financial information prepared in conformity with generally accepted accounting principles, or GAAP, we provide historical non-GAAP financial information. Management believes that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting our business.
44
Management provides non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider t he information in addition to, but not instead of or superior to, our consolidated financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefu lness of those measures for comparative purposes.
Adjusted Earnings Measures
In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share, or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these expense items.
The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
12,469 |
|
|
|
14,927 |
|
|
|
17,179 |
|
|
|
14,927 |
|
Intangible asset amortization |
|
|
268 |
|
|
|
269 |
|
|
|
803 |
|
|
|
811 |
|
Stock-based compensation expense |
|
|
2,882 |
|
|
|
2,996 |
|
|
|
8,149 |
|
|
|
8,303 |
|
Foreign currency transaction (gain) loss |
|
|
(27 |
) |
|
|
(65 |
) |
|
|
2,265 |
|
|
|
(354 |
) |
Cumulative tax effect of adjustments |
|
|
(3,332 |
) |
|
|
(6,121 |
) |
|
|
(6,088 |
) |
|
|
(8,044 |
) |
Discrete tax adjustments |
|
|
(11,237 |
) |
|
|
— |
|
|
|
(11,237 |
) |
|
|
— |
|
Adjusted earnings |
|
$ |
16,327 |
|
|
$ |
8,638 |
|
|
$ |
72,498 |
|
|
$ |
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.43 |
|
|
$ |
(0.10 |
) |
|
$ |
1.75 |
|
|
$ |
0.66 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
0.35 |
|
|
|
0.44 |
|
|
|
0.49 |
|
|
|
0.44 |
|
Intangible asset amortization |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Stock-based compensation expense |
|
|
0.08 |
|
|
|
0.08 |
|
|
|
0.23 |
|
|
|
0.24 |
|
Foreign currency transaction (gain) loss |
|
|
— |
|
|
|
— |
|
|
|
0.06 |
|
|
|
(0.01 |
) |
Cumulative tax effect of adjustments |
|
|
(0.09 |
) |
|
|
(0.18 |
) |
|
|
(0.17 |
) |
|
|
(0.24 |
) |
Discrete tax adjustments |
|
|
(0.32 |
) |
|
|
— |
|
|
|
(0.32 |
) |
|
|
— |
|
Adjusted earnings per share |
|
$ |
0.46 |
|
|
$ |
0.25 |
|
|
$ |
2.06 |
|
|
$ |
1.11 |
|
45
Adjusted EBITDA
The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes, and stock-based compensation expense. Management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, management believes that the adjustment for loss on early extinguishment of debt shown below is useful to investors in order to allow them to compare our financial results during the periods shown without the effect of the expense item. The computation of Adjusted EBITDA, as presented below, may differ from the computation of similarly-titled measures provided by other companies (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net Income (Loss) |
|
$ |
15,304 |
|
|
$ |
(3,368 |
) |
|
$ |
61,427 |
|
|
$ |
22,357 |
|
Depreciation and amortization expenses |
|
|
3,688 |
|
|
|
3,533 |
|
|
|
11,363 |
|
|
|
10,396 |
|
Interest expense, net |
|
|
20,244 |
|
|
|
18,292 |
|
|
|
59,272 |
|
|
|
52,526 |
|
Foreign currency transaction (gain) loss |
|
|
(27 |
) |
|
|
(65 |
) |
|
|
2,265 |
|
|
|
(354 |
) |
(Benefit from) provision for income taxes |
|
|
(10,193 |
) |
|
|
(2,109 |
) |
|
|
2,460 |
|
|
|
11,496 |
|
Stock-based compensation expense |
|
|
2,882 |
|
|
|
2,996 |
|
|
|
8,149 |
|
|
|
8,303 |
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
12,469 |
|
|
|
14,927 |
|
|
|
17,179 |
|
|
|
14,927 |
|
Adjusted EBITDA |
|
$ |
44,367 |
|
|
$ |
34,206 |
|
|
$ |
162,115 |
|
|
$ |
119,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
801,478 |
|
|
$ |
600,045 |
|
Adjusted EBITDA |
|
|
44,367 |
|
|
|
34,206 |
|
|
|
162,115 |
|
|
|
119,651 |
|
Adjusted EBITDA as a percentage of total revenue |
|
|
15.1 |
% |
|
|
15.7 |
% |
|
|
20.2 |
% |
|
|
19.9 |
% |
Constant Currency Basis
In addition to reporting financial results in accordance with GAAP, we have provided certain other non-GAAP financial information on a constant currency basis. We operate in the United Kingdom and Brazil. During the current quarter 14.6% of our revenue originated in currencies other than the U.S. Dollar, principally the British Pound Sterling. As a result, changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. All conversion rates below are based on the U.S. Dollar equivalent to one of the applicable foreign currencies:
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
September 30, |
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
% Change |
|
|||
British Pound |
|
|
1.3034 |
|
|
|
1.3091 |
|
|
|
(0.4 |
)% |
Brazilian real |
|
|
0.2530 |
|
|
|
0.3162 |
|
|
|
(20.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
September 30, |
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
% Change |
|
|||
British Pound |
|
|
1.3519 |
|
|
|
1.2760 |
|
|
|
5.9 |
% |
Brazilian real |
|
|
0.2797 |
|
|
|
0.3153 |
|
|
|
(11.3 |
)% |
Management believes that our non-GAAP constant currency assessments are a useful measure, as they indicate the actual growth and profitability of our operations.
Combined Loans and Finance Receivables Measures
In addition to reporting loans and finance receivables balance information in accordance with GAAP (see Note 3 in the Notes to Consolidated Financial Statements included in this report), we have provided metrics on a combined basis. The Combined Loans and Finance Receivables Measures are non-GAAP measures that include both loans and RPAs we own or have purchased and loans we
46
guarantee, which are either GAAP items or disclosures required by GAAP. See “—Loan and Finance Receivable Balances,” “—Loans and Finance Receivables Loss Experience” and “—Loans and Finance Receivables Loss Experience by Product” below for reconciliations between Company owned and purchased loans and finance receivables, gross, allowance and liability for losses, cost of revenue and charge-offs (net of recoveries) calculated in accordance wit h GAAP to the Combined Loans and Finance Receivables Measures.
Management believes these non-GAAP measures provide investors with important information needed to evaluate the magnitude of potential receivable losses and the opportunity for revenue performance of the loans and finance receivable portfolio on an aggregate basis. Management also believes that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on our consolidated balance sheet since both revenue and cost of revenue are impacted by the aggregate amount of receivables we own and those we guarantee as reflected in our consolidated financial statements.
THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2017
Revenue and Gross Profit
Revenue increased $76.0 million, or 34.9%, to $293.9 million for the current quarter as compared to $217.9 million for the prior year quarter. On a constant currency basis, revenue increased by $77.8 million, or 35.7%, for the current quarter compared to the prior year quarter. Our domestic operations contributed an increase of $69.5 million, primarily resulting from a 40.6% increase in installment loan and RPA revenue and a 43.3% increase in line of credit account revenue in the current quarter compared to the prior year quarter driven by strong customer demand for these products. Our international operations contributed an increase of $6.5 million (an increase of $8.3 million on a constant currency basis) , primarily resulting from a 29.0% increase in installment loan and RPA revenue and a 7.0% increase in short-term loan revenue.
Our gross profit increased by $19.6 million to $130.1 million for the current quarter from $110.5 million for the prior year quarter. On a constant currency basis, gross profit increased by $20.2 million for the current quarter compared to the prior year quarter. Our consolidated gross profit as a percentage of revenue, or our gross profit margin, decreased to 44.3% for the current quarter, from 50.7% for the prior year quarter.
The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current quarter and the prior year quarter (in thousands):
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
$ |
57,851 |
|
|
$ |
49,875 |
|
|
$ |
7,976 |
|
|
|
16.0 |
% |
Line of credit accounts |
|
|
98,666 |
|
|
|
68,889 |
|
|
|
29,777 |
|
|
|
43.2 |
|
Installment loans and RPAs |
|
|
137,107 |
|
|
|
98,929 |
|
|
|
38,178 |
|
|
|
38.6 |
|
Total loans and finance receivables revenue |
|
|
293,624 |
|
|
|
217,693 |
|
|
|
75,931 |
|
|
|
34.9 |
|
Other |
|
|
255 |
|
|
|
185 |
|
|
|
70 |
|
|
|
37.8 |
|
Total revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
76,001 |
|
|
|
34.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by product (% to total): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
|
19.7 |
% |
|
|
22.9 |
% |
|
|
|
|
|
|
|
|
Line of credit accounts |
|
|
33.6 |
|
|
|
31.6 |
|
|
|
|
|
|
|
|
|
Installment loans and RPAs |
|
|
46.7 |
|
|
|
45.4 |
|
|
|
|
|
|
|
|
|
Total loans and finance receivables revenue |
|
|
99.9 |
|
|
|
99.9 |
|
|
|
|
|
|
|
|
|
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
47
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
251,054 |
|
|
$ |
181,584 |
|
|
$ |
69,470 |
|
|
|
38.3 |
% |
Cost of revenue |
|
|
142,702 |
|
|
|
88,419 |
|
|
|
54,283 |
|
|
|
61.4 |
|
Gross profit |
|
$ |
108,352 |
|
|
$ |
93,165 |
|
|
$ |
15,187 |
|
|
|
16.3 |
|
Gross profit margin |
|
|
43.2 |
% |
|
|
51.3 |
% |
|
|
(8.1 |
)% |
|
|
(15.8 |
)% |
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
42,825 |
|
|
$ |
36,294 |
|
|
$ |
6,531 |
|
|
|
18.0 |
% |
Cost of revenue |
|
|
21,061 |
|
|
|
18,922 |
|
|
|
2,139 |
|
|
|
11.3 |
|
Gross profit |
|
$ |
21,764 |
|
|
$ |
17,372 |
|
|
$ |
4,392 |
|
|
|
25.3 |
|
Gross profit margin |
|
|
50.8 |
% |
|
|
47.9 |
% |
|
|
2.9 |
% |
|
|
6.1 |
% |
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
293,879 |
|
|
$ |
217,878 |
|
|
$ |
76,001 |
|
|
|
34.9 |
% |
Cost of revenue |
|
|
163,763 |
|
|
|
107,341 |
|
|
|
56,422 |
|
|
|
52.6 |
|
Gross profit |
|
$ |
130,116 |
|
|
$ |
110,537 |
|
|
$ |
19,579 |
|
|
|
17.7 |
|
Gross profit margin |
|
|
44.3 |
% |
|
|
50.7 |
% |
|
|
(6.4 |
)% |
|
|
(12.6 |
)% |
Loan and Finance Receivable Balances
Our loan and finance receivable balance in our consolidated financial statements for September 30, 2018 and 2017 was $990.4 million and $742.8 million, respectively, before the allowance for losses of $151.6 million and $105.1 million, respectively. The combined loan and finance receivable balance includes $30.1 million and $28.9 million as of September 30, 2018 and 2017, respectively, of consumer loan balances that are guaranteed by us but not owned by us, which are not included in our consolidated financial statements for September 30, 2018 and 2017, respectively, before the liability for estimated losses of $2.2 million and $2.0 million provided in “Accounts payable and accrued expenses” in our consolidated financial statements for September 30, 2018 and 2017, respectively.
The ending portfolio balance of company owned loans and finance receivables, net of allowance for losses, increased $201.0 million, or 31.5%, to $838.8 million as of September 30, 2018 from $637.7 million as of September 30, 2017, and the outstanding combined portfolio balance of loans and finance receivables, net of allowance and liability for estimated losses, increased $202.0 million, or 30.4%, to $866.6 million as of September 30, 2018 from $664.7 million as of September 30, 2017, primarily due to increased demand for all of our installment products and, to a lesser extent, our short-term and line of credit products. The outstanding loan balance for our domestic near-prime product increased 37.3% in the current quarter compared to the prior year quarter resulting in a domestic near-prime portfolio balance that comprises 44.4% of our total loan and finance receivable portfolio balance while short-term loans comprised approximately 10.2% of our total loan and finance receivable portfolio balance in the current quarter, compared to 11.9% in the prior year quarter. Management expects the loan balances for our domestic near-prime installment loan product will continue to comprise a larger percentage of the total loan and finance receivable portfolio, due to customer demand for these products and their longer loan term. Our portfolio of loans and finance receivables serving the needs of small businesses decreased to 7.8% in the current quarter from 10.9% in the prior year quarter due to a 5.3% decrease in the small business loan and finance receivables balance and strong growth in our consumer products. See “—Non-GAAP Disclosure—Combined Loans and Finance Receivables” above for additional information related to combined loans and finance receivables.
48
The following tables summarize loan and finance receivable balances outstanding as of September 30, 2018 and 2017 (in thousands):
|
|
As of September 30, |
|
|||||||||||||||||||||
|
|
2018 |
|
|
2017 |
|
||||||||||||||||||
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
||
|
|
Company |
|
|
by the |
|
|
|
|
|
|
Company |
|
|
by the |
|
|
|
|
|
||||
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
||||||
Ending loans and finance receivables balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
$ |
78,508 |
|
|
$ |
25,533 |
|
|
$ |
104,041 |
|
|
$ |
67,719 |
|
|
$ |
24,248 |
|
|
$ |
91,967 |
|
Line of credit accounts |
|
|
216,624 |
|
|
|
— |
|
|
|
216,624 |
|
|
|
154,689 |
|
|
|
— |
|
|
|
154,689 |
|
Installment loans and RPAs |
|
|
695,236 |
|
|
|
4,573 |
|
|
|
699,809 |
|
|
|
520,388 |
|
|
|
4,695 |
|
|
|
525,083 |
|
Total ending loans and finance receivables, gross |
|
|
990,368 |
|
|
|
30,106 |
|
|
|
1,020,474 |
|
|
|
742,796 |
|
|
|
28,943 |
|
|
|
771,739 |
|
Less: Allowance and liabilities for losses (a) |
|
|
(151,585 |
) |
|
|
(2,244 |
) |
|
|
(153,829 |
) |
|
|
(105,060 |
) |
|
|
(2,017 |
) |
|
|
(107,077 |
) |
Total ending loans and finance receivables, net |
|
$ |
838,783 |
|
|
$ |
27,862 |
|
|
$ |
866,645 |
|
|
$ |
637,736 |
|
|
$ |
26,926 |
|
|
$ |
664,662 |
|
Allowance and liability for losses as a % of loans and finance receivables, gross |
|
|
15.3 |
% |
|
|
7.5 |
% |
|
|
15.1 |
% |
|
|
14.1 |
% |
|
|
7.0 |
% |
|
|
13.9 |
% |
|
|
As of September 30, |
|
|||||||||||||||||||||
|
|
2018 |
|
|
2017 |
|
||||||||||||||||||
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
|
|
|
|
|
Guaranteed |
|
|
|
|
|
||
|
|
Company |
|
|
by the |
|
|
|
|
|
|
Company |
|
|
by the |
|
|
|
|
|
||||
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
|
Owned (a) |
|
|
Company (a) |
|
|
Combined (b) |
|
||||||
Ending loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic, gross |
|
$ |
867,916 |
|
|
$ |
30,106 |
|
|
$ |
898,022 |
|
|
$ |
640,793 |
|
|
$ |
28,943 |
|
|
$ |
669,736 |
|
Total international, gross |
|
|
122,452 |
|
|
|
— |
|
|
|
122,452 |
|
|
|
102,003 |
|
|
|
— |
|
|
|
102,003 |
|
Total ending loans and finance receivables, gross |
|
$ |
990,368 |
|
|
$ |
30,106 |
|
|
$ |
1,020,474 |
|
|
$ |
742,796 |
|
|
$ |
28,943 |
|
|
$ |
771,739 |
|
(a) |
GAAP measure. The loans and finance receivables balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements. |
(b) |
Except for allowance and liability for estimated losses, amounts shown represent non-GAAP measures. |
Average Amount Outstanding per Loan
The average amount outstanding per loan is calculated as the total combined loans, gross balance at the end of the period divided by the total number of combined loans outstanding at the end of the period. The following table shows the average amount outstanding per loan by product at September 30, 2018 and 2017:
|
|
As of September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Average amount outstanding per loan (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
460 |
|
|
$ |
480 |
|
Line of credit accounts |
|
|
1,491 |
|
|
|
1,378 |
|
Installment loans (b)(c) |
|
|
2,014 |
|
|
|
1,989 |
|
Total loans (b)(c) |
|
$ |
1,404 |
|
|
$ |
1,333 |
|
(a) |
The disclosure regarding the average amount per loan and finance receivable is statistical data that is not included in our consolidated financial statements. |
(b) |
Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements. |
(c) |
Excludes RPAs. |
The average amount outstanding per loan increased to $1,404 from $1,333 during the current quarter compared to the prior year quarter, primarily due to a greater mix of installment loans and line of credit accounts, which have higher average amounts outstanding relative to short-term loans, in the current quarter compared to the prior year quarter.
49
Average Loan Origination
The average loan origination amount is calculated as the total amount of combined loans originated and renewed for the period divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan origination amount by product for the current quarter compared to the prior year quarter:
|
|
Three Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Average loan origination amount (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
452 |
|
|
$ |
459 |
|
Line of credit accounts (c) |
|
|
351 |
|
|
|
314 |
|
Installment loans (b)(d) |
|
|
1,631 |
|
|
|
1,661 |
|
Total loans (b)(d) |
|
$ |
572 |
|
|
$ |
560 |
|
(a) |
The disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements. |
(b) |
Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements. |
(c) |
Represents the average amount of each incremental draw on line of credit accounts. |
(d) |
Excludes RPAs. |
The average loan origination amount increased to $572 from $560 during the current quarter compared to the prior year quarter, mainly due to a greater mix of installment loan originations which have higher principal amounts.
Loans and Finance Receivables Loss Experience
The allowance and liability for estimated losses as a percentage of combined loans and RPAs increased to 15.1% as of September 30, 2018 from 13.9% as of September 30, 2017.
The cost of revenue in the current quarter was $163.8 million, which was composed of $163.6 million related to Company-owned loans and finance receivables and a $0.2 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year quarter was $107.4 million, which was composed of $107.3 million related to Company-owned loans and finance receivables and a $0.1 million increase in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $133.4 million and $86.5 million in the current quarter and the prior year quarter, respectively.
The following tables show loan and finance receivable balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of loans and finance receivables for each of the last five quarters (in thousands):
|
|
2017 |
|
|
2018 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Loans and finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross - Company owned |
|
$ |
742,796 |
|
|
$ |
827,749 |
|
|
$ |
817,359 |
|
|
$ |
871,915 |
|
|
$ |
990,368 |
|
Gross - Guaranteed by the Company (a) |
|
|
28,943 |
|
|
|
34,134 |
|
|
|
26,594 |
|
|
|
28,681 |
|
|
|
30,106 |
|
Combined loans and finance receivables, gross (b) |
|
|
771,739 |
|
|
|
861,883 |
|
|
|
843,953 |
|
|
|
900,596 |
|
|
|
1,020,474 |
|
Allowance and liability for losses on loans and finance receivables |
|
|
107,077 |
|
|
|
125,302 |
|
|
|
115,693 |
|
|
|
123,876 |
|
|
|
153,829 |
|
Combined loans and finance receivables, net (b) |
|
$ |
664,662 |
|
|
$ |
736,581 |
|
|
$ |
728,260 |
|
|
$ |
776,720 |
|
|
$ |
866,645 |
|
Allowance and liability for losses as a % of loans and finance receivables, gross (b) |
|
|
13.9 |
% |
|
|
14.5 |
% |
|
|
13.7 |
% |
|
|
13.8 |
% |
|
|
15.1 |
% |
(a) |
Represents loans originated by third-party lenders through the CSO programs, which are not included in our consolidated financial statements. |
(b) |
Non-GAAP measure. |
50
Loans and Finance Receivables Loss Experience by Product
Management evaluates loss rates for all financing products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate loans and finance receivables losses as a percentage of the average loan and finance receivable balance outstanding or the average combined loan and finance receivable balance outstanding, whichever is applicable, for each portfolio.
Short-term Loans
Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers’ receipt of income tax refunds. Strong customer demand for short-term loans in both the United States and the United Kingdom has led to higher short-term consumer loan balances year over year.
Our gross profit margin for short-term loans is typically highest in the first quarter of each year, corresponding to the seasonal decline in consumer loan balances outstanding. The cost of revenue as a percentage of the average combined loan balance for short-term loans outstanding is typically lower in the first quarter and generally peaks in the second half of the year with higher loan demand.
The following table includes information related only to short-term loans and shows our loss experience trends for short-term loans for each of the last five quarters (in thousands):
|
|
2017 |
|
|
2018 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Short-term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
23,849 |
|
|
$ |
22,129 |
|
|
$ |
20,323 |
|
|
$ |
20,386 |
|
|
$ |
26,174 |
|
Charge-offs (net of recoveries) |
|
|
20,439 |
|
|
|
21,201 |
|
|
|
22,213 |
|
|
|
19,626 |
|
|
|
21,835 |
|
Average short-term combined loan balance, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned (a) |
|
|
65,949 |
|
|
|
70,040 |
|
|
|
71,442 |
|
|
|
66,171 |
|
|
|
73,476 |
|
Guaranteed by the Company (a)(b) |
|
|
25,787 |
|
|
|
26,785 |
|
|
|
26,383 |
|
|
|
23,638 |
|
|
|
25,913 |
|
Average short-term combined loan balance, gross (a)(c) |
|
$ |
91,736 |
|
|
$ |
96,825 |
|
|
$ |
97,825 |
|
|
$ |
89,809 |
|
|
$ |
99,389 |
|
Ending short-term combined loan balance, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned |
|
$ |
67,719 |
|
|
$ |
73,672 |
|
|
$ |
65,858 |
|
|
$ |
67,255 |
|
|
$ |
78,508 |
|
Guaranteed by the Company (b) |
|
|
24,248 |
|
|
|
28,875 |
|
|
|
21,409 |
|
|
|
24,764 |
|
|
|
25,533 |
|
Ending short-term combined loan balance, gross (c) |
|
$ |
91,967 |
|
|
$ |
102,547 |
|
|
$ |
87,267 |
|
|
$ |
92,019 |
|
|
$ |
104,041 |
|
Ending allowance and liability for losses |
|
$ |
21,047 |
|
|
$ |
22,022 |
|
|
$ |
20,397 |
|
|
$ |
20,744 |
|
|
$ |
24,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loan ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average short-term combined loan balance, gross (a)(c) |
|
|
26.0 |
% |
|
|
22.9 |
% |
|
|
20.8 |
% |
|
|
22.7 |
% |
|
|
26.3 |
% |
Charge-offs (net of recoveries) as a % of average short-term combined loan balance, gross (a)(c) |
|
|
22.3 |
% |
|
|
21.9 |
% |
|
|
22.7 |
% |
|
|
21.9 |
% |
|
|
22.0 |
% |
Gross profit margin |
|
|
52.2 |
% |
|
|
58.5 |
% |
|
|
61.9 |
% |
|
|
59.5 |
% |
|
|
54.8 |
% |
Allowance and liability for losses as a % of combined loan balance, gross (c)(d) |
|
|
22.9 |
% |
|
|
21.5 |
% |
|
|
23.4 |
% |
|
|
22.5 |
% |
|
|
24.0 |
% |
(a) |
The average short-term combined loan balance is the average of the month-end balances during the period. |
(b) |
Represents loans originated by third-party lenders through the CSO programs, which are not included in our consolidated financial statements. |
(c) |
Non-GAAP measure. |
(d) |
Allowance and liability for losses as a % of combined loan balance, gross, is determined using period-end balances. |
Line of Credit Accounts
The cost of revenue as a percentage of average loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to short-term loan loss rates as the ratio is typically lower in the first quarter and increases throughout the remainder of the year, peaking in the second half of the year with higher loan demand. The gross profit margin is generally lower for line of credit accounts as compared to short-term loans because the highest levels of default are exhibited in the early stages of the account, while revenue is recognized over the term of the account. Underwriting changes made in the second quarter of 2017 have led to improved credit quality and higher year over year gross margin.
51
The following ta ble includes information related only to line of credit accounts and shows our loss experience trends for line of credit accounts for each of the last five quarters (in thousands):
|
|
2017 |
|
|
2018 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Line of credit accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
23,439 |
|
|
$ |
30,278 |
|
|
$ |
25,383 |
|
|
$ |
31,211 |
|
|
$ |
46,749 |
|
Charge-offs (net of recoveries) |
|
|
19,476 |
|
|
|
25,940 |
|
|
|
29,411 |
|
|
|
27,281 |
|
|
|
36,321 |
|
Average loan balance (a) |
|
|
145,398 |
|
|
|
161,905 |
|
|
|
168,118 |
|
|
|
168,881 |
|
|
|
200,710 |
|
Ending loan balance |
|
|
154,689 |
|
|
|
170,068 |
|
|
|
160,923 |
|
|
|
181,134 |
|
|
|
216,624 |
|
Ending allowance for losses balance |
|
$ |
26,810 |
|
|
$ |
31,148 |
|
|
$ |
27,120 |
|
|
$ |
31,050 |
|
|
$ |
41,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit account ratios : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average loan balance (a) |
|
|
16.1 |
% |
|
|
18.7 |
% |
|
|
15.1 |
% |
|
|
18.5 |
% |
|
|
23.3 |
% |
Charge-offs (net of recoveries) as a % of average loan balance (a) |
|
|
13.4 |
% |
|
|
16.0 |
% |
|
|
17.5 |
% |
|
|
16.2 |
% |
|
|
18.1 |
% |
Gross profit margin |
|
|
66.0 |
% |
|
|
59.9 |
% |
|
|
67.6 |
% |
|
|
60.8 |
% |
|
|
52.6 |
% |
Allowance for losses as a % of loan balance (b) |
|
|
17.3 |
% |
|
|
18.3 |
% |
|
|
16.9 |
% |
|
|
17.1 |
% |
|
|
19.1 |
% |
(a) |
The average loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) |
Allowance for losses as a % of loan balance is determined using period-end balances. |
Installment Loans and RPAs
The cost of revenue as a percentage of average loan and finance receivable balance for installment loans and RPAs is typically more consistent throughout the year as compared to short-term loans and line of credit accounts. Due to the scheduled monthly or bi-weekly payments and delivery of receivables that are inherent with installment loans and RPAs, we do not experience the higher level of repayments in the first quarter for these products as we experience with short-term loans and, to a lesser extent, line of credit accounts.
The gross profit margin is generally lower for the installment loan product than for other loan products, primarily because the highest levels of default are exhibited in the early stages of the loan, while revenue is recognized over the term of the loan. In addition, installment loans and RPAs typically have higher average origination amounts. Another factor contributing to the lower gross profit margin is that the product yield for installment loans and RPAs is typically lower than the yield for the other financing products we offer. As a result, particularly in periods of higher growth for the installment loan and RPA portfolios, which has been the case in recent years, the gross profit margin is typically lower for this product than for our short-term loan and line of credit products. Our average installment combined loan and RPA portfolio balance outstanding at September 30, 2018 increased 35.7% in the current quarter compared to the prior year quarter.
52
The following table includes information related only to our installment loans and RPAs and shows our loss experience trends for installment loans and RPAs for each of the last five quarter s (in thousands):
|
|
2017 |
|
|
2018 |
|
||||||||||||||
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
Second |
|
|
Third |
|
|||||
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|||||
Installment loans and RPAs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
60,053 |
|
|
$ |
75,138 |
|
|
$ |
62,847 |
|
|
$ |
69,897 |
|
|
$ |
90,840 |
|
Charge-offs (net of recoveries) |
|
|
46,598 |
|
|
|
62,116 |
|
|
|
67,081 |
|
|
|
64,878 |
|
|
|
75,261 |
|
Average installment and RPA combined loan and finance receivable balance, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned (a) |
|
|
487,436 |
|
|
|
552,003 |
|
|
|
591,739 |
|
|
|
605,025 |
|
|
|
663,387 |
|
Guaranteed by the Company (a)(b) |
|
|
4,628 |
|
|
|
5,025 |
|
|
|
5,760 |
|
|
|
4,500 |
|
|
|
4,325 |
|
Average installment and RPA combined loan and finance receivable balance, gross (a)(c) |
|
$ |
492,064 |
|
|
$ |
557,028 |
|
|
$ |
597,499 |
|
|
$ |
609,525 |
|
|
$ |
667,712 |
|
Ending installment and RPA combined loan and finance receivable balance, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned |
|
$ |
520,388 |
|
|
$ |
584,009 |
|
|
$ |
590,578 |
|
|
$ |
623,526 |
|
|
$ |
695,236 |
|
Guaranteed by the Company (b) |
|
|
4,695 |
|
|
|
5,259 |
|
|
|
5,185 |
|
|
|
3,917 |
|
|
|
4,573 |
|
Ending installment and RPA combined loan and finance receivable balance, gross (c) |
|
$ |
525,083 |
|
|
$ |
589,268 |
|
|
$ |
595,763 |
|
|
$ |
627,443 |
|
|
$ |
699,809 |
|
Ending allowance and liability for losses |
|
$ |
59,220 |
|
|
$ |
72,132 |
|
|
$ |
68,176 |
|
|
$ |
72,082 |
|
|
$ |
87,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment and RPA loan ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue as a % of average installment and RPA combined loan and finance receivable balance, gross (a)(c) |
|
|
12.2 |
% |
|
|
13.5 |
% |
|
|
10.5 |
% |
|
|
11.5 |
% |
|
|
13.6 |
% |
Charge-offs (net of recoveries) as a % of average installment and RPA combined loan and finance receivable balance, gross (a)(c) |
|
|
9.5 |
% |
|
|
11.2 |
% |
|
|
11.2 |
% |
|
|
10.6 |
% |
|
|
11.3 |
% |
Gross profit margin |
|
|
39.3 |
% |
|
|
34.4 |
% |
|
|
48.5 |
% |
|
|
43.2 |
% |
|
|
33.7 |
% |
Allowance and liability for losses as a % of combined loan and finance receivable balance, gross (c)(d) |
|
|
11.3 |
% |
|
|
12.2 |
% |
|
|
11.4 |
% |
|
|
11.5 |
% |
|
|
12.5 |
% |
(a) |
The average installment and RPA combined loan and finance receivable balance is the average of the month-end balances during the period. |
(b) |
Represents loans originated by third-party lenders through the CSO programs, which are not included in our consolidated financial statements. |
(c) |
Non-GAAP measure. |
(d) |
Allowance and liability for losses as a % of combined loan and finance receivable balance, gross, is determined using period-end balances. |
Total Expenses
Total expenses increased $9.4 million, or 11.4%, to $92.3 million in the current quarter, compared to $82.9 million in the prior year quarter. On a constant currency basis, total expenses increased $10.3 million, or 12.5%, in the current quarter as compared to the prior year quarter.
Marketing expense increased to $36.0 million in the current quarter compared to $27.0 million in the prior year quarter. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.
Operations and technology expense increased to $28.3 million in the current quarter compared to $27.2 million in the prior year quarter, primarily due to higher volume-driven underwriting and transaction expenses and headcount costs in our call center.
General and administrative expense increased $0.8 million, or 3.2%, to $24.4 million in the current quarter compared to $25.2 million in the prior year quarter, primarily due to higher corporate services personnel costs primarily driven by an increase in headcount in the current quarter compared to the prior year quarter.
53
Deprecia tion and amortization expense remained flat compared to the prior year quarter.
Interest Expense, Net
Interest expense, net increased $1.9 million, or 10.7%, to $20.2 million in the current quarter compared to $18.3 million in the prior year quarter. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $106.0 million to $823.4 million during the current quarter from $717.4 million during the prior year quarter, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 9.55% during the current quarter from 10.42% during the prior year quarter.
Benefit from Income Taxes
Benefit from income taxes increased $8.1 million, or 383.3%, to $10.2 million in the current quarter compared to $2.1 million in the prior year quarter. The tax benefit in the current quarter was primarily related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.
We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold (greater than 50 percent) be met before the benefit of a tax position be recognized in the consolidated financial statements and prescribes how such benefit should be measured. Tax positions taken on our tax returns are evaluated for all periods that are open to examination by taxing authorities. Our judgement is required to estimate as to whether and to what extent such positions are more-likely-than-not to be sustained based on merit. While we believe our tax return positions are appropriate and supportable under tax law, reserves are established when we believe that certain positions may not be fully sustained upon review by tax authorities.
As of September 30, 2018, the balance of unrecognized tax benefits was $13.9 million ($13.8 million net of the federal benefit of state matters), all of which, if recognized, would favorably affect the effective tax rate in any future periods. We had $0.6 million ($0.6 million net of the federal benefit of state matters) of unrecognized tax benefits as of September 30, 2017. We do not believe it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. We record interest and penalties related to tax matters as income tax expense in the consolidated statement of income.
Our U.S. tax returns are subject to examination by federal and state taxing authorities. The Internal Revenue Service (the “IRS”) audits for tax years 2011 through 2014 were concluded with no adjustments to our consolidated financial statements. T he 2017, 2016 and 2015 tax years are open to examination by the IRS. The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed.
Net Income (Loss)
Net income (loss) increased $18.7 million, or 554.4%, to $15.3 million during the current quarter compared to a net loss of $3.4 million during the prior year quarter. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current quarter and an estimated income tax benefit related to optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act.
NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017
Revenue and Gross Profit
Revenue increased $201.5 million, or 33.6%, to $801.5 million for the nine-month period ended September 30, 2018, or current nine-month period, as compared to $600.0 million for the nine-month period ended September 30, 2017, or prior year nine-month period. On a constant currency basis, revenue increased by $198.2 million, or 33.0%, for the current nine-month period compared to the prior year nine-month period. Our domestic operations contributed an increase of $173.3 million, resulting from a 42.6% increase in domestic installment loan and RPA revenue and a 37.2% increase in line of credit revenue in the current nine-month period compared to the prior year nine-month period primarily driven by growth in our installment and line of credit account products. Additionally, international operations of revenue increased $28.1 million (an increase of $24.9 million on a constant currency basis).
Our gross profit increased by $76.7 million to $407.7 million for the current nine-month period from $331.0 million for the prior year nine-month period. On a constant currency basis, gross profit increased by $74.3 million for the current nine-month period compared to the prior year nine-month period. Our consolidated gross profit margin decreased to 50.9% for the current nine-month period, from 55.2% for the prior year nine-month period. The decrease in gross profit margin was primarily driven by the strong new customer growth of our domestic and international installment loan portfolios resulting in a higher mix of new customers overall which requires higher loss provisions as new customers default at a higher rate than returning customers with a successful history of loan
54
performance. Management expects the consolidated gross profit margin will continue to be influenced by the mix of loans to new and returning customers, the mix of lower yielding and higher yielding loan products, and loan originations.
The following tables set forth the components of revenue and gross profit, separated by product and between domestic and international for the current nine-month period and the prior year nine-month period (in thousands):
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
$ |
161,538 |
|
|
$ |
144,074 |
|
|
$ |
17,464 |
|
|
|
12.1 |
% |
Line of credit accounts |
|
|
256,633 |
|
|
|
187,172 |
|
|
|
69,461 |
|
|
|
37.1 |
|
Installment loans and RPAs |
|
|
382,264 |
|
|
|
268,069 |
|
|
|
114,195 |
|
|
|
42.6 |
|
Total loans and finance receivables revenue |
|
|
800,435 |
|
|
|
599,315 |
|
|
|
201,120 |
|
|
|
33.6 |
|
Other |
|
|
1,043 |
|
|
|
730 |
|
|
|
313 |
|
|
|
42.9 |
|
Total revenue |
|
$ |
801,478 |
|
|
$ |
600,045 |
|
|
$ |
201,433 |
|
|
|
33.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by product (% to total): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
|
20.2 |
% |
|
|
24.0 |
% |
|
|
|
|
|
|
|
|
Line of credit accounts |
|
|
32.0 |
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
Installment loans and RPAs |
|
|
47.7 |
|
|
|
44.7 |
|
|
|
|
|
|
|
|
|
Total loans and finance receivables revenue |
|
|
99.9 |
|
|
|
99.9 |
|
|
|
|
|
|
|
|
|
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
677,658 |
|
|
$ |
504,326 |
|
|
$ |
173,332 |
|
|
|
34.4 |
% |
Cost of revenue |
|
|
333,021 |
|
|
|
226,461 |
|
|
|
106,560 |
|
|
|
47.1 |
|
Gross profit |
|
$ |
344,637 |
|
|
$ |
277,865 |
|
|
$ |
66,772 |
|
|
|
24.0 |
|
Gross profit margin |
|
|
50.9 |
% |
|
|
55.1 |
% |
|
|
(4.2 |
)% |
|
|
(7.6 |
)% |
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
123,820 |
|
|
$ |
95,719 |
|
|
$ |
28,101 |
|
|
|
29.4 |
% |
Cost of revenue |
|
|
60,789 |
|
|
|
42,626 |
|
|
|
18,163 |
|
|
|
42.6 |
|
Gross profit |
|
$ |
63,031 |
|
|
$ |
53,093 |
|
|
$ |
9,938 |
|
|
|
18.7 |
|
Gross profit margin |
|
|
50.9 |
% |
|
|
55.5 |
% |
|
|
(4.6 |
)% |
|
|
(8.3 |
)% |
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
801,478 |
|
|
$ |
600,045 |
|
|
$ |
201,433 |
|
|
|
33.6 |
% |
Cost of revenue |
|
|
393,810 |
|
|
|
269,087 |
|
|
|
124,723 |
|
|
|
46.4 |
|
Gross profit |
|
$ |
407,668 |
|
|
$ |
330,958 |
|
|
$ |
76,710 |
|
|
|
23.2 |
|
Gross profit margin |
|
|
50.9 |
% |
|
|
55.2 |
% |
|
|
(4.3 |
)% |
|
|
(7.8 |
)% |
Average Loan Origination
The average loan origination amount is calculated as the total amount of combined loans originated and renewed for the period divided by the total number of combined loans originated and renewed for the period. The following table shows the average loan origination amount by product for the current nine-month period compared to the prior year nine-month period:
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Average loan origination amount (in ones) (a) |
|
|
|
|
|
|
|
|
Short-term loans (b) |
|
$ |
463 |
|
|
$ |
453 |
|
Line of credit accounts (c) |
|
|
338 |
|
|
|
297 |
|
Installment loans (b)(d) |
|
|
1,661 |
|
|
|
1,617 |
|
Total loans (b)(d) |
|
$ |
573 |
|
|
$ |
522 |
|
55
(a) |
The disclosure regarding the average loan origination amount is statistical data that is not included in our consolidated financial statements. |
(b) |
Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our consolidated financial statements. |
(c) |
Represents the average amount of each incremental draw on line of credit accounts. |
(d) |
Excludes RPAs. |
The average loan origination amount increased to $573 during the current nine-month period compared to $522 during the prior year nine-month period.
Loans and Finance Receivables Loss Experience
The cost of revenue in the current nine-month period was $393.8 million, which was composed of $393.8 million related to Company-owned loans and finance receivables. The cost of revenue in the prior year nine-month period was $269.0 million, which was composed of $269.0 million related to Company-owned loans and finance receivables. Total charge-offs, net of recoveries, were $363.9 million and $264.1 million in the current nine-month period and the prior year nine-month period, respectively.
Total Expenses
Total expenses increased $35.1 million, or 15.2%, to $265.1 million in the current nine-month period, compared to $230.0 million in the prior year nine-month period. On a constant currency basis, total expenses increased $34.4 million, or 15.0%, for the current nine-month period compared to the prior year nine-month period.
Marketing expense increased to $93.1 million in the current nine-month period compared to $70.0 million in the prior year nine-month period. The increase was primarily due to higher direct mail costs related to our domestic products, volume from lead providers in both our domestic and international businesses and domestic television advertising.
Operations and technology expense increased to $81.0 million in the current nine-month period compared to $72.5 million in the prior year nine-month period, primarily due to higher personnel expenses, underwriting and transaction costs.
General and administrative expense increased $2.5 million, or 3.2%, to $79.6 million in the current nine-month period compared to $77.1 million in the prior year nine-month period , primarily due to higher corporate services personnel costs primarily driven by higher incentive accruals reflecting strong financial performance in the current nine-month period.
Depreciation and amortization expense increased $1.0 million, or 9.3%, in the current nine-month period compared to the prior year nine-month period, primarily due to an increase in fixed assets driven by higher capitalized software development costs.
Interest Expense, Net
Interest expense, net increased $6.8 million, or 12.8%, to $59.3 million in the current nine-month period compared to $52.5 million in the prior year nine-month period. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $126.5 million to $790.0 million during the current nine-month period from $663.5 million during the prior year nine-month period, partially offset by a decrease in the weighted average interest rate on our outstanding debt to 9.80% during the current nine-month period from 10.58% during the prior year nine-month period.
Provision for Income Taxes
Provision for income taxes decreased $9.0 million, or 78.6%, to $2.5 million in the current nine-month period compared to $11.5 million in the prior year nine-month period. The decrease was primarily due to a decrease in effective tax rate to 3.9% in the current nine-month period from 34.0% in the prior year nine-month period partially offset by an 88.7% increase in income before income taxes. The decrease in the effective tax rate is primarily related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act .
Net Income
Net income increased $39.0 million, or 174.8%, to $61.4 million during the current nine-month period compared to $22.4 million during the prior year nine-month period. The increase was primarily due to higher revenue from all products partially offset by higher loan loss provision and higher operating expenses incurred to support the loan growth in the current nine-month period and a decrease
56
in the provision for income taxes related to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items, coupled with the overall decrease in the federal tax rate from 35% to 21% as a result of the Tax Cuts and Jo bs Act.
LIQUIDITY AND CAPITAL RESOURCES
Capital Funding Strategy
Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan and financing products, and to meet the continued growth in the demand for our near-prime installment products. On May 30, 2014, we issued and sold $500.0 million of 9.75% senior notes due 2021 (the “2021 Senior Notes”). On September 1, 2017, we issued and sold $250.0 million in aggregate principal amount of 8.50% Senior Notes due 2024 (the “2024 Senior Notes”) and used the net proceeds, in part, to retire $155.0 million in 2021 Senior Notes. On January 21, 2018 we redeemed an additional $50.0 million in principal amount of the outstanding 2021 Senior Notes. On September 19, 2018 we issued and sold $375.0 million in aggregate principal amount of 8.50% Senior Notes due 2025 (the “2025 Senior Notes”) and used the net proceeds, in part, to retire $178.5 million in 2021 Senior Notes. On October 11, 2018, we redeemed the remaining $116.5 million in principal amount of the outstanding 2021 Senior Notes at a redemption price equal to 104.875% of the principal amount, as set forth in the 2021 Senior Notes Indenture, plus accrued and unpaid interest thereon. In connection with the October 11, 2018 purchase, we recorded a loss on extinguishment of debt of approximately $7.6 million, which will be included in “Loss on early extinguishment of debt” in the consolidated statements of income. On June 30, 2017, we entered into a secured revolving credit agreement (as amended the “2017 Credit Agreement”) which replaced our previous credit agreement (the “2014 Credit Agreement”) that was terminated on June 30, 2017. On April 13, 2018, we and certain of our operating subsidiaries entered into an amendment of our 2017 Credit Agreement, and on October 5, 2018 we and certain of our operating subsidiaries entered into a second amendment of our 2017 Credit Agreement, as further described below. As of October 30, 2018, our available borrowings under the 2017 Credit Agreement were $51.4 million. On January 15, 2016 and December 1, 2016, we entered into the 2016‑1 and 2016‑2 Securitization Facilities, respectively, as further described below. On October 20, 2017, we amended and restated the 2016-1 Securitization Facility, as further described below. On July 23, 2018 and October 23, 2018, we and several of our subsidiaries entered into the 2018-1 and 2018-2 Securitization Facilities, respectively, as further described below. On October 25, 2018, we announced that an indirect subsidiary intends to offer Asset Backed Notes, as further described below. As of October 30, 2018, the outstanding balance under our securitization facilities was $202.1 million. We expect that our operating needs, including satisfying our obligations under our debt agreements and funding our working capital growth, will be satisfied by a combination of cash flows from operations, borrowings under the 2017 Credit Agreement, or any refinancing, replacement thereof or increase in borrowings thereunder, and securitization or sale of loans and finance receivables under our consumer loan securitization facilities.
As of September 30, 2018, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding disruptions, we have the ability to adjust our volume of lending and financing to consumers and small businesses that would reduce cash outflow requirements while increasing cash inflows through repayments. Additional alternatives may include the securitization or sale of assets, increased borrowings under the 2017 Credit Agreement, or any refinancing or replacement thereof, and reductions in capital spending which could be expected to generate additional liquidity.
57
8.50% Senior Unsecured Notes Due 2025
On September 19, 2018, we issued and sold the 2025 Senior Notes. The 2025 Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States pursuant to Regulation S under the Securities Act. The 2025 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. The 2025 Senior Notes were sold at a price of 100%. The 2025 Senior Notes will mature on September 15, 2025. The 2025 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries.
The 2025 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior to September 15, 2021 at 100% of the aggregate principal amount of 2025 Senior Notes redeemed plus the applicable “make whole” premium specified in the indenture that governs our 2025 Notes (the “2025 Senior Notes Indenture”), plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 15, 2021 at the premium, if any, specified in the 2025 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 15, 2021, at our option, we may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2025 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2025 Senior Notes Indenture.
The 2025 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
We used a portion of the net proceeds of the 2025 Senior Notes offering to retire $178.5 million of the remaining outstanding 2021 Senior Notes through a cash tender offer, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of our outstanding debt securities. In October 2018 we used a portion of the remaining net proceeds of the 2025 Senior Notes to redeem the remaining $116.5 million principal balance of the 2021 Senior Notes.
8.50% Senior Unsecured Notes Due 2024
On September 1, 2017, we issued and sold the 2024 Senior Notes. The 2024 Senior Notes were sold to qualified institutional buyers in accordance with the Securities Act and outside the United States pursuant to Regulation S under the Securities Act. The 2024 Senior Notes bear interest at a rate of 8.50% annually on the principal amount payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2018. The 2024 Senior Notes were sold at a price of 100%. The 2024 Senior Notes will mature on September 1, 2024. The 2024 Senior Notes are unsecured debt obligations of ours, and are unconditionally guaranteed by certain of our domestic subsidiaries.
The 2024 Senior Notes are redeemable at our option, in whole or in part, (i) at any time prior to September 1, 2020 at 100% of the aggregate principal amount of 2024 Senior Notes redeemed plus the applicable “make whole” premium specified in the 2024 Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after September 1, 2020 at the premium, if any, specified in the 2024 Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to September 1, 2020, at our option, we may redeem up to 40% of the aggregate principal amount of the 2024 Senior Notes at a redemption price of 108.5% of the aggregate principal amount of 2024 Senior Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the 2024 Senior Notes Indenture.
The 2024 Senior Notes and the related guarantees have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
We used the net proceeds of the 2024 Senior Notes offering to retire a portion of our outstanding 2021 Senior Notes, to pay the related accrued interest, premiums, fees and expenses associated therewith and for general corporate purposes, which may include working capital and future repurchases of our outstanding debt securities.
58
Consumer Loan Securitization
2018-A Notes
On October 25, 2018, we announced that an indirect subsidiary intends to offer, subject to market and other customary conditions, $95,000,000 Class A Asset Backed Notes (the “Class A Notes”) and $30,400,000 Class B Asset Backed Notes (the “Class B Notes” and, collectively with the Class A Notes, the “2018-A Notes”), with an anticipated closing date of on or about October 31, 2018 (the “2018-A Closing Date”). The Class A Notes will bear interest at 4.20% and the Class B Notes will bear interest at 7.37%. The 2018-A Notes will be backed by a pool of Receivables and will represent obligations of the issuer only. The 2018-A Notes will not be guaranteed by us.
The net proceeds of the offering of the 2018-A Notes on the 2018-A Closing Date will be used to acquire the Receivables from us, fund a reserve account and pay fees and expenses incurred in connection with the transaction.
The 2018-A Notes will be offered only to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act and to certain persons outside of the United States in compliance with Regulation S under the Securities Act. The 2018-A Notes have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from the Securities Act and applicable state securities or blue sky laws and foreign securities laws.
2018-2 Facility
On October 23, 2018, we and several of our subsidiaries entered into a receivables funding agreement (the “2018-2 Facility”) with Credit Suisse AG, New York Branch, as agent (the “Agent”). The 2018-2 Facility collateralizes Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018-2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “2018-2 Debtor”) and serviced by another subsidiary of ours.
The 2018-2 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018-2 Facility is non-recourse to us and matures on October 23, 2022.
The 2018-2 Facility is governed by a loan and security agreement, dated as of October 23, 2018, between the Agent, the 2018-2 Debtor and certain other lenders and agent parties thereto. The 2018-2 Facility bears interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus an applicable margin, which rate per annum is 3.75%. In addition, the 2018-2 Debtor paid certain customary upfront closing fees to the Agent. Interest payments on the 2018-2 Facility will be made monthly. The 2018-2 Debtor shall be permitted to prepay the 2018-2 Facility, subject to certain fees and conditions. Any remaining amounts outstanding will be payable no later than October 23, 2022, the final maturity date.
All amounts due under the 2018-2 Facility are secured by all of the 2018-2 Debtor’s assets, which include the Receivables transferred to the 2018-2 Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2018-2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions that provide for the acceleration of the 2018-2 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the Receivables and defaults under other material indebtedness of the 2018-2 Debtor.
2018‑1 Facility
On July 23, 2018, we and several of our subsidiaries entered into a receivables funding agreement (the “2018‑1 Facility”) with Pacific Western Bank, as lender (the “2018‑1 Lender”). The 2018‑1 Facility collateralizes unsecured consumer installment loans (“Receivables”) that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria in exchange for a revolving note. Under the 2018‑1 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “2018‑1 Debtor”) and serviced by another subsidiary of ours.
The 2018‑1 Debtor has issued a revolving note with an initial maximum principal balance of $150.0 million, which is required to be secured by 1.25 times the drawn amount in eligible Receivables. The 2018‑1 Facility is non-recourse to us and matures on July 22, 2023.
The 2018‑1 Facility is governed by a loan and security agreement, dated as of July 23, 2018, between the 2018‑1 Lender and the 2018‑1 Debtor. The 2018-1 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin,
59
which rate per annum is initially 4.00%. In addition, the 2018 ‑1 De btor paid certain customary upfront closing fees to the 2018 ‑1 Lender. Interest payments on the 2018 ‑1 Facility will be made monthly. The 2018 ‑1 Debtor shall be permitted to prepay the 2018 ‑1 Facility, subject to certain fees and conditions. In the event o f prepayment for the purposes of securitizations, no fees shall apply. Any remaining amounts outstanding will be payable no later than July 22, 2023, the final maturity date.
All amounts due under the 2018‑1 Facility are secured by all of the 2018‑1 Debtor’s assets, which include the Receivables transferred to the 2018‑1 Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2018‑1 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters; and default and termination provisions which provide for the acceleration of the 2018‑1 Facility in circumstances including, but not limited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the 2018‑1 Debtor.
2016‑1 Facility
On January 15, 2016, we and certain of our subsidiaries entered into a receivables securitization (as amended, the “2016‑1 Securitization Facility”) with certain purchasers, Jefferies Funding LLC, as administrative agent (the “Administrative Agent”) and Bankers Trust Company, as indenture trustee and securities intermediary (the “Indenture Trustee”). The 2016‑1 Securitization Facility securitizes Receivables that have been, or will be, originated or acquired under our NetCredit brand and that meet specified eligibility criteria. Under the 2016‑1 Securitization Facility, Receivables are sold to a wholly-owned special purpose subsidiary (the “Issuer”) and serviced by another subsidiary. The 2016-1 Securitization Facility was amended on July 26, 2016, August 17, 2016, September 12, 2016, October 20, 2016, November 14, 2016 and December 14, 2016. The 2016-1 Securitization Facility, as amended, provided for a maximum principal amount of $275 million, variable funding notes maximum principal amount of $30 million per month and a revolving period of the facility ending in October 2017.
On October 20, 2017 (the “Amendment Closing Date”), we and certain of our subsidiaries amended and restated the 2016-1 Securitization Facility (the “Amended Facility”). The counterparties to the Amended Facility included certain purchasers, the Administrative Agent and the Indenture Trustee. The Amended Facility relates to Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria. The eligible Receivables that were owned by the Issuer remained in the Amended Facility and the ineligible Receivables were removed. Under the Amended Facility, additional eligible Receivables may be sold to the Issuer and serviced by another subsidiary of ours.
In connection with the amendment and restatement, all of the outstanding notes issued by the Issuer prior to the Amendment Closing Date were redeemed and the Issuer issued an initial term note with an initial principal amount of $181.1 million (the “2017 Initial Term Note”) and variable funding notes (the “2017 Variable Funding Notes”) with an aggregate committed availability of $75 million per quarter with an option to increase the commitment to $90 million with the consent of the holders of the 2017 Variable Funding Notes. As described below, the Issuer will subsequently issue term notes (the “2017 Term Notes” and, together with the 2017 Initial Term Note and the 2017 Variable Funding Notes, the “2017 Securitization Notes”) at the end of each calendar quarter. The maximum principal amount of the 2017 Securitization Notes that may be outstanding at any time under the Amended Facility is $275 million.
On each of January 2, 2018, April 2, 2018, July 2, 2018, October 1, 2018, December 31, 2018 and April 1, 2019, the Receivables financed under the 2017 Variable Funding Notes were or will be allocated to a 2017 Term Note, which 2017 Term Note will be issued to the holders of the 2017 Variable Funding Notes and the 2017 Variable Funding Note on such date will be reduced to zero. The 2017 Securitization Notes are non-recourse to us and mature at various dates, the latest of which will be April 15, 2022 (the “2017 Final Maturity Date”).
The 2017 Securitization Notes are issued pursuant to an amended and restated indenture, dated as of the Amendment Closing Date, between the Issuer and the Indenture Trustee. The 2017 Securitization Notes bear interest at a rate per annum equal to one-month LIBOR (subject to a floor) plus 7.50%. In addition, the Issuer paid certain customary upfront closing fees to the Administrative Agent and will pay customary annual commitment and other fees to the purchasers under the Amended Facility. Subject to certain exceptions, the Issuer is not permitted to prepay or redeem any of the 2017 Securitization Notes prior to April 15, 2019 except for a one-time prepayment of the 2017 Securitization Notes related to a removal of Receivables in an amount no greater than $100 million. Following such date, the Issuer is permitted to voluntarily prepay any of the 2017 Securitization Notes, subject to an optional redemption premium. Interest and principal payments on the 2017 Securitization Notes will be made monthly. Any remaining amounts outstanding will be payable no later than the 2017 Final Maturity Date.
All amounts due under the 2017 Securitization Notes are secured by all of the Issuer’s assets, which include the Receivables transferred to the Issuer, related rights under the Receivables, specified bank accounts and certain other related collateral.
60
The Amended Facility documen ts contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay their loans; covenants regarding special purpose entity matters and other subjects; and default and termination provisions which provide for the acceleration of the 2017 Securitization Notes under the Amended Facility in circumstances including, but not li mited to, failure to make payments when due, servicer defaults, certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables, and defaults under other material indebtedness. F rom time to time, we repurchase Receivables at our discretion or under the terms of the Amended Facility.
On October 25, 2017, the Issuer and the Indenture Trustee amended the Amended Facility to permit a holder of a 2017 Term Note or the 2017 Initial Term Note to exchange such notes for notes with an alternative structure with terms not materially different to the Issuer than the exchanged Term Notes or Initial Term Notes.
2016‑2 Facility
On December 1, 2016, we and certain of our subsidiaries entered into a receivables securitization (the “2016‑2 Facility”) with Redpoint Capital Asset Funding, LLC, as lender (the “Lender”). The 2016‑2 Facility securitizes Receivables that have been and will be originated or acquired under our NetCredit brand by several of our subsidiaries and that meet specified eligibility criteria, including that the annual percentage rate for each securitized consumer loan is greater than or equal to 90%. Under the 2016‑2 Facility, Receivables are sold to a wholly-owned special purpose subsidiary of ours (the “Debtor”) and serviced by another subsidiary of ours.
The Debtor has issued a revolving note with an initial maximum principal balance of $20.0 million (the “Initial Facility Size”), which is required to be secured by $25.0 million in unsecured consumer loans. The Initial Facility Size may be increased under the 2016‑2 Facility to $40 million. The 2016‑2 Facility is non-recourse to us and matures on December 1, 2019.
The 2016‑2 Facility is governed by a loan and security agreement, dated as of December 1, 2016, between the Lender and the Debtor. The 2016‑2 Facility bears interest at a rate per annum equal to LIBOR (subject to a floor) plus an applicable margin, which rate per annum was initially 12.50%. In addition, the Debtor paid certain customary upfront closing fees to the Lender. Interest payments on the 2016‑2 Facility will be made monthly. Subject to certain exceptions, the Debtor is not permitted to prepay the 2016‑2 Facility prior to October 1, 2018. Following such date, the Debtor is permitted to voluntarily prepay the 2016‑2 Facility without penalty. Any remaining amounts outstanding will be payable no later than December 1, 2019.
All amounts due under the 2016‑2 Facility are secured by all of the Debtor’s assets, which include the Receivables transferred to the Debtor, related rights under the Receivables, a bank account and certain other related collateral.
The 2016‑2 Facility documents contain customary provisions for securitizations, including: representations and warranties as to the eligibility of the Receivables and other matters; indemnification for specified losses not including losses due to the inability of consumers to repay the related Receivables; and default and termination provisions which provide for the acceleration of the 2016‑2 Facility in circumstances including, but not limited to, failure to make payments when due certain insolvency events, breaches of representations, warranties or covenants, failure to maintain the security interest in the receivables and defaults under other material indebtedness of the Debtor.
2017 Credit Agreement
On June 30, 2017, we and certain of our operating subsidiaries entered into a secured revolving credit agreement with a syndicate of banks including TBK Bank, SSB (“TBK”), as administrative agent and collateral agent, Jefferies Finance LLC and TBK as joint lead arrangers and joint lead bookrunners, and Green Bank, N.A., as lender. On April 13, 2018, the 2017 Credit Agreement was amended to include Pacific Western Bank, as lender, in the syndicate of lenders from the 2017 Credit Agreement. On October 5, 2018 the 2017 Credit Agreement was amended to include Axos Bank, as lender, in the syndicate of lenders from the 2017 Credit Agreement.
The 2017 Credit Agreement is secured by domestic receivables. The borrowing limit in the 2017 Credit Agreement, as amended on October 5, 2018, is $125 million (an increase from $75 million as provided by the first amendment) and its maturity date is May 1, 2020. We had no outstanding borrowings under the 2017 Credit Agreement as of September 30, 2018.
The 2017 Credit Agreement provides for a revolving credit line with interest on borrowings under the facility at prime rate plus 1.00%. In addition, the 2017 Credit Agreement provides for payment of a commitment fee calculated with respect to the unused portion of the line, and ranges from 0.30% per annum to 0.50% per annum depending on usage. A portion of the revolving credit facility, up to a maximum of $20 million, is available for the issuance of letters of credit. We had outstanding letters of credit under the 2017 Credit Agreement of $3.6 million as of September 30, 2018. The 2017 Credit Agreement provides for certain prepayment penalties if it is terminated on or before its first and second anniversary date, subject to certain exceptions.
61
The 2017 Credit Agreement contains certain limitations on the incurrence of additional indebtedness, investments, the attachment of liens to our property, the amount of dividends and other distributions, fundamen tal changes to us or our business and certain other of our activities. The 2017 Credit Agreement contains standard financial covenants for a facility of this type based on a leverage ratio and a fixed charge coverage ratio. The 2017 Credit Agreement also p rovides for customary affirmative covenants, including financial reporting requirements, and certain events of default, including payment defaults, covenant defaults and other customary defaults.
Cash Flows
Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Cash flows provided by operating activities |
|
$ |
468,160 |
|
|
$ |
311,297 |
|
Cash flows used in investing activities |
|
|
|
|
|
|
|
|
Loans and finance receivables |
|
$ |
(505,938 |
) |
|
$ |
(325,859 |
) |
Purchases of property and equipment |
|
|
(11,303 |
) |
|
|
(10,804 |
) |
Other investing activities |
|
|
93 |
|
|
|
1,798 |
|
Total cash flows used in investing activities |
|
$ |
(517,148 |
) |
|
$ |
(334,865 |
) |
Cash flows provided by financing activities |
|
$ |
141,234 |
|
|
$ |
93,101 |
|
Cash Flows from Operating Activities
Net cash provided by operating activities increased $156.9 million, or 50.4%, to $468.2 million for the current nine-month period from $311.3 million for the prior year nine-month period. The increase was primarily driven by a $124.7 million increase in cost of revenue, a non-cash expense, during the current nine-month period, and a $39.0 million increase in net income.
Other significant changes in net cash provided by operating activities for the current nine-month period compared to the prior year nine-month period included cash flows from the following activities:
|
• |
changes in current income taxes resulted in a $31.9 million decrease in net cash provided by operating activities, primarily due to the ability to recover prior year taxes through net operating loss carrybacks; |
|
• |
changes in deferred income taxes, net resulted in a $31.1 million increase in net cash provided by operating activities, primarily due to the estimated tax effects of optimizing the timing of certain income tax deductions for prior year loan and fixed asset related deferred tax items; |
|
• |
changes in finance and service charges on loans and finance receivables resulted in a $14.2 million decrease in net cash provided by operating activities as a result of higher rate of loans and finance receivables originated or purchased compared to loans and finance receivables repaid . |
|
• |
changes in accounts payable and accrued expenses resulted in a $4.0 million increase in net cash provided by operating activities, primarily due to a decrease in accrued expense liabilities in the prior year nine-month period; and |
|
• |
changes in the loss on early extinguishment of debt resulted in a $2.3 million increase in net cash provided by operating activities . |
Management believes cash flows from operations and available cash balances and borrowings under our consumer loan securitization facilities and 2017 Credit Agreement, which may include increased borrowings under our 2017 Credit Agreement, any refinancing or replacement thereof, and additional securitization of consumer loans, will be sufficient to fund our future operating liquidity needs, including to fund our working capital growth.
Cash Flows from Investing Activities
Net cash used in investing activities increased $182.3 million, or 54.4%, for the current nine-month period compared to the prior year nine-month period. This increase was primarily due to a $180.1 million increase in net cash invested in loans and finance receivables, reflecting a $279.6 million increase in the amount of loans and finance receivables originated or acquired partially offset by a $99.5 million increase payments received from customers. Additionally, purchases of property and equipment increased $0.5 million for the current nine-month period compared to the prior year nine-month period.
Cash Flows from Financing Activities
Cash flows provided by financing activities for the current nine-month period primarily reflects borrowings of $375.0 million related to the issuance of our 2025 Senior Notes, $228.5 million in payments under our 2021 Senior Notes, $14.8 million in net borrowings under our securitization facilities, $13.1 million in penalties paid in connection with the early payments of our 2021 Senior Notes, $9.2 million in debt issuance costs primarily related to the issuance our 2025 Senior Notes, $6.7 million of proceeds from the exercise of
62
stock options, and the $3.0 million payment of our promissory note rel ated to a previous acquisition. Cash flows provided by financing activities for the prior year nine-month period primarily reflects borrowings of $250.0 million related to the issuance of our 2024 Senior Notes, $155.0 million in payments under our 2021 Sen ior Notes, $21.1 million in net borrowings under our securitization facilities , an $11.3 million penalty paid in connection with the early payment of our 2021 Senior Notes and $9.6 million of debt issuance costs paid in connection with the 2024 Senior Note s and 2017 Credit Agreement . Additionally, on September 15, 2017, we announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $25.0 million of our common stock through December 31, 2019 (the “September 2017 Aut horization”). During the prior year nine-month period, we paid $1.1 million to repurchase common stock under the September 2017 Authorization.
OFF-BALANCE SHEET ARRANGEMENTS
In certain markets, we arrange for consumers to obtain consumer loan products from independent third-party lenders through our CSO programs. For consumer loan products originated by third-party lenders under the CSO programs, each lender is responsible for providing the criteria by which the customer’s application is underwritten and, if approved, determining the amount of the consumer loan. We are responsible for assessing whether or not we will guarantee such loan. When a customer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the customer, to provide certain services to the customer, one of which is to guarantee the customer’s obligation to repay the loan received by the customer from the third-party lender if the customer fails to do so. The guarantee represents an obligation to purchase specific loans if they go into default, which generally occurs after one payment is missed. As of September 30, 2018 and 2017, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $30.1 million and $28.9 million, respectively, which were guaranteed by us. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by us of $2.2 million and $2.0 million, as of September 30, 2018 and 2017, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Our CSO programs are further described under the caption “Products and Services” above.
Market risks relating to our operations result primarily from changes in foreign currency exchange rates. We do not engage in speculative or leveraged transactions, nor do we hold or issue financial instruments for trading purposes. There have been no material changes to our exposure to market risks since December 31, 2017.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the “Exchange Act”) as of September 30, 2018 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective and provide reasonable assurance (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
There was no change in our internal control over financial reporting during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent or detect all possible misstatements due to error or fraud. Our disclosure controls and procedures and internal controls are, however, designed to provide reasonable assurance of achieving their objectives, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at that reasonable assurance level.
63
See the “Litigation” section of Note 10 of the notes to our unaudited consolidated financial statements of Part I, “Item 1 Financial Statements.”
There have been no material changes from the Risk Factors described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, except as follows :
We are subject to cyber security risks and security breaches and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our business involves the storage and transmission of consumers’ and businesses’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We are entirely dependent on the secure operation of our websites and systems as well as the operation of the internet generally. While we have incurred no material cyber-attacks or security breaches to date, a number of other companies have disclosed cyber-attacks and security breaches, some of which have involved intentional attacks. Attacks may be targeted at us, our customers, or both. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to us and our customers, our security measures may not provide absolute security. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties outside the company such as persons who are involved with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile and other internet-based product offerings and expand our internal usage of web-based products and applications or expand into new countries. If an actual or perceived breach of security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed and could result in the loss of customers, suppliers or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.
A successful penetration or circumvention of the security of our systems could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. In addition, our applicants provide sensitive information, including bank account information when applying for loans or financing. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer bank account and other personal information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Data breaches can also occur as a result of non-technical issues. In addition, federal and some state regulators are considering rules and standards to address cybersecurity risks and many US states and the UK have already enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and may lead to widespread negative publicity, which may cause customers to lose confidence in the effectiveness of our data security measures.
Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including denial-of-service attacks. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach of our systems or by persons with whom we have commercial relationships that result in the unauthorized release of consumers’ personal information or businesses’ proprietary information, could damage our reputation and expose us to a risk of loss or litigation and possible liability. In addition, many of the third parties who provide products, services or support to us could also experience any of the above cyber risks or security breaches, which could impact our customers and our business and could result in a loss of customers, suppliers or revenue.
Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
64
Our ability to collect payment on loans and maintain the accuracy of accounts may be adversely affected by computer viruses, electronic break-ins, technical errors and similar disruptions.
The accessibility and automated nature of our platform may make for an attractive target for hacking, computer viruses, physical or electronic break-ins and similar disruptions. Despite efforts to ensure the integrity of our platform, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, in which case there would be an increased risk of fraud or identity theft, and we may experience losses on, or delays in the collection of amounts owed on, a fraudulently induced loan. In addition, the software that we have developed is highly complex and may contain undetected technical errors that could cause our computer systems to fail. Because each loan and financing provided involves our proprietary underwriting and fraud scoring models, and the applications are highly automated, any failure of our computer systems involving our proprietary credit and fraud scoring models and any technical or other errors contained in the software pertaining to our proprietary underwriting and fraud scoring models could compromise the ability to accurately evaluate potential customers, which would negatively impact our results of operations. Furthermore, any failure of our computer systems could cause an interruption in operations that may result in disruptions or reductions in the amount of collections from the loans and financings we provide to customers. If any of these risks were to materialize, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
Customer complaints to the Financial Ombudsman Service (“FOS”) could increase, which could have a negative effect on our operations in the United Kingdom.
We continue to experience an increased volume of complaints about loans issued prior to changes we implemented in 2014, and the FOS has taken a very consumer friendly approach to its complaint handling process and dispute resolutions. We have been required to make significant payments to customers to resolve these complaints. We have also incurred significant costs in the form of FOS administrative fees associated with each individual complaint submitted to FOS, as well as operational costs necessary to manage the large volume of complaints. The FOS has evidenced signs of expanding its consumer focused approach through changes in the FOS’s interpretation of its complaint handling rights and obligations. We also observed the FOS interpreting FCA rules and guidance in a manner that is stricter than, and sometimes in direct conflict with, the FCA’s own interpretation of its rules and guidance. If the FOS continues to issue findings in this manner, and we are required to continue making significant payments to resolve complaints, such findings could again have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
The following table provides the information with respect to purchases made by us of shares of our common stock.
Period |
|
Total Number of Shares Purchased (a) |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan (b) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (b) (in thousands) |
|
||||
July 1 – July 31, 2018 |
|
|
644 |
|
|
|
36.55 |
|
|
|
— |
|
|
|
21,454 |
|
August 1 – August 31, 2018 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,454 |
|
September 1 – September 30, 2018 |
|
|
546 |
|
|
|
30.95 |
|
|
|
— |
|
|
|
21,454 |
|
Total |
|
|
1,190 |
|
|
$ |
33.98 |
|
|
|
— |
|
|
$ |
21,454 |
|
(a) |
Shares withheld from employees as tax payments for shares issued under the Company’s stock-based compensation plans . |
(b) |
On September 15, 2017, the Company announced the Board of Directors had authorized a share repurchase program for the repurchase of up to $25.0 million of the Company’s common stock through December 31, 2019 (the “September 2017 Authorization”). All share repurchases made under the September 2017 Authorization have been through open market transactions. |
None.
65
Not applicable.
None.
Exhibit No. |
|
Exhibit Description |
|
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
||
|
|
|
|
||
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
66
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 31, 2018 |
|
|
ENOVA INTERNATIONAL, INC. |
||
|
|
|
|
|
|
|
|
|
By: |
|
/s/ Steven E. Cunningham |
|
|
|
|
|
Steven E. Cunningham |
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
(On behalf of the Registrant and as Principal Financial Officer) |
67
Exhibit 4.1
ENOVA INTERNATIONAL, INC.
as Issuer
the Guarantors party hereto
and
COMPUTERSHARE TRUST COMPANY, N.A.
as Trustee
Indenture
Dated as of September 19, 2018
8.500% Senior Notes Due 2025
|
|
Page |
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. |
Definitions |
1 |
Section 1.02. |
Rules of Construction |
29 |
ARTICLE 2
The Notes
Section 2.01. |
Form, Dating and Denominations 144A, Reg S; Legends |
29 |
Section 2.02. |
Execution and Authentication; Additional Notes |
30 |
Section 2.03. |
Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust |
31 |
Section 2.04. |
Replacement Notes |
32 |
Section 2.05. |
Outstanding Notes |
32 |
Section 2.06. |
Temporary Notes |
33 |
Section 2.07. |
Cancellation |
33 |
Section 2.08. |
CUSIP and CINS Numbers |
33 |
Section 2.09. |
Registration, Transfer and Exchange |
33 |
Section 2.10. |
Restrictions on Transfer and Exchange |
36 |
Section 2.11. |
Reg. S Temporary Offshore Global Notes |
38 |
ARTICLE 3
Optional Redemption; Offer To Purchase
Section 3.01. |
Optional Redemption on or after September 15, 2021 |
39 |
Section 3.02. |
Optional Redemption with Proceeds of Certain Equity Offerings |
39 |
Section 3.03. |
Optional Redemption at Make-Whole Price |
39 |
Section 3.04. |
Method and Effect of Redemption |
40 |
Section 3.05. |
Offer to Purchase |
41 |
ARTICLE 4
Covenants
Section 4.01. |
Payment of Notes |
43 |
Section 4.02. |
Maintenance of Office or Agency |
44 |
Section 4.03. |
Existence |
44 |
Section 4.04. |
Payment of Taxes and other Claims |
44 |
Section 4.05. |
Maintenance of Properties and Insurance |
45 |
Section 4.06. |
Restricted Payments |
45 |
Section 4.07. |
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock |
49 |
Section 4.08. |
Designation of Restricted and Unrestricted Subsidiaries |
54 |
Section 4.09. |
Liens |
54 |
i
Dividend and Other Payment Restrictions Affecting Subsidiaries |
54 |
|
Section 4.11. |
Transactions with Affiliates |
57 |
Section 4.12. |
Limitation on Issuances and Sales of Equity Interests in Wholly-Owned Subsidiaries |
58 |
Section 4.13. |
Business Activities |
58 |
Section 4.14. |
Additional Note Guarantees |
58 |
Section 4.15. |
Repurchase of Notes Upon a Change of Control |
59 |
Section 4.16. |
Asset Sales |
60 |
Section 4.17. |
Reports |
63 |
Section 4.18. |
Reports to the Trustee |
65 |
ARTICLE 5
Merger, Consolidation or Sale of Assets
Section 5.01. |
Merger, Consolidation or Sale of Assets |
65 |
ARTICLE 6
Default and Remedies
Section 6.01. |
Events of Default |
67 |
Section 6.02. |
Acceleration |
69 |
Section 6.03. |
Other Remedies |
70 |
Section 6.04. |
Waiver of Past Defaults |
70 |
Section 6.05. |
Control by Majority |
71 |
Section 6.06. |
Limitation on Suits |
71 |
Section 6.07. |
Rights of Holders to Receive Payment |
71 |
Section 6.08. |
Collection Suit by Trustee |
71 |
Section 6.09. |
Trustee May File Proofs of Claim |
72 |
Section 6.10. |
Priorities |
72 |
Section 6.11. |
Restoration of Rights and Remedies |
72 |
Section 6.12. |
Undertaking for Costs |
73 |
Section 6.13. |
Rights and Remedies Cumulative |
73 |
Section 6.14. |
Delay or Omission Not Waiver |
73 |
Section 6.15. |
Waiver of Stay, Extension or Usury Laws |
73 |
ARTICLE 7
The Trustee
Section 7.01. |
General |
73 |
Section 7.02. |
Certain Rights of Trustee |
74 |
Section 7.03. |
Individual Rights of Trustee |
76 |
Section 7.04. |
Trustee’s Disclaimer |
76 |
Section 7.05. |
Notice of Default |
76 |
Section 7.06. |
[Reserved] |
77 |
Section 7.07. |
Compensation and Indemnity |
77 |
Section 7.08. |
Replacement of Trustee |
77 |
Section 7.09. |
Successor Trustee by Merger |
78 |
ii
ARTICLE 8
Defeasance and Discharge
Section 8.01. |
Discharge of Company’s Obligations |
79 |
Section 8.02. |
Legal Defeasance |
80 |
Section 8.03. |
Covenant Defeasance |
81 |
Section 8.04. |
Application of Trust Money |
82 |
Section 8.05. |
Repayment to Company |
82 |
Section 8.06. |
Reinstatement |
82 |
ARTICLE 9
Amendments, Supplements and Waivers
Section 9.01. |
Amendments Without Consent of Holders |
82 |
Section 9.02. |
Amendments With Consent of Holders |
83 |
Section 9.03. |
Effect of Consent |
85 |
Section 9.04. |
Trustee’s Rights and Obligations |
85 |
Section 9.05. |
[Reserved] |
85 |
Section 9.06. |
Payments for Consents |
85 |
Section 9.07. |
Notes Held by the Company |
85 |
ARTICLE 10
Guarantees
Section 10.01. |
The Guarantees |
86 |
Section 10.02. |
Guarantee Unconditional |
86 |
Section 10.03. |
Discharge; Reinstatement |
87 |
Section 10.04. |
Waiver by the Guarantors |
87 |
Section 10.05. |
Subrogation and Contribution |
87 |
Section 10.06. |
Stay of Acceleration |
88 |
Section 10.07. |
Limitation on Amount of Guarantee |
88 |
Section 10.08. |
Execution and Delivery of Guarantee |
88 |
Section 10.09. |
Release of Guarantee |
88 |
ARTICLE 11
Miscellaneous
Section 11.01. |
[Reserved] |
89 |
Section 11.02. |
Noteholder Communications; Noteholder Actions |
89 |
Section 11.03. |
Notices |
90 |
Section 11.04. |
Certificate and Opinion as to Conditions Precedent |
91 |
Section 11.05. |
Statements Required in Certificate or Opinion |
91 |
Section 11.06. |
Payment Date Other Than a Business Day |
92 |
Section 11.07. |
Governing Law |
92 |
Section 11.08. |
No Adverse Interpretation of Other Agreements |
92 |
iii
Successors |
92 |
|
Section 11.10. |
Duplicate Originals |
92 |
Section 11.11. |
Separability |
92 |
Section 11.12. |
Table of Contents and Headings |
92 |
Section 11.13. |
No Liability of Directors, Officers, Employees, Incorporators, Members and Stockholders |
93 |
Section 11.14. |
U.S.A. Patriot Act |
93 |
Section 11.15. |
Waiver of Jury Trial |
93 |
Section 11.16. |
Submission to Jurisdiction |
93 |
Section 11.17. |
Calculations |
93 |
Section 11.18. |
Foreign Account Tax Act Compliance (FATCA) |
93 |
EXHIBITS |
|
|
EXHIBIT A |
Form of Note |
|
EXHIBIT B |
Form of Supplemental Indenture |
|
EXHIBIT C |
Restricted Legend |
|
EXHIBIT D |
DTC Legend |
|
EXHIBIT E |
Regulation S Certificate |
|
EXHIBIT F |
Rule 144A Certificate |
|
EXHIBIT G |
Institutional Accredited Investor Certificate |
|
EXHIBIT H |
Certificate of Beneficial Ownership |
|
EXHIBIT I |
Temporary Offshore Global Note Legend |
|
iv
INDENTURE, dated as of September 19, 2018, between ENOVA INTERNATIONAL, INC., a Delaware corporation, as the Company, the Guarantors party hereto and COMPUTERSHARE TRUST COMPANY, N.A., as Trustee.
RECITALS
The Company has duly authorized the execution and delivery of the Indenture to provide for the issuance of up to $375,000,000 aggregate principal amount of the Company’s 8.500% Senior Notes Due 2025, and, if and when issued, any Additional Notes (the “ Notes ”). All things necessary to make the Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes (in the case of the Additional Notes, when duly authorized), when executed by the Company and authenticated and delivered by the Trustee and duly issued by the Company, the valid obligations of the Company as hereinafter provided.
In addition, the Guarantors party hereto have duly authorized the execution and delivery of the Indenture as guarantors of the Notes. All things necessary to make the Indenture a valid agreement of each Guarantor, in accordance with its terms, have been done, and each Guarantor has done all things necessary to make the Note Guarantees, when the Notes are executed by the Company and authenticated and delivered by the Trustee and duly issued by the Company, the valid obligations of such Guarantor as hereinafter provided.
THIS INDENTURE WITNESSETH
For and in consideration of the premises and the purchase of the Notes by the Holders thereof, the parties hereto covenant and agree, for the equal and proportionate benefit of all Holders, as follows:
Article 1
Definitions and Incorporation by Reference
“ 8.500% Notes ” means the 8.500% Senior Notes due 2024 issued by the Company pursuant to that certain indenture, dated September 1, 2017, as amended and supplemented, among itself, the guarantors from time to time party thereto, and Computershare Trust Company, N.A., as trustee.
“ 9.75% Notes” means the 9.75% Senior Notes due 2021 issued by the Company pursuant to that certain indenture, dated May 30, 2014, as amended and supplemented, among itself, the guarantors from time to time party thereto, and Computershare Trust Company, N.A. and Computershare Trust Company of Canada, as successor trustee.
“ Acquired Debt ” means with respect to any specified Person:
(1 ) Indebtedness of any other Person existing at the time such other Person was merged with or into or became a Subsidiary of such specified Person, including Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person at the time such asset is acquired by such specified Person.
“ Additional Notes ” means any notes issued under the Indenture in addition to the Initial Notes having the same terms in all respects as the Initial Notes, or in all respects except with respect to interest paid or payable on or prior to the first interest payment date after the issuance of such Additional Notes.
“ Administrative Agent ” means TBK Bank, SSB, or any successor thereto, as administrative agent under the Credit Agreement.
“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
“ Affiliate Transaction ” has the meaning assigned to such term in Section 4.11.
“ Agent ” means any Registrar, Paying Agent, Authenticating Agent or other agent appointed hereunder with respect to the Notes.
“ Agent Member ” means a member of, or a participant in, the Depositary.
“ Applicable Premium ” means, as calculated by the Company, with respect to a Note at any redemption date, the greater of (i) 1.00% of the principal amount of such Note and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on September 15, 2021 (such redemption price being described in Section 3.01 exclusive of any accrued interest, if any) plus (2) all required remaining scheduled interest payments due on such Note through September 15, 2021 (but excluding accrued and unpaid interest, if any, to the redemption date), computed using a discount rate equal to the Treasury Rate, as calculated by the Company, plus 0.50%, over (B) the principal amount of such Note on such redemption date.
“ Asset Sale ” means:
(1) the sale, lease, transfer, conveyance or other disposition of any assets; provided that the sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 and Article 5 and not Section 4.16 of this Indenture,
2
(2 ) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company’s Restricted Subsidiaries; and
(3) an Event of Loss,
in the case of either clause (1), (2) or (3), whether in a single transaction or a series of related transactions:
(A) that have a Fair Market Value in excess of $5.0 million; or
(B) for Net Proceeds in excess of $5.0 million.
Notwithstanding the foregoing, none of the following will be deemed to be an Asset Sale:
(1) a transfer of assets (a) to the Company or any Restricted Subsidiary or (b) by a Foreign Subsidiary to another Foreign Subsidiary;
(2) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company;
(3) for purposes of Section 4.16 only, a Restricted Payment that is permitted by Section 4.06 or a Permitted Investment;
(4) the Incurrence of Permitted Liens and the disposition of assets subject to such Liens by or on behalf of the Person holding such Liens;
(5) the sale, transfer or other disposition of overdue and delinquent accounts in the ordinary course of business consistent with past practice;
(6) any disposition of cash or Cash Equivalents;
(7) the lease, assignment or sub-lease of any property in the ordinary course of business;
(8) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(9) sales of assets that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Restricted Subsidiaries;
(10) the license of patents, trademarks, copyrights and know-how to third Persons in the ordinary course of business; and
(11) sales of accounts receivable, or participations therein, and related assets in connection with a Permitted Receivables Financing.
3
“ Authenticating Agent ” refers to a Person engaged to authenticate the Notes in the stead of the Trustee.
“ Bankruptcy Code ” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.
“ bankruptcy default ” has the meaning assigned to such term in Section 6.01.
“ Bankruptcy Law ” means the Bankruptcy Code and all other insolvency, bankruptcy, receivership, liquidation, conservatorship, assignment for the benefit of creditors, moratorium, rearrangement, reorganization, or similar legal requirements of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“ Board of Directors ” means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the board of directors or other governing body of the general partner of the partnership;
(3) with respect to a limited liability company, the board of directors, managers or other governing body, and in the absence of the same, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person or other individual or entity serving a similar function.
“ Business Day ” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
“ Capital Expenditures ” means, for any period, the sum of
(1) the aggregate amount of all expenditures of the Company and its Restricted Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures; and
(2) the aggregate amount of all payments in respect of Capital Lease Obligations of the Company and its Restricted Subsidiaries during such period.
“ Capital Lease Obligation ” of any Person means the obligations of such Person to pay rent or other amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property which are required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person determined in accordance with GAAP and the amount of such obligations shall be the capitalized amount thereof in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease or
4
other arrangement prior to the first date upon which such lease or other arrangement may be terminated by the lessee without payment of a penalty.
“ Capital Stock ” means:
(1) in the case of a corporation, corporate stock or shares;
(2) in the case of an association or business entity other than a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person.
“ Cash Equivalents ” means:
(1) marketable direct obligations issued by, or unconditionally Guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition;
(2) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or banker’s acceptances having maturities of six months or less from the date of acquisition issued by any lender to the Company or any Subsidiary or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000;
(3) commercial paper of an issuer rated at least A-1 by Standard & Poor’s Ratings Group (“ S&P ”) or P-1 by Moody’s Investors Service, Inc. (“ Moody’s ”), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition;
(4) repurchase obligations of any financial institution satisfying the requirements of clause (2) of this definition, having a term of not more than 30 days, with respect to securities issued or fully Guaranteed or insured by the United States government;
(5) securities with maturities of one year or less from the date of acquisition issued or fully Guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) have the highest rating obtainable from either S&P or Moody’s;
5
(6 ) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any financial institution satisfying the requirements of clause (2) of this definition;
(7) money market, mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (1) through (6) of this definition; and
(8) money market funds that (i) comply with the criteria set forth in Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.
“ Cash Management Obligations ” means, with respect to any Person, all obligations of such Person incurred in the ordinary course of business in respect of overdrafts and liabilities owed to any other Person that arise from treasury, depositary or cash management services, including in connection with any automated clearing house transfers of funds, or any similar transactions.
“ Certificate of Beneficial Ownership ” means a certificate substantially in the form of Exhibit H.
“ Certificated Note ” means a Note in registered individual form without interest coupons.
“ Change of Control ” means the occurrence of any of the following:
(1) the direct or indirect sale, conveyance, transfer, lease or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any “person” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of the Company; or
(3) the consummation of any transaction (including any merger or consolidation), the result of which is that any “person” (as defined above), becomes the “beneficial owner” (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (3) such person shall be deemed to have “beneficial ownership” of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the voting stock or voting shares of the Company.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.
“ Commission ” means the Securities and Exchange Commission, or any successor agency thereto.
6
“ Company ” means the party named as such in the first paragraph of the Indenture or any successor obligor under the Indenture and the Notes pursuant to Article 5 .
“ Company Order ” means a written request or order signed in the name of the Company by a Responsible Officer, and delivered to the Trustee.
“ Consolidated Cash Flow ” means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus :
(1) an amount equal to any extraordinary or non-recurring loss, to the extent that such losses were deducted in computing such Consolidated Net Income; plus
(2) an amount equal to any net loss realized in connection with an Asset Sale, the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness by such Person or its Restricted Subsidiaries, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(3) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(4) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period; plus
(5) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) to the extent deducted in computing such Consolidated Net Income; plus
(6) write offs, write downs or impairment of goodwill or other intangible assets, unrealized mark-to-market losses, and other non-cash charges (excluding any such other non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent deducted in computing such Consolidated Net Income; plus
(7) the amount of loss on a sale of receivables and related assets to a Securitization Subsidiary in connection with a Permitted Receivables Financing; minus
(8) all non-cash items to the extent that such non-cash items increased Consolidated Net Income for such period (excluding the recognition of deferred revenue or any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and any items for which cash was received in a prior period).
Notwithstanding the foregoing, the provision for taxes based on income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute
7
Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person.
“ Consolidated Interest Expense ” means, with respect to any Person for any period, the sum of, without duplication:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers’ acceptance financings, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations), provided that, (x) amortization of debt issuance costs and other debt financing fees and expenses shall be excluded and (y) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Permitted Receivables Financing shall be excluded; plus
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person to the extent that such Indebtedness is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on the assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon).
“ Consolidated Net Income ” means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary of such Person, or that is accounted for by the equity method of accounting shall be included, but only to the extent of the amount of dividends or distributions that have been distributed in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;
(2) the Net Income of any of its Restricted Subsidiaries shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, unless such restriction has been legally waived; and
(3) the cumulative effect of a change in accounting principles shall be excluded.
8
“ Consolidated Total Assets ” of any Person as of any date of determination means the total assets of such Person and its Restricted Subsidiaries as of the most recent fiscal quarter end for which a consolidated balance sheet of such Person and its Restricted Subsidiaries is available.
“ Consolidated Total Indebtedness ” means, as of any date of determination, an amount equal to (a) the sum of (1) the aggregate amount of all outstanding Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by promissory notes and similar instruments (for the avoidance of doubt, excluding any (A) Hedging Obligations and (B) performance bonds or any similar instruments) and (2) the aggregate amount of all outstanding Disqualified Stock of the Company and all Preferred Stock of its Restricted Subsidiaries on a consolidated basis, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP. For the purpose hereof, the “ maximum fixed repurchase price ” of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to the Indenture.
“ Corporate Trust Office ” means the office of the Trustee at which the corporate trust business of the Trustee is principally administered, which at the date of the Indenture is located at 8742 Lucent Boulevard, Suite 225, Highlands Ranch, CO 80129.
“ CSO Obligations ” means obligations to purchase, or other Guarantees of, consumer loans the making of which were facilitated by the Company or a Restricted Subsidiary acting as a credit services organization or other similar service provider.
“ Credit Agreement ” means that certain asset-based secured revolving credit agreement, dated as of June 30, 2017, by and among the Company, the lenders from time to time party thereto and the Administrative Agent, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as may be amended from time to time.
“ Credit Facility ” means one or more debt facilities, including the Credit Agreement, or other financing arrangements (including commercial paper facilities or indentures) providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables and including Permitted Receivables Financing), letters of credit or other long-term indebtedness, including any notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case, as amended, extended, renewed, restated, supplemented, replaced (whether or not upon termination and whether with the original lenders, institutional investors or otherwise), refinanced (including through the issuance
9
of debt securities), restructured or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Facility or a successor Credit Facility, whether by the same or any other agent, lender or group of lenders (or institutional investors).
“ Default ” means any event that is or with the passage of time or the giving of notice or both would be an Event of Default.
“ Depositary ” means the depositary of each Global Note, which will initially be DTC.
“ Designated Non-cash Consideration ” means the Fair Market Value of non-cash consideration received by the Company or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, executed by the principal financial officer of the Company, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of or collection on such Designated Non-cash Consideration.
“ Disqualified Stock ” means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the Holder) or upon the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock convertible or exchangeable solely at the option of the Company or a Subsidiary; provided that any such conversion or exchange will be deemed an Incurrence of Indebtedness or Disqualified Stock, as applicable); or
(3) is redeemable at the option of the Holder thereof, in whole or in part,
in the case of each of clauses (1), (2) and (3), on or prior to the 91st day after the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving Holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control” occurring on or prior to the 91st day after the Stated Maturity of the Notes will not constitute Disqualified Stock if the “asset sale” or “change of control” provisions applicable to such Capital Stock are not more favorable to the Holders of such Capital Stock than the provisions of Section 4.15 and Section 4.16 are to the Holders.
“ Domestic Subsidiary ” means any Restricted Subsidiaries of the Company other than a Foreign Subsidiary.
10
“ DTC ” means The Depository Trust Company, a New York corporation, and its successors.
“ DTC Legend ” means the legend set forth in Exhibit D.
“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for Capital Stock).
“ Equity Offering ” means a sale for cash of either (1) common equity securities of the Company (other than to a Subsidiary of the Company) or (2) common equity securities of a Parent Entity (other than to the Company or a Subsidiary of the Company) to the extent that the net proceeds therefrom are contributed to the common equity capital of the Company.
“ Event of Default ” has the meaning assigned to such term in Section 6.01.
“ Event of Loss ” means, with respect to any property or asset, any (i) loss or destruction of, or damage to, such property or asset or (ii) condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset.
“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended.
“ Excluded Contribution ” means net cash proceeds or marketable securities received by the Company from:
(1) contributions to its common equity capital, and
(2) the sale (other than to a Subsidiary of the Company or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Company or any of its Subsidiaries) of Capital Stock (other than Disqualified Stock) of the Company,
in each case designated as Excluded Contributions pursuant to an Officers’ Certificate executed by the principal financial officer of the Company on the date such capital contributions are made or the date such Capital Stock is sold, as the case may be, which are excluded from the calculation set forth in Section 4.06(a)(3).
“ Existing Indebtedness ” means any Indebtedness of the Company or any of its Restricted Subsidiaries outstanding on the date of the Indenture until such Indebtedness is repaid, including without limitation, Indebtedness in connection with the 9.75% Notes, the Guarantees of such 9.75% Notes, the 8.500% Notes and the Guarantees of such 8.500% Notes.
“ Fair Market Value ” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by an officer of the Company; provided , however , that,
11
except in the case of determining the Fair Market Value of assets in connection with an Asset Sale not involving the sale of assets to an Affiliate, (i) the determination must be made by the Board of Directors of the Company if the Fair Market Value exceeds $10.0 million and (ii) the determination must be made by the Board of Directors of the Company and based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the Fair Market Value exceeds $15.0 million.
“ Fixed Charge Coverage Ratio ” means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness or any Indebtedness is no longer outstanding (other than revolving credit borrowings) or the Company or any of its Restricted Subsidiaries issues or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “ Calculation Date ”), the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness, or such issuance or redemption of Preferred Stock (including the application of any proceeds therefrom), as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated to include the Consolidated Cash Flow of the acquired entities (adjusted to exclude (A) the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the acquired entities to the extent such costs are eliminated and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the acquired entities, in each case, as determined in good faith by an officer of the Company);
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
12
(5 ) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
“ Fixed Charges ” means, with respect to any Person for any period, the sum of, without duplication:
(1) the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period; plus
(2) the product of (A) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of Preferred Stock of such Person, times (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
“ Foreign Subsidiary ” means any Restricted Subsidiary of the Company incorporated or organized in a jurisdiction other than the United States or any state or commonwealth thereof or the District of Columbia.
“ GAAP ” means generally accepted accounting principles in the United States of America as in effect on the date of the Indenture, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;
(2) the statements and pronouncements of the Financial Accounting Standards Board; and
(3) such other statements by such other entity as have been approved by a significant segment of the accounting profession.
“ Global Note ” means a Note in registered global form without interest coupons.
“ Guarantee ” by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness or other obligation of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of such Person to:
13
(1 ) purchase or pay (or advance or supply funds for the purchase or payment) of such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness;
(2) purchase property, securities or services for the purposes of assuring the Holder of such Indebtedness of the payment of such Indebtedness; or
(3) maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness;
provided , however , that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.
“ Guarantor ” means (i) each Domestic Subsidiary (other than a Securitization Subsidiary) of the Company in existence on the Issue Date and (ii) each Domestic Subsidiary that executes a supplemental indenture in the form of Exhibit B to the Indenture providing for the Guarantee of the payment of the Notes, or any successor obligor under its Note Guarantee pursuant to Article 5, in each case unless and until such Guarantor is released from its Note Guarantee pursuant to the Indenture.
“ Hedging Obligations ” has the meaning assigned to such term in the definition of “Indebtedness.”
“ Holder ” or “ Noteholder ” means the registered holder of any Note.
“ IAI Global Note ” means a Global Note resold to Institutional Accredited Investors bearing the Restricted Legend.
“ Incur ” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume (pursuant to a merger, consolidation, acquisition or other transaction), Guarantee or otherwise become liable in respect of such Indebtedness or other obligation (and “Incurrence” and “Incurred” shall have meanings correlative to the foregoing); provided , however , that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness; provided , further , that none of the following shall be deemed to be an Incurrence of Indebtedness: (i) amortization of debt discount or the accretion of principal with respect to a non-interest bearing or other discount security; (ii) the payment of regularly scheduled interest in the form of additional Indebtedness of the same instrument or the payment of regularly scheduled dividends on Capital Stock in the form of additional Capital Stock of the same class and with the same terms; and (iii) the obligation to pay a premium in respect of Indebtedness arising in connection with the issuance of a notice of redemption or the making of a mandatory offer to purchase such Indebtedness. Indebtedness otherwise Incurred by a Person before it becomes a Subsidiary of the Company shall be deemed to have been Incurred at the time it becomes such a Subsidiary.
14
“ Indebtedness ” means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent:
(1) obligations of such Person in respect of principal for money borrowed;
(2) obligations of such Person in respect of principal evidenced by bonds, debentures, notes or other similar instruments;
(3) every reimbursement obligation of such Person with respect to letters of credit, banker’s acceptances or similar facilities issued for the account of such Person, other than obligations with respect to letters of credit securing obligations, other than obligations referred to in clauses (1), (2) and (5), entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the 10th day following payment on the letter of credit;
(4) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade payables, credit on open account, provisional credit, accrued liabilities or similar terms arising in the ordinary course of business which are not overdue by more than ninety (90) days or which are being contested in good faith);
(5) every Capital Lease Obligation of such Person;
(6) the maximum fixed redemption or repurchase price of Disqualified Stock of such Person at the time of determination plus accrued but unpaid dividends;
(7) every net payment obligation of such Person under interest rate swap, cap, collar or similar agreements or foreign currency hedge, exchange or similar agreements of such Person (collectively, “ Hedging Obligations ”); and
(8) every obligation of the type referred to in clauses (1) through (7) of another Person the payment of which, in either case, such Person has Guaranteed or is liable, directly or indirectly, as obligor, guarantor or otherwise, to the extent of such Guarantee or other liability.
Notwithstanding the foregoing, Indebtedness shall not include (x) CSO Obligations or (y) obligations under or in respect of any Permitted Receivables Financing.
“ Indenture ” means this Indenture, as amended or supplemented from time to time.
“ Indenture Documents ” means the Notes, the Indenture and the Note Guarantees.
“ Indenture Obligations ” means all obligations in respect of the Notes or arising under the Indenture Documents. Indenture Obligations shall include all interest accrued (or which would, absent the commencement of an insolvency or liquidation proceeding,
15
accrue) after the commencement of an insolvency or liquidation proceeding in accordance with and at the rate specified in the relevant Indenture Document whether or not the claim for such interest is allowed as a claim in such insolvency or liquidation proceeding.
“ Initial Additional Notes ” means Additional Notes issued in an offering not registered under the Securities Act and any Notes issued in replacement thereof.
“ Initial Notes ” means the Notes issued on the Issue Date and any Notes issued in replacement thereof.
“ Initial Purchaser ” or “ Initial Purchasers ” means the initial purchaser or initial purchasers party to a purchase agreement with the Company relating to the sale of the Initial Notes or Initial Additional Notes by the Company.
“ Institutional Accredited Investor ” means an institutional “accredited investor” as defined in Rule 501(a) (1), (2) , (3) or (7) under the Securities Act.
“ interest ”, in respect of the Notes, unless the context otherwise requires, refers to interest, if any.
“ Interest Payment Date ” means each March 15 and September 15 of each year, commencing March 15, 2019.
“ Investments ” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commissions, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities; provided that an acquisition of assets, Equity Interests or other securities by the Company or a Restricted Subsidiary for consideration consisting of common equity securities of the Company or such Restricted Subsidiary shall not be deemed to be an Investment. If the Company or any of its Restricted Subsidiaries of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that after giving effect to any such sale or disposition, such Person is no longer a direct or indirect Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Restricted Subsidiary not sold or disposed of. For purposes of the definition of “Unrestricted Subsidiary” and Section 4.06;
(1) Investments shall include the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of a Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided , that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to:
16
(A ) the Company’s “Investment” in such Subsidiary at the time of such redesignation; less
(B) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer.
The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in cash by the Company or a Restricted Subsidiary in respect of such Investment.
“ Issue Date ” means the date on which the Initial Notes are originally issued under the Indenture.
“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance or hypothecation of any kind in respect of that asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest in and any filing of any financing statement under the UCC (or equivalent statutes) of any jurisdiction).
“ Material Adverse Effect ” means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company or any Guarantor to perform its obligations under the Indenture, the Notes or any supplemental indenture, or (c) the validity or enforceability of the Indenture, the Notes or any supplemental indenture.
“ Material Debt ” means Indebtedness in an aggregate amount of $1.0 million or more.
“ Net Income ” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (1) any net gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Asset Sale or (B) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (2) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss).
“ Net Proceeds ” means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any
17
Asset Sale), net of the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees and sales commissions) and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
“ Non-Recourse Debt ” means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise; and
(2) no default with respect to which (including any rights that the Holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any Holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity.
“ Non-U.S. Person ” means a Person that is not a U.S. person, as defined in Regulation S.
“ Non-Wholly-Owned Subsidiary ” means any Subsidiary that is not a Wholly-Owned Subsidiary.
“ Note Guarantee ” means the Guarantee of the Notes by a Guarantor pursuant to the Indenture.
“ Notes ” has the meaning assigned to such term in the Recitals.
“ Offering Memorandum ” means the final offering memorandum, dated September 14, 2018, relating to the offering of the Notes.
“ Offer to Purchase ” has the meaning assigned to such term in Section 3.05.
“ Officers’ Certificate ” means a certificate signed by the Chairman of the Board, the President, a Vice President or the Chief Financial Officer, and by the Treasurer or the Secretary of the Company and delivered to the Trustee. One of the Officers giving an Officers’ Certificate pursuant to Section 4.18 shall be the principal executive, financial or accounting officer of the Company.
“ Offshore Global Note ” means a Global Note representing Notes issued and sold pursuant to Regulation S.
18
“ Opinion of Counsel ” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.
“ Parent Entity ” means any Person that is a direct or indirect parent of the Company.
“ Paying Agent ” refers to a Person engaged to perform the obligations of the Trustee in respect of payments made or funds held hereunder in respect of the Notes.
“ Permanent Offshore Global Note ” means an Offshore Global Note that does not bear the Temporary Offshore Global Note Legend.
“ Permitted Investments ” means:
(1) any Investment in the Company or a Restricted Subsidiary;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Company or any of its Restricted Subsidiaries of the Company in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary or (B) such Person is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary;
(4) any Investment existing on the date of the Indenture or made pursuant to binding commitments in effect on the date of the Indenture or an Investment consisting of any extension, modification or renewal of any Investment existing on the date of the Indenture; provided that the amount of any such Investment may be increased (x) as required by the terms of such Investment as in existence on the date of the Indenture or (y) as otherwise permitted under the Indenture;
(5) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.16;
(6) Hedging Obligations that are permitted by the terms of the Indenture to be outstanding;
(7) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits;
(8) loans and advances to, or guarantees of Indebtedness of, employees of the Company and its Restricted Subsidiaries in the ordinary course of business not to exceed $5.0 million in the aggregate at any one time outstanding;
(9) any Investment consisting of a Guarantee permitted by Section 4.07;
19
(10 ) Investments consisting of non-cash consideration received in the form of securities, notes or similar obligations in connection with dispositions of obsolete or worn out assets permitted pursuant to the Indenture;
(11) Investments received in settlement of bona fide disputes or as distributions in bankruptcy, insolvency or similar proceedings;
(12) Investments in joint ventures not to exceed the greater of (x) $40.0 million (or its foreign currency equivalent) and (y) 6.0% of Consolidated Total Assets in the aggregate at any one time outstanding (net of, with respect to the Investment in any particular Person, the cash return thereon received after the Issue Date as a result of any sale for cash, repayment, redemption or other cash realization (not included in Consolidated Net Income), not to exceed the amount of Investments in such Person made after the Issue Date in reliance on this clause);
(13) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) that are at the time outstanding, not to exceed the greater of $40.0 million and 6.0% of Consolidated Total Assets;
(14) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices;
(15) advances and extensions of credit by the Company or any Restricted Subsidiary to customers in the ordinary course of business consistent with past practice that are recorded as accounts receivable or consumer loans on the consolidated balance sheet of the Company or any Restricted Subsidiary;
(16) Investments resulting from the Incurrence of CSO Obligations;
(17) Investments in a Securitization Subsidiary that are necessary or desirable to effect any Permitted Receivables Financing or any repurchases in connection therewith; and
(18) Investments in Subsidiaries (other than Investments in the Company or a Restricted Subsidiary) not to exceed $10.0 million in the aggregate at any one time outstanding.
“ Permitted Liens ” means:
(1) Liens in favor of the Company or a Guarantor;
(2) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or a Restricted Subsidiary, provided that such Liens were not created in connection with, or in contemplation of, such merger or
20
consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or a Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by the Company or any of its Restricted Subsidiaries of the Company, provided that such Liens were not created in connection with, or in contemplation of, such acquisition;
(4) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds, workmen’s compensation or unemployment obligations or other obligations of a like nature, or to secure letters of credit issued with respect to such obligations, Incurred in the ordinary course of business;
(5) Liens consisting of deposits in connection with leases or other similar obligations, or securing letters of credit issued in lieu of such deposits, incurred in the ordinary course of business;
(6) Liens securing Indebtedness (including Capital Lease Obligations) permitted by clause (2) of paragraph (b) of Section 4.07 covering only the assets acquired with such Indebtedness and directly related assets such as proceeds (including insurance proceeds), products, replacements, substitutions and accessions thereto;
(7) Liens existing on the date of the Indenture and replacement Liens that do not encumber additional assets, unless such encumbrance is otherwise permitted;
(8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent for more than 30 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(9) Liens securing Permitted Refinancing Debt, provided that the Company was permitted to Incur such Liens with respect to the Indebtedness so refinanced under the Indenture and:
(A) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and
(B) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced replaced, defeased or discharged with such Permitted Refinancing Debt; and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;
(10) Statutory and common law Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the
21
ordinary course of business with respect to amounts that are not yet delinquent for more than 30 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(11) Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(12) Liens arising from filings of UCC financing statements or similar documents regarding leases or otherwise for precautionary purposes relating to arrangements not constituting Indebtedness;
(13) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Company or any of the Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Company and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Company or any of the Restricted Subsidiaries in the ordinary course of business;
(14) Liens securing Indenture Obligations (including any Additional Notes);
(15) Liens securing Cash Management Obligations;
(16) Minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(17) Liens securing Indebtedness of Foreign Subsidiaries to the extent such Indebtedness is permitted under clause (10) of paragraph (b) of Section 4.07; provided, however, that no asset of the Company or any Domestic Subsidiary shall be subject to any such Lien;
(18) Liens in favor of banking institutions (including the right of setoff) encumbering deposit accounts maintained by the Company or any Guarantor into which any fees or commission paid to the Company or any Guarantor in connection with CSO Obligations are required to be deposited by the lenders of the related consumer loans and that are within the general parameters in the banking industry;
22
(19 ) Liens securing Indebtedness permitted by clause (14) of paragraph (b) of Section 4.07 ;
(20) Liens on accounts receivable and related assets and proceeds thereof arising in connection with a Permitted Receivables Financing; and
(21) other Liens of the Company or any Subsidiary of the Company with respect to obligations in an aggregate principal amount that does not exceed $15.0 million at any one time outstanding.
For purposes of this definition, the term “Indebtedness” shall be deemed to include interest, fees, expenses and all other amounts owing in connection with or in respect of any referenced Indebtedness.
“ Permitted Receivables Financing” means any receivables financing facility or arrangement pursuant to which a Securitization Subsidiary purchases or otherwise acquires accounts receivable of the Company or any Restricted Subsidiary and enters into a third party financing thereof on terms that the Board of Directors has concluded are customary and market terms that are fair to the Company and its Restricted Subsidiaries.
“ Permitted Refinancing Debt ” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net cash proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or such Restricted Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount and premium, if any, plus accrued interest (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Debt has a final scheduled maturity date later than the final scheduled maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or any Note Guarantee, such Permitted Refinancing Debt is contractually subordinated in right of payment to, the Notes or such Note Guarantee on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or would otherwise be permitted to Incur such Indebtedness.
23
“ Person ” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock corporation, trust, unincorporated organization or government or agency or political subdivision thereof or any other entity.
“ Preferred Stock ” as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.
“ principal ” of any debt means the principal amount of such debt, (or if such debt was issued with original issue discount, the face amount of such debt less the remaining unamortized portion of the original issue discount of such debt), together with, unless the context otherwise indicates, any premium then payable on such debt.
“ property ” or “ properties ” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.
“ Receivables Fees ” means distributions or payments made directly or by means of discounts with respect to any accounts receivable or participation interest therein issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Permitted Receivables Financing.
“ Refinance ” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. “Refinanced” and “refinancing” shall have correlative meanings.
“ Register ” has the meaning assigned to such term in Section 2.09.
“ Registrar ” means a Person engaged to maintain the Register.
“ Regular Record Date ” for the interest payable on any Interest Payment Date means the August 15 or February 15 (whether or not a Business Day) next preceding such Interest Payment Date.
“ Regulation S ” means Regulation S under the Securities Act.
“ Regulation S Certificate ” means a certificate substantially in the form of Exhibit E hereto.
“ Responsible Officer ” means the chief executive officer of the Company, any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the Indenture.
“ Restricted Investment ” means an Investment other than a Permitted Investment.
24
“ Restricted Legend ” means the legend set forth in Exhibit C.
“ Restricted Payment ” has the meaning assigned to such term in Section 4.06(iv).
“ Restricted Period ” means the relevant 40-day distribution compliance period as defined in Regulation S.
“ Restricted Subsidiary ” means any Subsidiary of the Company that is not an Unrestricted Subsidiary.
“ Rule 144A ” means Rule 144A under the Securities Act.
“ Rule 144A Certificate ” means (i) a certificate substantially in the form of Exhibit F hereto or (ii) a written certification addressed to the Company and the Trustee to the effect that the Person making such certification (x) is acquiring such Note (or beneficial interest) for its own account or one or more accounts with respect to which it exercises sole investment discretion and that it and each such account is a qualified institutional buyer within the meaning of Rule 144A, (y) is aware that the transfer to it or exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A, and (z) acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A(d)(4) or has determined not to request such information.
“ Securities Act ” means the U.S. Securities Act of 1933, as amended.
“ Securitization Subsidiary ” means
(A) each of Enova Finance 5, LLC, EFR 2016-1, LLC, EFR 2016-2, LLC, EFR 2017-1, LLC, NetCredit Funding, LLC and EFR 2018-1, LLC, each a Delaware limited liability company; and
(B) any other Subsidiary of the Company:
(1) that is designated a “Securitization Subsidiary” by the Board of Directors,
(2) that does not engage in, and whose charter, bylaws, operating agreement or similar governing or constitutional document prohibits it from engaging in, any activities other than Permitted Receivables Financings and any activity necessary, incidental or related thereto,
(3) no portion of the Indebtedness or any other obligation, contingent or otherwise, of which
(A) is Guaranteed by the Company or any Restricted Subsidiary,
(B) is recourse to or obligates the Company or any Restricted Subsidiary in any way, or
25
(C ) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof,
(4) with respect to which neither the Company nor any Restricted Subsidiary (other than an Unrestricted Subsidiary) has any obligation to maintain or preserve its financial condition or cause it to achieve certain levels of operating results,
other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and indemnities entered into in connection with a Permitted Receivables Financing.
“ Senior Financial Officer ” means the chief financial officer, senior vice president-finance, principal accounting officer, treasurer or comptroller of the Company.
“ Senior Indebtedness ” means any Indebtedness of the Company other than Indebtedness that is in any manner subordinated in right of payment or security in any respect to Indebtedness evidenced by the Notes.
“ Significant Subsidiary ” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date of the Indenture.
“ Similar Business ” means any business conducted or proposed to be conducted by the Company and its Restricted Subsidiaries on the date of the Indenture and any business engaged in (1) the business of providing online financial services, (2) the business of originating, arranging, purchasing and collecting consumer and small business loans, and (3) any other activities similar, reasonably related, incidental, complementary or ancillary thereto, or a reasonable extension or expansion thereof.
“ Spin-Off ” means the spin-off transaction pursuant to which at least 80% of the common stock of the Company was distributed to the shareholders of Cash America International, Inc. in 2014.
“ Stated Maturity ” when used with respect to any security or any installment of interest thereon, means the date specified in such security as the fixed date on which the principal of such security or such installment of interest is due and payable.
“ Subordinated Indebtedness ” means any Indebtedness of the Company or any Subsidiary which is subordinated in right of payment to the Notes or the Note Guarantee, as applicable, pursuant to a written agreement to that effect.
“ Subsidiary ” means, with respect to any Person, (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person (or a combination thereof) and (2) any partnership (A) the sole general partner or the managing
26
general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
“ Temporary Offshore Global Note ” means an Offshore Global Note that bears the Temporary Offshore Global Note Legend.
“ Temporary Offshore Global Note Legend ” means the legend set forth in Exhibit H.
“ Treasury Rate ” means, at any redemption date, the yield to maturity as of such redemption date of constant maturity United States Treasury securities (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to such redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to September 15, 2021; provided, however, that if no published maturity exactly corresponds with such date, then the Treasury Rate shall be interpolated or extrapolated on a straight-line basis from the arithmetic mean of the yields for the next shortest and next longest published maturities; provided further, however , that if the period from such redemption date to September 15, 2021, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
“ Trustee ” means the party named as such in the first paragraph of the Indenture or any successor trustee under the Indenture pursuant to Article 7.
“ Trust Indenture Act ” means the Trust Indenture Act of 1939.
“ Trust Officer ” means, with respect to the Trustee, any officer of the trustee assigned to the Corporate Trust Department (or any successor division or unit) of the Trustee located at the Corporate Trust Office of the Trustee, who shall have direct responsibility for the administration of this Indenture, and shall also include any other officer of the Trustee to whom any corporate trust matter is referred because of such officer's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
“ UCC ” means the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction.
“ Unrestricted Subsidiary ” means any Subsidiary of the Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by Section 4.11, is not party to any agreement, contract, arrangement or understanding with the Company or any of the Restricted
27
Subsidiaries of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries.
“ U.S. Global Note ” means a Global Note that bears the Restricted Legend representing Notes issued and sold pursuant to Rule 144A.
“ U.S. Government Obligation ” means:
(1) any security which is: a direct obligation of the United States of America the payment of which the full faith and credit of the United States of America is pledged or an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally Guaranteed as a full faith and credit obligation of the United States of America, which, in either case, is not callable or redeemable at the option of the issuer thereof; and
(2) any depository receipt issued by a bank (as defined in the Securities Act) as custodian with respect to any U.S. Government Obligation and held by such bank for the account of the Holder of such depository receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the Holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depository receipt.
“ Voting Stock ” means, with respect to any specified Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of members of the Board of Directors of such Person.
“ Weighted Average Life to Maturity ” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by
28
(2 ) the then outstanding principal amount of such Indebtedness.
“ Wholly-Owned Subsidiary ” of any Person means a Subsidiary of such Person all of the outstanding Capital Stock of which (other than directors’ qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Subsidiaries of such Person (or any combination thereof).
Section 1.02. Rules of Construction . Unless the context otherwise requires or except as otherwise expressly provided,
(1) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(2) “herein,” “hereof” and other words of similar import refer to the Indenture as a whole and not to any particular Section, Article or other subdivision;
(3) all references to Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of or to the Indenture unless otherwise indicated;
(4) references to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations); and
(5) in the event that a transaction meets the criteria of more than one category of permitted transactions or listed exceptions the Company may classify such transaction as it, in its sole discretion, determines.
Section 2.01. Form, Dating and Denominations 144A, Reg S; Legends . (a) The Notes and the Trustee’s certificate of authentication will be substantially in the form attached as Exhibit A. The terms and provisions contained in the form of the Notes annexed as Exhibit A constitute, and are hereby expressly made, a part of the Indenture. The Notes may have notations, legends or endorsements required by law, rules of or agreements with national securities exchanges to which the Company is subject, or usage. Each Note will be dated the date of its authentication. The Notes will be issuable in denominations of $2,000 in principal amount and any multiple of $1,000 in excess thereof.
(b) (1) Except as otherwise provided in paragraph (c) , Section 2.10(b)(3), (b)(5), or (c) or Section 2.09(b)(4), each Initial Note or Initial Additional Note (other than a Permanent Offshore Note) will bear the Restricted Legend.
(2) Each Global Note, whether or not an Initial Note or Additional Note, will bear the DTC Legend.
29
(3 ) Each Temporary Offshore Global Note will bear the Temporary Offshore Global Note Legend.
(4) Initial Notes and Initial Additional Notes offered and sold in reliance on Regulation S will be issued as provided in Section 2.11(a).
(5) Initial Notes and Initial Additional Notes offered and sold in reliance on any exemption under the Securities Act other than Regulation S and Rule 144A will be issued, and upon the request of the Company to the Trustee, Initial Notes offered and sold in reliance on Rule 144A may be issued, in the form of Certificated Notes.
(6) Initial Notes resold to Institutional Accredited Investors will be in the form of an IAI Global Note.
(c) If the Company determines (upon the advice of counsel and such other certifications and evidence as the Company may reasonably require) that a Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need for current public information and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the Note (or a beneficial interest therein) are effected in compliance with the Securities Act, the Company may instruct the Trustee to cancel the Note and issue, in accordance with Section 2.02 hereof, to the Holder thereof (or to its transferee) a new Note of like tenor and amount, registered in the name of the Holder thereof (or its transferee), that does not bear the Restricted Legend, and the Trustee will comply with such instruction.
(d) By its acceptance of any Note bearing the Restricted Legend (or any beneficial interest in such a Note), each Holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Note (and any such beneficial interest) set forth in this Indenture and in the Restricted Legend and agrees that it will transfer such Note (and any such beneficial interest) only in accordance with the Indenture and such legend.
Section 2.02. Execution and Authentication; Additional Notes . (a) A Responsible Officer shall execute the Notes for the Company by facsimile or manual signature in the name and on behalf of the Company. If a Responsible Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note will still be valid.
(b) A Note will not be valid until the Trustee manually signs the certificate of authentication on the Note, with the signature conclusive evidence that the Note has been authenticated under the Indenture.
(c) At any time and from time to time after the execution and delivery of the Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication. The Trustee will authenticate and deliver
30
(i ) Initial Notes for original issue in the aggregate principal amount not to exceed $375,000,000, and
(ii) Initial Additional Notes from time to time for original issue in aggregate principal amounts specified by the Company
after the following conditions have been met:
(1) A Company Order has been delivered to the Trustee instructing the Trustee to authenticate the relevant Notes
(2) Receipt by the Trustee of an Officers’ Certificate specifying
(A) the amount of Notes to be authenticated and the date on which the Notes are to be authenticated,
(B) whether the Notes are to be Initial Notes or Additional Notes,
(C) in the case of Initial Additional Notes, that the issuance of such Notes does not contravene any provision of Article 4,
(D) whether the Notes are to be issued as one or more Global Notes or Certificated Notes, and
(E) other information the Company may determine to include or the Trustee may reasonably request.
(3) In the case of Initial Additional Notes, receipt by the Trustee of an Opinion of Counsel confirming that the Holders of the outstanding Notes will be subject to federal income tax in the same amounts, in the same manner and at the same times as would have been the case if such Additional Notes were not issued.
Section 2.03. Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust . (a) The Company may appoint one or more Registrars and one or more Paying Agents, and the Trustee may appoint an Authenticating Agent, in which case each reference in the Indenture to the Trustee in respect of the obligations of the Trustee to be performed by that Agent will be deemed to be references to the Agent. The Company may act as Registrar or (except for purposes of Article 8) Paying Agent. In each case the Company and the Trustee will enter into an appropriate agreement with the Agent implementing the provisions of the Indenture relating to the obligations of the Trustee to be performed by the Agent and the related rights. The Company initially appoints the Trustee as Registrar and Paying Agent.
(b) The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of and interest on the Notes and will promptly notify the Trustee of any default by the Company
31
in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require the Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent will have no further liability for the money so paid over to the Trustee.
Section 2.04. Replacement Notes . If a mutilated Note is surrendered to the Trustee or if a Holder claims that its Note has been lost, destroyed or wrongfully taken, the Company will issue and the Trustee will authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. Every replacement Note is an additional obligation of the Company and entitled to the benefits of the Indenture. If required by the Trustee or the Company, an indemnity must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company and the Trustee from any loss they may suffer if a Note is replaced. The Company and the Trustee may charge the Holder for the expenses of the Company and the Trustee in replacing a Note. In case the mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay the Note instead of issuing a replacement Note.
Section 2.05. Outstanding Notes . (a) Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for
(1) Notes cancelled by the Trustee or delivered to it for cancellation;
(2) any Note which has been replaced pursuant to Section 2.04 unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected purchaser; and
(3) on or after the maturity date or any redemption date or date for purchase of the Notes pursuant to an Offer to Purchase, those Notes payable or to be redeemed or purchased on that date for which the Trustee (or Paying Agent, other than the Company or an Affiliate of the Company) holds money sufficient to pay all amounts then due.
(b) A Note does not cease to be outstanding because the Company or one of its Affiliates holds the Note, provided that in determining whether the Holders of the requisite principal amount of the outstanding Notes have given or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder, Notes owned by the Company or any Affiliate of the Company will be disregarded and deemed not to be outstanding (it being understood that in determining whether the Trustee is protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Notes which the Trustee knows to be so owned will be so disregarded). Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not the Company or any Affiliate of the Company.
32
Section 2.06. Temporary Notes . Until definitive Notes are ready for delivery, the Company may prepare and the Trustee will authenticate temporary Notes. Temporary Notes will be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Responsible Officer executing the temporary Notes, as evidenced by the execution of the temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes will be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for the purpose pursuant to Section 4.02 , without charge to the Holder. Upon surrender for cancellation of any temporary Notes the Company will execute and the Trustee will authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes will be entitled to the same benefits under the Indenture as definitive Notes.
Section 2.07. Cancellation . The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold, in each case along with a Company Order instructing the Trustee to cancel such Notes delivered to it. Any Registrar or the Paying Agent will forward to the Trustee any Notes surrendered to it for transfer, exchange or payment. The Trustee will cancel all Notes surrendered for transfer, exchange, payment or cancellation and dispose of them in accordance with its normal procedures or the written instructions of the Company. The Company may not issue new Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation.
Section 2.08. CUSIP and CINS Numbers . The Company in issuing the Notes may use “CUSIP” and “CINS” numbers, and the Trustee will use CUSIP numbers or CINS numbers in notices of redemption or exchange or in Offers to Purchase as a convenience to Holders, the notice to state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange or Offer to Purchase. The Company will promptly notify the Trustee of any change in the CUSIP or CINS numbers.
Section 2.09. Registration, Transfer and Exchange. (a) The Notes will be issued in registered form only, without coupons, and the Company shall cause the Trustee to maintain a register (the “ Register ”) of the Notes, for registering the record ownership of the Notes by the Holders and transfers and exchanges of the Notes.
(b) (1) Each Global Note will be registered in the name of the Depositary or its nominee and, so long as DTC is serving as the Depositary thereof, will bear the DTC Legend.
(2) Each Global Note will be delivered to the Trustee as custodian for the Depositary. Transfers of a Global Note (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the Depositary, its
33
successors or their respective nominees, except (1) as set forth in Section 2.09(b)(4) and (2) transfers of portions thereof in the form of Certificated Notes may be made upon request of an Agent Member (for itself or on behalf of a beneficial owner) by written notice given to the Trustee by or on behalf of the Depositary in accordance with customary procedures of the Depositary and in compliance with this Section and Section 2.10 .
(3) Agent Members will have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, the Depositary or its nominee may grant proxies and otherwise authorize any Person (including any Agent Member and any Person that holds a beneficial interest in a Global Note through an Agent Member) to take any action which a Holder is entitled to take under the Indenture or the Notes, and nothing herein will impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security.
(4) If (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for a Global Note and a successor depositary is not appointed by the Company within 90 days of the notice or (y) an Event of Default has occurred and is continuing and the Trustee has received a request from the Depositary, the Trustee will promptly exchange each beneficial interest in the Global Note for one or more Certificated Notes in authorized denominations having an equal aggregate principal amount registered in the name of the owner of such beneficial interest, as identified to the Trustee by the Depositary, and thereupon the Global Note will be deemed canceled. If such Note does not bear the Restricted Legend, then the Certificated Notes issued in exchange therefor will not bear the Restricted Legend. If such Note bears the Restricted Legend, then the Certificated Notes issued in exchange therefor will bear the Restricted Legend, provided that any Holder of any such Certificated Note issued in exchange for a beneficial interest in a Temporary Offshore Global Note will have the right upon presentation to the Trustee of a duly completed Certificate of Beneficial Ownership after the Restricted Period to exchange such Certificated Note for a Certificated Note of like tenor and amount that does not bear the Restricted Legend, registered in the name of such Holder.
(c) Each Certificated Note will be registered in the name of the holder thereof or its nominee.
(d) A Holder may transfer a Note (or a beneficial interest therein) to another Person or exchange a Note (or a beneficial interest therein) for another Note or Notes of any authorized denomination by presenting to the Trustee a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by Section 2.10. The Trustee will promptly register any transfer or exchange that meets the requirements of this
34
Section by noting the same in the register maintained by the Trustee for the purpose; provided that
(x) no transfer or exchange will be effective until it is registered in such register and
(y) the Trustee will not be required (i) to issue, register the transfer of or exchange any Note for a period of 15 days before a selection of Notes to be redeemed or purchased pursuant to an Offer to Purchase (ii) to register the transfer of or exchange any Note so selected for redemption or purchase in whole or in part, except, in the case of a partial redemption or purchase, that portion of any Note not being redeemed or purchased, or (iii) if a redemption or a purchase pursuant to an Offer to Purchase is to occur after a Regular Record Date but on or before the corresponding Interest Payment Date, to register the transfer of or exchange any Note on or after the Regular Record Date and before the date of redemption or purchase. Prior to the registration of any transfer, the Company, the Trustee and their agents will treat the Person in whose name the Note is registered as the owner and Holder thereof for all purposes (whether or not the Note is overdue), and will not be affected by notice to the contrary.
From time to time the Company will execute and the Trustee will authenticate additional Notes as necessary in order to permit the registration of a transfer or exchange in accordance with this Section.
No service charge will be imposed in connection with any transfer or exchange of any Note, but the Company and the Trustee may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than a transfer tax or other similar governmental charge payable upon exchange pursuant to subsection (b)(4)).
(e) (1) Global Note to Global Note . If a beneficial interest in a Global Note is transferred or exchanged for a beneficial interest in another Global Note, the Trustee will (x) record a decrease in the principal amount of the Global Note being transferred or exchanged equal to the principal amount of such transfer or exchange and (y) record a like increase in the principal amount of the other Global Note. Any beneficial interest in one Global Note that is transferred to a Person who takes delivery in the form of an interest in another Global Note, or exchanged for an interest in another Global Note, will, upon transfer or exchange, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest.
(2) Global Note to Certificated Note . If a beneficial interest in a Global Note is transferred or exchanged for a Certificated Note, the Trustee will (x) record a decrease in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (y) deliver one or more new
35
Certificated Notes in authorized denominations having an equal aggregate principal amount to the transferee (in the case of a transfer) or the owner of such beneficial interest (in the case of an exchange), registered in the name of such transferee or owner, as applicable.
(3) Certificated Note to Global Note . If a Certificated Note is transferred or exchanged for a beneficial interest in a Global Note, the Trustee will (x) cancel such Certificated Note, (y) record an increase in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (z) in the event that such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
(4) Certificated Note to Certificated Note . If a Certificated Note is transferred or exchanged for another Certificated Note, the Trustee will (x) cancel the Certificated Note being transferred or exchanged, (y) deliver one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the Holder of the canceled Certificated Note (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (z) if such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
Section 2.10. Restrictions on Transfer and Exchange . (a) The transfer or exchange of any Note (or a beneficial interest therein) may only be made in accordance with this Section and Section 2.09 and, in the case of a Global Note (or a beneficial interest therein), the applicable rules and procedures of the Depositary. The Trustee shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence.
(b) Subject to paragraph (c) , the transfer or exchange of any Note (or a beneficial interest therein) of the type set forth in column A below for a Note (or a beneficial interest therein) of the type set forth opposite in column B below may only be made in compliance with the certification requirements (if any) described in the clause of this paragraph set forth opposite in column C below.
A |
B |
C |
U.S. Global Note |
U.S. Global Note |
(1) |
U.S. Global Note |
Offshore Global Note |
(2) |
U.S. Global Note |
Certificated Note |
(3) |
Offshore Global Note |
U.S. Global Note |
(4) |
Offshore Global Note |
Offshore Global Note |
(1) |
36
A |
B |
C |
Certificated Note |
(5) |
|
Certificated Note |
U.S. Global Note |
(3) |
Certificated Note |
Offshore Global Note |
(2) |
Certificated Note |
Certificated Note |
(3) |
(1) No certification is required.
(2) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Regulation S Certificate; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required.
(3) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee (x) a duly completed Rule 144A Certificate, (y) a duly completed Regulation S Certificate or (z) a duly completed Institutional Accredited Investor Certificate, and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities law of any state of the United States; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required. In the event that (i) the requested transfer or exchange takes place after the Restricted Period and a duly completed Regulation S Certificate is delivered to the Trustee or (ii) a Certificated Note that does not bear the Restricted Legend is surrendered for transfer or exchange, upon transfer or exchange the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
(4) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Rule 144A Certificate.
(5) Notwithstanding anything to the contrary contained herein, no such exchange is permitted if the requested exchange involves a beneficial interest in a Temporary Offshore Global Note. If the requested transfer involves a beneficial interest in a Temporary Offshore Global Note, the Person requesting the transfer must deliver or cause to be delivered to the Trustee (x) a duly completed Rule 144A Certificate or (y) a duly completed Institutional Accredited Investor Certificate and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States. If the requested transfer or exchange involves a beneficial interest in a Permanent Offshore Global Note, no certification is required and the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
37
(c ) No certification is required in connection with any transfer or exchange of any Note (or a beneficial interest therein) after such Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need for current public information; provided that the Company has provided the Trustee with an Officers’ Certificate to that effect, and the Company may require from any Person requesting a transfer or exchange in reliance upon this clause (c) an opinion of counsel and any other reasonable certifications and evidence in order to support such certificate.
Any Certificated Note delivered in reliance upon this paragraph will not bear the Restricted Legend.
(d) The Trustee will retain copies of all certificates, opinions and other documents received in connection with the transfer or exchange of a Note (or a beneficial interest therein), and the Company will have the right to inspect and make copies thereof at any reasonable time upon written notice to the Trustee.
Section 2.11. Reg. S Temporary Offshore Global Notes . (a) Each Note originally sold by the Initial Purchasers in reliance upon Regulation S will be evidenced by one or more Offshore Global Notes that bear the Temporary Offshore Global Note Legend.
(b) An owner of a beneficial interest in a Temporary Offshore Global Note (or a Person acting on behalf of such an owner) may provide to the Trustee (and the Trustee will accept) a duly completed Certificate of Beneficial Ownership at any time after the Restricted Period (it being understood that the Trustee will not accept any such certificate during the Restricted Period). Promptly after acceptance of a Certificate of Beneficial Ownership with respect to such a beneficial interest, such beneficial interest shall be exchanged for an equivalent beneficial interest in a Permanent Offshore Global Note in accordance with the policies and procedures of the Depositary, and the Trustee will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(c) Notwithstanding paragraph (b) , if after the Restricted Period any Initial Purchaser owns a beneficial interest in a Temporary Offshore Global Note, such Initial Purchaser may, upon written request to the Trustee accompanied by a certification as to its status as an Initial Purchaser, exchange such beneficial interest for an equivalent beneficial interest in a Permanent Offshore Global Note in accordance with the policies and procedures of the Depositary, and the Trustee will comply with such request and will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(d) Notwithstanding anything to the contrary contained herein, any owner of a beneficial interest in a Temporary Offshore Global Note shall not be entitled to receive payment of principal or interest on such beneficial interest or other amounts in respect of such beneficial interest until such beneficial interest is exchanged for an interest in a
38
Permanent Offshore Global Note or transferred for an interest in another Global Note or a Certificated Note.
Article 3
Optional Redemption; Offer to Purchase
Section 3.01. Optional Redemption on or after September 15, 2021 . On or after September 15, 2021, the Company may redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days’ prior written notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date), if redeemed during the twelve-month period beginning on September 15 of each of the years set forth below.
Year |
Percentage |
2021 |
104.250% |
2022 |
102.125% |
2023 and thereafter |
100.000% |
Section 3.02. Optional Redemption with Proceeds of Certain Equity Offerings . Prior to September 15, 2021, the Company may redeem up to 40% of the aggregate principal amount of the Notes (including Additional Notes) originally issued under the Indenture at a redemption price of 108.500% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date) if:
(1) such redemption is made with the proceeds of one or more Equity Offerings;
(2) at least 60% of the aggregate principal amount of the Notes (including Additional Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company or any of its Subsidiaries); and
(3) the redemption occurs within 90 days of such Equity Offering.
Section 3.03. Optional Redemption at Make-Whole Price. Prior to September 15, 2021, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium, and accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date). Notice of such redemption must be sent, not less than 30 nor more than 60 days prior to the redemption date.
39
Section 3.04. Method and Effect of Redemption . (a) The Company will send notice of any redemption at least 30 days but not more than 60 days before the redemption date to each registered Holder of the Notes to be redeemed at its registered address and no less than five (5) Business Days prior to giving such notice to Holders the Company shall deliver to the Trustee an Officers’ Certificate (that conforms to Section 11.04 and Section 11.05 hereof) that notifies the Trustee of such redemption (which five Business Day period the trustee may waive in its sole discretion). Once notice of redemption is sent, the Notes called for redemption will become due and payable on the redemption date at the applicable redemption price, plus accrued and unpaid interest applicable to such Notes to, but excluding, the redemption date.
(b) The notice of redemption will identify the Notes to be redeemed and will include or state the following:
(1) the redemption date;
(2) the redemption price, including the portion thereof representing any accrued interest;
(3) the place or places where Notes are to be surrendered for redemption;
(4) Notes called for redemption must be so surrendered in order to collect the redemption price;
(5) on the redemption date the redemption price will become due and payable on Notes called for redemption, and interest on Notes called for redemption will cease to accrue on and after the redemption date;
(6) if any Note is redeemed in part, the notice of redemption that relates to such Note shall state the portion of the principal amount of that Note to be redeemed, and on and after the redemption date, upon surrender and cancellation of such Note, new Notes equal in principal amount to the unredeemed portion will be issued; and
(7) if any Note contains a CUSIP or CINS number, no representation is being made as to the correctness of the CUSIP or CINS number either as printed on the Notes or as contained in the notice of redemption and that the Holder should rely only on the other identification numbers printed on the Notes.
(c) Notice of any redemption in connection with any Equity Offering or other securities offering or financing, or in connection with a transaction (or series of related transactions) that constitute a Change of Control, may, at the Company’s discretion, be given prior to the completion thereof and be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering, securities offering, financing or Change of Control. In addition, if such redemption or notice is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Company’s discretion, the redemption date may be delayed until such time as any or
40
all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date so delayed. In addition, the Company may provide in such notice that payment of the redemption price and performance of the Company’s obligations with respect to such redemption may be performed by another Person.
(d) On and after the redemption date, interest will cease to accrue on the Notes or any portion of the Notes called for redemption (unless the Company defaults in the payment of the redemption price and accrued and unpaid interest). On or before the redemption date, the Company will deposit with a Paying Agent (or the Trustee) money sufficient to pay the redemption price of and accrued and unpaid interest on the Notes to be redeemed on that date. If fewer than all of the Notes are to be redeemed, the Notes to be redeemed shall be selected in accordance with DTC’s applicable procedures, in the case of Global Notes, or by the Trustee on a pro rata basis, by lot or by such method the Trustee deems to be fair and appropriate, in the case of Notes that are not Global Notes. Upon surrender of any Note redeemed in part, the Holder will receive a new Note equal in principal amount to the unredeemed portion of the surrendered Note.
Section 3.05. Offer to Purchase . (a) An “ Offer to Purchase ” means an offer by the Company to purchase Notes as required by the Indenture. An Offer to Purchase must be made by written offer (the “ offer ”) sent to the Holders. The Company will notify the Trustee at least 15 days (or such shorter period as is acceptable to the Trustee) prior to sending the offer to Holders of its obligation to make an Offer to Purchase, and the offer will be sent by the Company with a copy to the Trustee or, at the Company’s request, by the Trustee in the name and at the expense of the Company.
(b) The offer must include or state the following as to the terms of the Offer to Purchase:
(1) the provision of the Indenture pursuant to which the Offer to Purchase is being made;
(2) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Indenture) (the “ purchase amount ”);
(3) the purchase price, including the portion thereof representing accrued interest;
(4) an expiration date (the “ expiration date ”) not less than 30 days or more than 60 days after the date of the offer, and a settlement date for purchase (the “ purchase date ”) not more than five Business Days after the expiration date;
(5) information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable the Holders to
41
make an informed decision with respect to the Offer to Purchase, at a minimum to include
(A) the most recent annual and quarterly financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the Company,
(B) a description of material developments in the Company’s business subsequent to the date of the latest of the financial statements (including a description of the events requiring the Company to make the Offer to Purchase), and
(C) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase;
(6) a Holder may tender all or any portion of its Notes, subject to the requirement that any portion of a Note tendered must be in a multiple of $1,000 principal amount;
(7) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase;
(8) each Holder electing to tender a Note pursuant to the offer will be required to surrender such Note at the place or places specified in the offer prior to the close of business on the expiration date (such Note being, if the Company or the Trustee so requires, duly endorsed or accompanied by a duly executed written instrument of transfer);
(9) interest on any Note not tendered, or tendered but not purchased by the Company pursuant to the Offer to Purchase, will continue to accrue;
(10) on the purchase date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the purchase date;
(11) Holders are entitled to withdraw Notes tendered by giving notice, which must be received by the Company or the Trustee not later than the close of business on the expiration date, setting forth the name of the Holder, the principal amount of the tendered Notes, the certificate number of the tendered Notes and a statement that the Holder is withdrawing all or a portion of the tender;
(12 ) (i) if Notes in an aggregate principal amount less than or equal to the purchase amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company will purchase all such Notes, and (ii) if the Offer to Purchase is for less than all of the outstanding Notes and Notes in an aggregate principal amount in excess of the purchase amount are tendered and not withdrawn pursuant to the offer, the Company will purchase Notes having an
42
aggregate principal amount equal to the purchase amount on a pro rata basis, with adjustments so that only Notes of $2,000 and in integral multiples of $1,000 in excess thereof will be purchased;
(13) if any Note is purchased in part, new Notes equal in principal amount to the unpurchased portion of the Note will be issued; and
(14) if any Note contains a CUSIP or CINS number, no representation is being made as to the correctness of the CUSIP or CINS number either as printed on the Notes or as contained in the offer and that the Holder should rely only on the other identification numbers printed on the Notes.
(c) Prior to the purchase date, the Company will accept tendered Notes for purchase as required by the Offer to Purchase and deliver to the Trustee all Notes so accepted together with an Officers’ Certificate specifying which Notes have been accepted for purchase. On the purchase date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the purchase date. The Trustee will promptly return to Holders any Notes not accepted for purchase and send to Holders new Notes equal in principal amount to any unpurchased portion of any Notes accepted for purchase in part.
(d) The Company will comply with Section 14(e) of, and Rule 14e-1 under, the Exchange Act and all other applicable laws in making any Offer to Purchase, and the above procedures will be deemed modified as necessary to permit such compliance.
Section 4.01. Payment of Notes . (a) The Company agrees to pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and the Indenture. Not later than 9:00 A.M. (New York City time) on the due date of any principal of or interest on any Notes, or any redemption or purchase price of the Notes, the Company will deposit with the Trustee (or Paying Agent) money in immediately available funds sufficient to pay such amounts, provided that if the Company or any Affiliate of the Company is acting as Paying Agent, it will, on or before each due date, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such amounts until paid to such Holders or otherwise disposed of as provided in the Indenture. In each case the Company will promptly notify the Trustee of its compliance with this Section 4.01(a).
(b) An installment of principal or interest will be considered paid on the date due if the Trustee (or Paying Agent, other than the Company or any Affiliate of the Company) holds on that date money designated for and sufficient to pay the installment. If the Company or any Affiliate of the Company acts as Paying Agent, an installment of principal or interest will be considered paid on the due date only if paid to the Holders.
43
(c) The Company agrees to pay interest on overdue principal, and, to the extent lawful, overdue installments of interest at the rate per annum specified in the Notes.
(d) Payments in respect of the Notes represented by the Global Notes are to be made by wire transfer of immediately available funds to the accounts specified by the Holders of the Global Notes. With respect to Certificated Notes, the Company will make all payments by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each Holder’s registered address.
Section 4.02. Maintenance of Office or Agency . The Company shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustees of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustees with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate additional offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company shall give prompt written notice to each of the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.
Section 4.03. Existence . Subject to Article 5, the Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Article 5, the Company will at all times preserve and keep in full force and effect the corporate existence of each of the Guarantors (unless merged into the Company or Guarantor) and all rights and franchises of the Company and the Guarantors unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.
Section 4.04. Payment of Taxes and other Claims . The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax, assessment, charge, levy or claim if
44
(i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.
Section 4.05. Maintenance of Properties and Insurance . (a) The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section 4.05 shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) The Company will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.
Section 4.06. Restricted Payments . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend on, except as described below, or make any other payment or distribution in respect of, its Equity Interests (including any dividend or distribution payable in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or similar payment to the direct or indirect Holders thereof in their capacity as such (other than any dividends or distributions payable solely in its Equity Interests (other than Disqualified Stock) and dividends or distributions payable to the Company or any of its Restricted Subsidiaries (and, if such Restricted Subsidiary has stockholders, members or partners other than the Company or other Restricted Subsidiaries, to its other stockholders, members or partners on no more than a pro rata basis));
(ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company held by any Person or any Equity Interests of any of its Restricted Subsidiaries held by any Affiliate of the Company (in each case other than held by the Company or a Restricted Subsidiary), including in connection with any merger or consolidation and including the exercise of any option to exchange any Equity Interests (other than into Equity Interests of the Company that are not Disqualified Stock);
45
(iii ) make any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, more than 30 days prior to the scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Indebtedness that is contractually subordinated in right of payment to the Notes or any Note Guarantee (other than the purchase, repurchase or other acquisition of such Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition); or
(iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iii) above and this clause (iv) being collectively referred to as “ Restricted Payments ”);
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.07(a); and
(3) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2) through (10) and (12) of Section 4.06(b)), is, at the time of determination, less than the sum of:
(A) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) beginning on June 1, 2017 to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus
(B) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale of its Equity Interests subsequent to the date of the Indenture (other than an issuance or sale to a Subsidiary of the Company and other than Excluded Contributions) and 100% of any cash capital contribution received by the Company from its shareholders subsequent to the date of the Indenture, plus
(C) the amount by which the principal amount of any Indebtedness of the Company or a Restricted Subsidiary is reduced upon the conversion or exchange (other than by a Restricted Subsidiary) subsequent to the date of the Indenture of any Indebtedness of the Company or a Restricted
46
Subsidiary convertible or exchangeable for Equity Interests (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or a Restricted Subsidiary upon such conversion or exchange); provided , however , that the foregoing amount shall not exceed the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the sale of such Indebtedness (excluding net cash proceeds from sales to a Restricted Subsidiary); plus
(D) the amount equal to the sum of (x) the net reduction in the Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting from repurchases, repayments or redemptions of such Investments by such Person, proceeds realized on the sale or other disposition of such Investment and proceeds representing the return of capital (excluding dividends and distributions to the extent included in Consolidated Net Income), in each case realized by the Company or any of its Restricted Subsidiaries, and (y) in the event that any Unrestricted Subsidiary is re-designated as a Restricted Subsidiary, the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided , however , that the foregoing sum will not exceed, in the case of any such Person, the amount of Restricted Investments previously made (and treated as a Restricted Payment) by the Company or any of its Restricted Subsidiaries in such Person or Unrestricted Subsidiary; plus
(E) 100% of any dividends or distributions received by the Company or any of its Restricted Subsidiaries subsequent to the date of the Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Company for such period.
(b) The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture;
(2) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, any Restricted Payment made in exchange for, or with the net cash proceeds from, the substantially concurrent sale of Equity Interests of the Company (other than any Disqualified Stock and other than Equity Interests issued or sold to a Subsidiary of the Company) or a substantially concurrent cash capital contribution received by the Company from its shareholders; provided that the net cash proceeds from such sale or such cash capital contribution (to the extent so used for such Restricted Payment) shall be excluded from clause (3)(B) of the preceding paragraph;
47
(3 ) the defeasance, redemption, repurchase, retirement or other acquisition of Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to any Note Guarantee in exchange for, or with the net cash proceeds from, an Incurrence of Permitted Refinancing Debt;
(4) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement or other acquisition for value of any Equity Interests of the Company or any of its Restricted Subsidiaries of the Company held by employees, former employees, managers, former managers, consultants or former consultants of the Company (or any of its Subsidiaries); provided that the aggregate amount of such repurchases and other acquisitions (excluding amounts representing cancellation of Indebtedness) shall not exceed $5.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following parenthetical) of $10.0 million in any calendar year) (in each case plus the amount of net cash and proceeds received by the Company and its Restricted Subsidiaries (x) in respect of “key-man” life insurance and (y) from the issuance of Equity Interests by the Company to members of management of the Company and its Subsidiaries, to the extent that those amounts did not provide the basis for any previous Restricted Payment);
(5) payments of dividends on Disqualified Stock issued pursuant to Section 4.07;
(6) repurchases of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options;
(7) cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of the Company; provided , however , that any such cash payment shall not be for the purpose of evading the limitation of this Section 4.06 (as determined in good faith by the Board of Directors);
(8) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, payments of intercompany subordinated Indebtedness, the Incurrence of which was permitted under Section 4.07(b)(4);
(9) the repurchase, redemption or other acquisition or retirement for value of any Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to any Note Guarantee pursuant to provisions similar to those in Section 4.15; provided that all Notes tendered by Holders in connection with a Change of Control Offer have first been repurchased, redeemed or acquired for value;
(10) [Reserved];
48
(11 ) Restricted Payments in an amount equal to the unused amount of Excluded Contributions received since the date of the Indenture;
(12) distributions or payments of Receivables Fees; and
(13) Restricted Payments in an amount which, when taken together with all Restricted Payments previously made pursuant to this clause (13) and then outstanding, does not exceed $50.0 million.
The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the assets proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 4.07. Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Debt) and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided , however , that the Company and any Restricted Subsidiary may Incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock, and any Restricted Subsidiary may issue Preferred Stock, if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or such Preferred Stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net cash proceeds therefrom, including the effect of acquisitions or repayments or redemptions of Indebtedness to be funded by such proceeds), as if the additional Indebtedness had been Incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.
(b) Section 4.07(a) will not prohibit the Incurrence of any of the following items of Indebtedness (collectively, “ Permitted Debt ”):
(1) the Incurrence by the Company and the Guarantors of Indebtedness represented by the Notes (other than Additional Notes) and the related Note Guarantees;
(2) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (including Capital Lease Obligations, mortgage financings or purchase money obligations) Incurred for the purpose of financing (or refinancing) all or any part of the purchase price or cost of construction or improvement of property (real or personal), plant or equipment used in the business of the Company or such Restricted Subsidiary in an amount that, added to all other Indebtedness Incurred pursuant to this clause (2) and then outstanding, will not exceed the sum of (A) the greater of (x) $15.0 million and (y) 2.0% of Consolidated Total Assets, plus (B) the amount of any fees and expenses incurred in connection with any refinancing;
49
(3 ) the Incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net cash proceeds of which are used to extend, refinance, renew, replace, defease or refund Indebtedness that was Incurred pursuant to paragraph (a) or pursuant to clause (1), (7) or this clause (3) in this Section 4.07 (b);
(4) the Incurrence of (a) intercompany Indebtedness of the Company, a Guarantor or any other Restricted Subsidiary for so long as such Indebtedness is held by the Company or a Guarantor; provided that (i) such Indebtedness shall be unsecured and if owing by the Company or any Guarantor, contractually subordinated in all respects (other than with respect to the maturity thereof) to the obligations of the Company under the Notes or such Guarantor under its Note Guarantee, as the case may be, and (ii) if as of any date any Person other than the Company or a Guarantor owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than a Permitted Lien securing Indenture Obligations), such date shall be deemed the incurrence of Indebtedness not permitted under this clause (4) by the issuer of such Indebtedness and (b) intercompany Indebtedness of the Company, any Guarantor or any Foreign Subsidiary for so long as such Indebtedness is held by a Foreign Subsidiary; provided that (i) if such Indebtedness is owing by the Company or any Guarantor, such Indebtedness shall be unsecured and contractually subordinated in all respects (other than with respect to the maturity thereof) to the obligations of the Company under the Notes or such Guarantor under its Note Guarantee, as the case may be, and (ii) if as of any date any Person other than such other Foreign Subsidiary owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than Permitted Liens of the type described in clause (17) of the definition thereof), such date shall be deemed the incurrence of Indebtedness not constituting Indebtedness permitted under this clause (4) by the issuer of such Indebtedness;
(5) Guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness or other obligations of the Company or any of its Restricted Subsidiaries otherwise permitted hereunder so long as the Person giving such Guarantee could have Incurred the Indebtedness or other obligations that are being Guaranteed; provided that if the Indebtedness being guaranteed (x) is subordinated to the Notes or a Note Guarantee, then the Guarantee must be subordinated to the same extent as the Indebtedness being guaranteed or (y) is owed by any of its Restricted Subsidiaries that is not a Guarantor, such Guarantee shall be subordinated to the prior payment in full of the Notes in the case of the Company or the Note Guarantees in the case of a Guarantor;
(6) the Incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding;
50
(7 ) the Incurrence of Existing Indebtedness (other than Indebtedness described in clause (1) or (4) of Section 4.07 (b));
(8) the Incurrence of obligations in respect of letters of credit, bank guarantees, performance, bid and surety bonds and completion guarantees provided by the Company or any of its Restricted Subsidiaries in the ordinary course of business or in connection with leases of real or personal property in the ordinary course of business;
(9) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided , however , that such Indebtedness is extinguished within two business days of its Incurrence;
(10) Indebtedness of Foreign Subsidiaries (and any Permitted Refinancing Debt in respect thereof) that, when added together with any other Indebtedness incurred under this clause (10) and then outstanding, will not exceed the greater of (x) $20.0 million (or its foreign currency equivalent) and (y) 3.0% of Consolidated Total Assets;
(11) Indebtedness of the Company or any of its Restricted Subsidiaries consisting of the financing of insurance premiums in the ordinary course of business;
(12) Indebtedness consisting of promissory notes or similar Indebtedness issued by the Company or any of its Restricted Subsidiaries to current, future or former officers, managers, and employees thereof, or to their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of the Company or a Restricted Subsidiary to the extent described in Section 4.06(b)(4);
(13) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company (in addition to Indebtedness or Disqualified Stock permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) that, when added to all other Indebtedness Incurred pursuant to this clause (13) and then outstanding, will not exceed $30.0 million;
(14) the Incurrence by the Company or any Guarantor (including any Guarantees thereof) of Indebtedness pursuant to Credit Facilities in an aggregate principal amount not to exceed as of any date of Incurrence, the sum of (A) the greater of (x) $75.0 million and (y) 20.0% of Consolidated Total Assets, plus (B) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees and other costs and expenses incurred in connection with such refinancing, less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant to Section 4.16;
51
(15 ) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company in an aggregate principal amount or liquidation preference up to 100% of the net cash proceeds received by the Company since immediately after the date of the Indenture from the issue or sale of Equity Interests of the Company or cash contributed to the capital of the Company (in each case, other than Excluded Contributions, proceeds of Disqualified Stock and sales of Equity Interests to the Company or any Subsidiary of the Company) as determined in accordance with clause (iv)(3) of Section 4.06 (a) to the extent such net cash proceeds have not been applied pursuant to such clauses to make Restricted Payments or to make other Investments, payments or exchanges pursuant to Section 4.06 (b) or to make Permitted Investments (other than Permitted Investments specified in clauses (1) and (3) of the definition thereof);
(16) (x) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company, incurred or issued to finance an acquisition or (y) Acquired Debt; provided that after giving pro forma effect to such acquisition, either (a) the Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of this covenant, or (b) the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries is greater than such Fixed Charge Coverage Ratio immediately prior to such acquisition; and
(17) the Incurrence of Cash Management Obligations.
(c) For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (1) through (17) of Section 4.07(b) or under Section 4.07(a), the Company may, in its sole discretion, divide and classify such item of Indebtedness in any manner that complies with this covenant and will only be required to include the amount and type of such Indebtedness in one of such clauses or pursuant to paragraph (a) of this covenant, and may re-classify any such item of Indebtedness from time to time among such clauses or the first paragraph of this covenant, so long as such item meets the applicable criteria for such category. For avoidance of doubt, Indebtedness may be classified as Incur\red in part pursuant to one of the clauses (1) through (17) of Section 4.07(b), and in part under one or more other clauses or under Section 4.07(a). Indebtedness outstanding on the date of the Indenture under the Credit Agreement, if any, shall be treated at all times as Incurred pursuant to clause (14) of Section 4.07(b).
For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the
52
case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced.
The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.
In the case of any Indebtedness incurred to refinance any Indebtedness, such Indebtedness shall not include the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing.
Notwithstanding anything in this Section 4.07 to the contrary, in the case of any Indebtedness incurred to refinance Indebtedness initially incurred in reliance on 0 measured by reference to a percentage of Consolidated Total Assets at the time of Incurrence, if such refinancing would cause the percentage of Consolidated Total Assets restriction to be exceeded if calculated based on the percentage of Consolidated Total Assets on the date of such refinancing, such percentage of Consolidated Total Assets restriction shall not be deemed to be exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced, plus premiums (including tender premiums), defeasance, costs and fees in connection with such refinancing.
Accrual of interest and dividends, accretion of accreted value, issuance of securities paid-in-kind, amortization of original issue discount, changes to amounts outstanding in respect of Hedging Obligations solely as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder or reclassification of commitments or obligations not treated as Indebtedness due to a change in GAAP shall not be deemed to be an Incurrence of Indebtedness for purposes of this covenant and the covenant described below in Section 4.09.
(d) The Company will not incur, and will not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Note Guarantees on substantially identical terms; provided , however , that no Indebtedness will be deemed to be contractually
53
subordinated in right of payment to any other Indebtedness solely by virtue of being unsecured or by virtue of being secured on junior Lien or priority basis.
Section 4.08. Designation of Restricted and Unrestricted Subsidiaries . (a) The Board of Directors of the Company may designate any of its Restricted Subsidiaries to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under Section 4.06 or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
(b) Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the Company giving effect to such designation and an Officers’ Certificate and an Opinion of Counsel certifying that such designation complied with the preceding conditions and was permitted by Section 4.06. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be Incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be Incurred as of such date under Section 4.07, the Company will be in default of such covenant. The Board of Directors of Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted to be Incurred under the covenant in Section 4.07, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
Section 4.09. Liens . The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, other than Permitted Liens, without effectively providing that the Notes are secured equally and ratably with (or, if the obligation to be secured by the Lien is subordinated in right of payment to the Notes or any Note Guarantee, prior to) the obligations so secured for so long as such obligations are so secured.
Section 4.10. Dividend and Other Payment Restrictions Affecting Subsidiaries . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or
54
become effective any consensual encumbrance or consensual restriction on the ability of any of its Restricted Subsidiaries to:
(1) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries with respect to its Capital Stock or any other interest or participation in, or measured by, its profits;
(2) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(3) make any loans or advances to the Company or any of its Restricted Subsidiaries; or
(4) sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.
(b) However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) any agreements in effect or entered into on the date of the Indenture, including agreements governing Existing Indebtedness as in effect on the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the agreements governing such Indebtedness as in effect on the date of the Indenture;
(3) applicable law and/or any applicable rule, regulation or order;
(4) customary non-assignment provisions in leases, licenses or other agreements entered into in the ordinary course of business;
(5) purchase money obligations that impose restrictions of the nature described in clause (4) of Section 4.10(b) on the property so acquired;
(6) any agreement for the sale or other disposition of all or substantially all of the Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition thereof;
(7) any agreement or other instrument of a Person acquired by the Company or any of its Restricted Subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance
55
or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired;
(8) Liens that limit the right of Company or any of its Subsidiaries to dispose of the asset or assets subject to such Lien;
(9) customary provisions limiting the disposition or distribution of assets or property in partnership, joint venture, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business, which limitation is applicable only to the assets that are the subject of such agreements;
(10) Permitted Refinancing Debt, provided that the restrictions subject to the limitations of this provision and contained in the agreements governing such Permitted Refinancing Debt are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(11) any such encumbrance or restriction with respect to any Foreign Subsidiary pursuant to an agreement governing Indebtedness incurred by such Foreign Subsidiary, (i) if the encumbrances and restrictions subject to the limitations of this provision and contained in any such agreement or instrument taken as a whole are not materially more restrictive than the encumbrances and restrictions contained in the agreements described in clause (1) above (as determined in good faith by the Company), or (ii) if such encumbrance or restriction is not materially more restrictive than is customary in comparable financings (as determined in good faith by the Company) and either (x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Company’s ability to make the principal or interest payments on the Notes or (y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness;
(12) the Credit Agreement as in effect as of the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof and any additional Credit Facilities permitted under the Indenture; provided , however , that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or additional facilities are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the date of the Indenture;
(13) agreements governing other Indebtedness permitted to be incurred under the provisions of Section 4.07 and any amendments, restatements,
56
modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the encumbrances or restrictions therein are not materially more restrictive, taken as a whole, than those contained in the Indenture Documents in the good faith judgment of the Board of Directors of the Company; and
(14) customary restrictions pursuant to the terms of a Permitted Receivables Financing.
Section 4.11. Transactions with Affiliates . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, exchange, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an “ Affiliate Transaction ”), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at the time in an arm’s-length transaction with a person who was not an Affiliate; and
(2) if such Affiliate Transaction or series of related Affiliate Transactions involves an amount in excess of $10.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction has determined in good faith that the criteria set forth in clause (1) are satisfied and has approved the relevant Affiliate Transaction as evidenced by a resolution of the Board of Directors of the Company set forth in an Officers’ Certificate; and
(3) if such Affiliate Transaction or series of related Affiliate Transactions involves an amount in excess of $15.0 million, the Company also obtains an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.
(b) The foregoing provisions will not apply to the following:
(1) any employment agreement or compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary;
(2) transactions exclusively between or among the Company and/or its Restricted Subsidiaries; provided that such transactions are not otherwise prohibited by the Indenture;
(3) any agreement existing on the date of the Indenture, as in effect on the date of the Indenture, or as modified, amended or amended and restated by
57
any modification, amendment or amendment and restatement made in compliance with the applicable provisions of clauses (1), (2) and (3) of Section 4.11 (a), and any agreement entered into in connection with the Spin-Off (including any modification, amendment or amendment and restatement of any such agreement) on terms that are commercially reasonable to the Company;
(4) reasonable compensation of, and indemnity arrangements in favor of, managers of the Company and its Restricted Subsidiaries;
(5) the issuance or sale of any Equity Interests (other than Disqualified Stock) of the Company;
(6) Restricted Payments that are permitted by Section 4.06 and Permitted Investments of the type described in clause (8) of the definition thereof; and
(7) sales of accounts receivable, or participations therein, or any related transaction, in connection with any Permitted Receivables Financing.
Section 4.12. Limitation on Issuances and Sales of Equity Interests in Wholly-Owned Subsidiaries . The Company will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly-Owned Subsidiary of the Company to any Person (other than the Company or a Wholly-Owned Subsidiary of the Company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly-Owned Restricted Subsidiary; and
(2) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.16.
In addition, the Company will not permit any Wholly-Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors’ qualifying shares) to any Person other than to the Company or a Wholly-Owned Subsidiary of the Company.
Section 4.13. Business Activities . The Company will not and will not permit any of its Restricted Subsidiaries to engage in any business other than Similar Businesses.
Section 4.14. Additional Note Guarantees . If (i) the Company or any of its Restricted Subsidiaries shall acquire or create another Domestic Subsidiary (other than a Securitization Subsidiary) after the date of the Indenture or (ii) any Foreign Subsidiary Guarantees (or otherwise becomes liable for) Indebtedness of the Company or a Guarantor, then the Company shall cause such Subsidiary to become a Guarantor and:
58
(1 ) execute a supplemental indenture, in accordance with the terms of the Indenture, pursuant to which such Subsidiary shall unconditionally guarantee, on a senior unsecured basis, all of the Company’s obligations under the Indenture Documents on the terms set forth in the Indenture; and
(2) take such further action and execute and deliver such other documents specified in the Indenture Documents or otherwise reasonably requested by the Trustee to give effect to the foregoing.
Section 4.15. Repurchase of Notes Upon a Change of Control . (a) Upon the occurrence of a Change of Control, unless the Company has mailed a redemption notice with respect to all of the outstanding Notes as described in Section 3.01, Section 3.02 or Section 3.03, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of such Holder’s Notes pursuant to the offer described below at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (the “ Change of Control Payment ”). Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all of the outstanding Notes as described in Section 3.01, Section 3.02 or Section 3.03, the Company will mail a notice to each Holder with a copy to the Trustee (the “ Change of Control Offer ”) stating:
(1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by the Company, consistent with this Section 4.15, that a Holder must follow in order to have its Notes purchased.
(b) The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(c) A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.
59
(d) On a date that is at least 30 but no more than 60 days from the date on which the Company mailed notice of the Change of Control (the “ Change of Control Payment Date ”), the Company will, to the extent lawful:
(i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and
(iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company.
(e) The paying agent will promptly send to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and send (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
(f) If holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in a Change of Control Offer and the Company, or any third party making a Change of Control Offer in lieu of the Company as contemplated by Section 4.15(b), purchases all of the Notes validly tendered and not withdrawn by such holders, the Company or such third party will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer contemplated by this Section 4.15, to redeem all Notes that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to but excluding the date of redemption.
Section 4.16. Asset Sales . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale (except with respect to an Event of Loss) unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of
60
(A) any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet) of the Company or any of its Restricted Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement releasing the Company or such Restricted Subsidiary from further liability;
(B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received in that conversion); and
(C) any Designated Non-cash Consideration received by the Company or such Restricted Subsidiary in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (iii) that is at that time outstanding, not to exceed the greater of $15.0 million and 2.0% of Consolidated Total Assets at the time of the receipt of such Designated Non-cash Consideration, with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value,
will be deemed to be cash for purposes of this provision.
(b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale by the Company or a Restricted Subsidiary, the Company or such Restricted Subsidiary may apply such Net Proceeds at its option:
(1) to permanently reduce Indebtedness of the Company or any Guarantor (and in the case of a revolving credit, to correspondingly reduce commitments with respect thereto);
(2) with respect to Asset Sales of assets of a Restricted Subsidiary that is not a Guarantor, to permanently reduce Indebtedness of a Restricted Subsidiary that is not a Guarantor (and in the case of a revolving credit, to correspondingly reduce commitments with respect thereto), other than Indebtedness owed to the Company or another Subsidiary;
(3) to the making of a Capital Expenditure or the acquisition of a controlling interest in another business or other asset, in each case, that is used or useful in a Similar Business or that replaces the assets that are the subject of such Asset Sale; or
(4) to the extent the Asset Sale constituted the sale of consumer loans, or other loans generated through the conduct of Similar Businesses, then to the making
61
of advances and the extension of credit to customers in the ordinary course of business consistent with past practice that are either (A) recorded as accounts receivable or consumer loans on the consolidated balance sheet of the Company or (B) consumer loans the making of which are facilitated by the Company or a Restricted Subsidiary acting as a credit services organization or similar services provider in an amount no greater than the cash used to cash collateralize or repurchase such loans,
provided that, in the case of clause (3) above, a binding commitment to make a Capital Expenditure or acquire a controlling interest shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Company or such Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within 180 days of such commitment (an “ Acceptable Commitment ”) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Proceeds are applied in connection therewith, then such Net Proceeds shall constitute Excess Proceeds if not actually applied or subject to a binding commitment or otherwise applied under clause (1), (2), (3) or (4) of this Section 4.16(b) within the applicable 365 day period.
Pending the final application of any such Net Proceeds, the Company or a Restricted Subsidiary may temporarily reduce Indebtedness under the Credit Facilities or invest such Net Proceeds in any manner that is not prohibited by the Indenture.
(c) Any Net Proceeds from Asset Sales that are not applied or invested (by election or as a result of the passage of time) as provided in Section 4.16(b) will be deemed to constitute “ Excess Proceeds .” Excess Proceeds of less than $20.0 million will be carried forward and accumulated. When the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will be required to make an offer (an “ Asset Sale Offer ”) to all Holders of Notes to purchase Notes having a principal amount equal to (A) accumulated Excess Proceeds, multiplied by (B) a fraction (x) the numerator of which is equal to the outstanding principal amount of the Notes and (y) the denominator of which is equal to the outstanding principal amount of the Notes and all pari passu Indebtedness similarly required to be repaid, redeemed or tendered for in connection with the Asset Sale, rounded down to the nearest $1,000. The offer price for such Asset Sale Offer shall be an amount in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. Any Excess Proceeds remaining after consummation of the Asset Sale Offer may be used by the Company and its Restricted Subsidiaries for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of the Excess Proceeds available to be applied to their repurchase, the Trustee shall select the Notes to be purchased on a pro rata basis based upon principal balance or accreted value, or to the extent that selection on a pro rata basis is not practicable, by lot or by such method as the Trustee considers fair and appropriate in accordance with DTC procedures. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
62
Section 4.17. Reports . (a) Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, so long as any Notes are outstanding the Company will furnish to the Holders of the Notes and the Trustee within the time periods specified in those sections:
(1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to annual information only, a report thereon by the Company’s certified independent accountants, and
(2) all current reports under Items 1.01, 1.02, 1.03, 2.01, 2.03, 2.04, 2.06, 3.03, 4.01, 4.02, 5.01, 5.02 or 5.03 of Form 8-K that would be required to be filed with or furnished to the Commission on Form 8-K if the Company were required to file or furnish such reports,
in each case, prepared on a basis substantially consistent with, and with the same level of detail as, the corresponding information included in the Offering Memorandum or, at the option of the Issuers, the then applicable Commission requirements.
(b) In addition, whether or not required by the Commission, the Company will, after the effectiveness of an exchange offer registration statement or shelf registration statement, if the Commission will accept the filing, file a copy of all of the information and reports referred to in clauses (1) and (2) of Section 4.17(a) with the Commission for public availability within the time periods specified in the Commission’s rules and regulations.
(c) Unless the Company is otherwise obligated to do so under the Exchange Act, the information and reports referred to in clauses (1) and (2) of Section 4.17(a) will not be required to (i) comply with Section 302 or Section 404 of the Sarbanes-Oxley Act of 2002, or related Items 307 and 308 of Regulation S-K promulgated by the Commission, or Items 301 or 302 of Regulation S-K or Item 10(e) of Regulation S-K (with respect to any non-GAAP financial measures contained therein), in each case, as in effect on the date of the Indenture or (ii) contain the separate financial information for Guarantors contemplated by Rule 3-09 or Rule 3-10 of Regulation S-X promulgated by the Commission (or any similar successor provision) or any schedules required by Regulation S-X, or in each case any successor provisions, or “segment reporting” and the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K (it being understood that the Company will furnish summary financial information with respect to the non-Guarantors on a basis substantially consistent with the financial information presented in the fourth sentence of the second paragraph under “Description of Notes—Ranking” in the Offering Memorandum).
(d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include a reasonably detailed presentation, either on the face of
63
the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
(e) The Company will be deemed to have furnished such information and reports to the Trustee and the Holders of the Notes if it has filed such information and reports with the Commission using the EDGAR filing system and such information and reports are publicly available, provided that the Trustee shall have no responsibility to determine when or whether such filing has occurred.
(f) In the event such information and reports have not been filed with the Commission using the EDGAR filing system and are not publicly available, the Company will post such information and reports on a website no later than the date the Company is required to provide those reports to the Trustee and the Holders of the Notes and maintain such posting for so long as any Notes remain outstanding. Access to such information and reports on such website may be subject to a confidentiality acknowledgment; provided, that no other conditions (except for password protection) may be imposed on access to such information and reports other than a representation by the Person accessing such information and reports that it is the Trustee, a Holder of the Notes, a beneficial owner of the Notes, a bona fide prospective investor, a securities analyst or a market maker.
(g) The Company will, for so long as any Notes remain outstanding, use its commercially reasonable efforts to hold and participate in quarterly conference calls with the Holders of the Notes and securities analysts to discuss such financial information no later than ten business days after distribution of such financial information.
(h) The Company will also, for so long as any Notes remain outstanding and constitute “restricted securities” under Rule 144, furnish to the Holders of the Notes, securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(i) Delivery of these reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of them will not constitute constructive or actual notice or knowledge of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
(j) To the extent any such reports referred to in clauses (1) through (2) of Section 4.17(a) above is not so filed or furnished, as applicable, within the time periods specified above and such reports are subsequently filed or furnished, as applicable, the Company will be deemed to have satisfied its obligations with respect thereto at such time and any Default or Event of Default with respect thereto shall be deemed to have been cured.
64
Section 4.18. Reports to the Trustee . (a) The Company will deliver to the Trustee within 120 days after the end of each fiscal year a certificate from the principal executive, financial or accounting officer of the Company stating that the officer has conducted or supervised a review of the activities of the Company and its Subsidiaries and their performance under the Indenture and that, based upon such review, the Company has fulfilled its obligations hereunder or, if there has been a Default, specifying the Default and its nature and status.
(b) The Company will deliver to the Trustee, as soon as possible and in any event within 30 days after the Company becomes aware or should reasonably become aware of the occurrence of a Default, an Officers’ Certificate setting forth the details of the Default, and the action which the Company proposes to take with respect thereto.
Article 5
Merger, Consolidation or Sale of Assets
Section 5.01. Merger, Consolidation or Sale of Assets. (a) The Company. The Company may not, in any transaction or series of related transactions consolidate with or merge with or into (whether or not the Company survives), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the Company’s property and assets whether as an entirety or substantially as an entirety (or cause or permit any of its Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s property and assets whether as an entirety or substantially as an entirety), to any Person, unless:
(1) either:
(A) if the transaction or series of transactions is a consolidation of the Company with or a merger of the Company with or into any other Person, the Company shall be the surviving Person of such merger or consolidation; or
(B) the Person formed by any consolidation or merger with or into the Company, or to which all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries, taken as a whole, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of, shall be a corporation organized and existing under the laws of the United States, any state or commonwealth thereof or the District of Columbia; provided that such Person shall expressly assume by supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee all of the obligations of the Company under the Indenture and the Notes and the Indenture, as so supplemented, shall remain in full force and effect;
(2) immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (including any Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of
65
such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and
(3) at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable period (but without giving effect to the costs and expenses of such transaction), (x) the Company or the successor entity to the Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth Section 4.07(a) or (y) the Fixed Charge Coverage Ratio for the Company (or the surviving Person, as applicable) and its Restricted Subsidiaries on a consolidated basis would be no less than the Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries on a consolidated basis immediately prior to such transaction.
The foregoing requirements shall not apply to any transaction or series of transactions involving the sale, assignment, conveyance, transfer, lease or other disposition of any properties or assets by any of its Restricted Subsidiaries to any Guarantor or the consolidation or merger of any of its Restricted Subsidiaries with or into any Guarantor or the Company; provided that the surviving entity shall be a corporation, partnership or limited liability company organized and validly existing under the laws of the United States, any state thereof or the District of Columbia ( provided that, in the case where the surviving entity is not a corporation, a co-obligor of the Notes is a corporation that is a wholly-owned Restricted Subsidiary).
In connection with any consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition contemplated by the foregoing provisions, the Company shall deliver, or cause to be delivered, to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and any supplemental indenture in respect thereof comply with the requirements of the Indenture. Each such Officers’ Certificate shall set forth the manner of determination of the Company’s compliance with clause (3) of the foregoing provisions, if applicable.
The successor entity shall succeed to, and be substituted for, and may exercise every right and power of the predecessor company under the Indenture Documents, and the predecessor company shall be released from all its obligations and covenants under the Indenture Documents.
(b) The Guarantors . Subject to certain limitations in the Indenture governing release of a Guarantor upon the sale or disposition of a Restricted Subsidiary that is a Guarantor, each Guarantor will not, in any transaction or series of related transactions merge or consolidate with or into (whether or not such Guarantor survives), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to, any Person, unless either:
66
(A) if the transaction or series of transactions is a consolidation of such Guarantor with or a merger of such Guarantor with or into any other Person, such Guarantor shall be the surviving Person of such consolidation or merger; or
(B) the Person formed by any consolidation or merger with or into such Guarantor, or to which all or substantially all of the properties and assets of such Guarantor and its Subsidiaries, taken as a whole, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of, shall be a corporation, partnership, limited liability company or trust organized and existing under the laws of the United States, any state thereof or the District of Columbia and shall expressly assume by (i) a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of such Guarantor under its Note Guarantee and the Indenture and, in each case, the Indenture, as so supplemented, shall remain in full force and effect and (ii) by amendment, supplement or other instrument (in form and substance reasonably satisfactory to the Trustee), executed and delivered to the Trustee; or
(2) the transaction is made in compliance with Section 4.16.
The foregoing requirements shall not apply to any transaction or series of transactions involving the sale, assignment, conveyance, transfer, lease or other disposition of any properties or assets by any of the Restricted Subsidiaries to any Guarantor or the Company, or the consolidation or merger of any of the Restricted Subsidiaries with or into any other Guarantor or the Company.
In connection with any consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition contemplated by clause (1) of the foregoing provisions, such Guarantor shall deliver, or cause to be delivered, to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and the supplemental indenture in respect thereof comply with the requirements of the Indenture.
The successor entity shall succeed to, and be substituted for, and may exercise every right and power of the predecessor company under the Indenture, and the predecessor company shall (except in the case of a lease) be released from all its obligations and covenants under the Indenture and the Notes.
Article 6
Default and Remedies
Section 6.01. Events of Default . An “ Event of Default ” shall exist if any of the following conditions or events shall occur and be continuing:
67
(1 ) default for 30 days in the payment when due of interest on the Notes;
(2) default in payment when due of the principal, or premium, if any, of any Note when due at maturity, upon optional redemption, upon required purchase, upon acceleration or otherwise;
(3) failure by the Company or any of its Restricted Subsidiaries to comply with its obligations under Section 4.15, Section 4.16 or Article 5.
(4) failure to perform any other covenant or agreement of the Company or any of its Subsidiaries under the Indenture Documents for 30 days after written notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; provided that in the case of a failure to comply with Section 4.17 such period of continuance of such failure shall be 150 days after written notice described in this clause (4) has been given;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default (A) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness on or prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “ payment default ”) or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates in excess of $20.0 million (or its foreign currency equivalent);
(6) failure by the Company or any of its Restricted Subsidiaries to pay final judgments which are non-appealable aggregating in excess of $20.0 million (or its foreign currency equivalent) (not covered by independent third-party insurance as to which liability has not been denied by such insurance carrier), which judgments are not paid, discharged or stayed for a period of 60 days following such judgment becoming final, and in the event such judgment is covered by insurance, any enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(7) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee in writing; and
68
(8 ) an involuntary case or other proceeding is commenced against the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding remains undismissed and unstayed for a period of 60 days; or an order for relief is entered against the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, under the federal bankruptcy laws as now or hereafter in effect;
(9) the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or (iii) effects any general assignment for the benefit of creditors (an event of default specified in clause (8) or (9) a “ bankruptcy default ”).
Section 6.02. Acceleration . (a) If an Event of Default, other than a bankruptcy default, occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if the notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of and accrued interest on the Notes to be due and payable immediately. Upon a declaration of acceleration, such principal and interest will become immediately due and payable. If a bankruptcy default occurs, the principal of and accrued interest on the Notes then outstanding will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium, if any, interest, if any) if it determines that withholding notice is in their interest.
(b) The Holders of at least a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal, premium, if any, or interest, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then
69
outstanding Notes and a waiver of the payment default that resulted from such acceleration).
(c) If a Default for a failure to report or failure to deliver a required certificate in connection with another default (the “ Initial Default ”) occurs, then, at the time such Initial Default is cured, such Default for a failure to report or failure to deliver a required certificate in connection with another default that resulted solely because of that Initial Default will also be cured without any further action. In addition, any Default or Event of Default for the failure to comply with the time periods prescribed in the covenants under Section 4.17 or otherwise to deliver any notice or certificate pursuant to any other provision of the Indenture shall be deemed to be cured upon the delivery of any such report required by such covenant or such notice or certificate, as applicable, even though such delivery is not within the prescribed period specified in the Indenture.
(d) In the event of any Event of Default specified in clause (5) of Section 6.01, such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders of Notes, if within 30 days after such Event of Default arose the Company delivers an Officers’ Certificate to the Trustee stating that:
(1) the Indebtedness or Guarantee that is the basis for such Event of Default has been discharged; or
(2) holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default;
(3) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction; and
(4) all existing Events of Default, except nonpayment of principal, premium or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.
Section 6.03. Other Remedies . If an Event of Default occurs and is continuing, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of principal of and interest on the Notes or to enforce the performance of any provision of the Notes or the Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.
Section 6.04. Waiver of Past Defaults . Except as otherwise provided in Sections 6.02 , 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Notes may, by notice to the Trustee, waive an existing Default and its consequences. Upon such waiver, the Default will cease to exist, and any Event of Default arising therefrom will be deemed to have been cured, but no such waiver will extend to any subsequent or other Default or impair any right consequent thereon.
70
Section 6.05. Control by Majority . The Holders of a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction, and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Notes.
Section 6.06. Limitation on Suits . A Holder may not institute any proceeding, judicial or otherwise, with respect to the Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy under the Indenture or the Notes, unless:
(1) the Holder has previously given to the Trustee written notice of a continuing Event of Default;
(2) Holders of at least 25% in aggregate principal amount of outstanding Notes have made written request to the Trustee to institute proceedings in respect of the Event of Default in its own name as Trustee under the Indenture;
(3) Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes have not given the Trustee a direction that is inconsistent with such written request.
Section 6.07. Rights of Holders to Receive Payment. Notwithstanding anything to the contrary, the right of a Holder of a Note to receive payment of principal of or interest on its Note on or after the Stated Maturities thereof, or to bring suit for the enforcement of any such payment on or after such respective dates, may not be impaired or affected without the consent of that Holder.
Section 6.08. Collection Suit by Trustee . If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent lawful, overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as is sufficient to cover the costs and expenses of collection, including the reasonable
71
compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee hereunder.
Section 6.09. Trustee May File Proofs of Claim . The Trustee may file proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee hereunder) and the Holders allowed in any judicial proceedings relating to the Company or any Guarantor or their respective creditors or property, and is entitled and empowered to collect, receive and distribute any money, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims. Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, if the Trustee consents to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee hereunder. Nothing in the Indenture will be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities . If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for all amounts due hereunder (including its right to be indemnified under Section 7.07 hereof);
Second: to Holders for amounts then due and unpaid for principal of and interest on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest; and
Third: to the Company or as a court of competent jurisdiction may direct.
The Trustee, upon written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section.
Section 6.11. Restoration of Rights and Remedies . If the Trustee or any Holder has instituted a proceeding to enforce any right or remedy under the Indenture and the proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to the Holder, then, subject to any determination in the proceeding, the Company, any Guarantors, the Trustee and the Holders will be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, any Guarantors, the Trustee and the Holders will continue as though no such proceeding had been instituted.
72
Section 6.12. Undertaking for Costs . In any suit for the enforcement of any right or remedy under the Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys fees, against any party litigant (other than the Trustee) in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by a Holder to enforce payment of principal of or interest on any Note on the respective due dates, or a suit by Holders of more than 10% in principal amount of the outstanding Notes.
Section 6.13. Rights and Remedies Cumulative . No right or remedy conferred or reserved to the Trustee or to the Holders under this Indenture is intended to be exclusive of any other right or remedy, and all such rights and remedies are, to the extent permitted by law, cumulative and in addition to every other right and remedy hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or exercise of any right or remedy hereunder, or otherwise, will not prevent the concurrent assertion or exercise of any other right or remedy.
Section 6.14. Delay or Omission Not Waiver . No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default will impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 6.15. Waiver of Stay, Extension or Usury Laws . The Company and each Guarantor covenants, to the extent that it may lawfully do so, that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or the Guarantor from paying all or any portion of the principal of, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of the Indenture. The Company and each Guarantor hereby expressly waives, to the extent that it may lawfully do so, all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
Section 7.01. General . (a) The duties and responsibilities of the Trustee are as provided by the Trust Indenture Act and as set forth herein. Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to this Article.
73
(b ) Except during the continuance of an Event of Default, the Trustee need perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read into the Indenture against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of the Indenture shall be construed to relieve the Trustee from liability for its own gross negligent action, its own gross negligent failure to act or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of Section 7.01(b);
(2) the Trustee shall not be liable for any error in judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was grossly negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
Section 7.02. Certain Rights of Trustee . Subject to Trust Indenture Act Sections 315(a) through (d):
(1) In the absence of bad faith on its part, the Trustee may rely, and will be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but, in the case of any document which is specifically required to be furnished to the Trustee pursuant to any provision hereof, the Trustee shall examine the document to determine whether it conforms to the requirements of the Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). The Trustee, in its discretion, may make further inquiry or investigation into such facts or matters as it sees fit.
(2) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel conforming to Section 11.05 and the Trustee will not be liable for any action it takes or omits to take in good faith in reliance on the certificate or opinion.
(3) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.
74
(4 ) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
(5) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders in accordance with Section 6.05 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under the Indenture.
(6) The Trustee may consult with counsel, and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(7) No provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense.
(8) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by a Responsible Officer of the Company.
(9) The Trustee shall not be deemed to have notice of any Default or Event of Default, except a payment default under Sections 6.01(1) or 6.02 hereof, unless written notice of any event which is in fact such a Default or Event of Default is received by a Trust Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture.
(10) The Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of Officers authorized at such time to take specified actions pursuant to this Indenture.
(11) In no event shall the Trustee be liable for any special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(12) The permissive rights of the Trustee enumerated herein shall not be construed as duties.
(13) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended
75
to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.
(14) The Trustee shall not be responsible for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes, terrorist attacks or other disasters.
(15) The Trustee shall have no duty or responsibility to monitor the Company’s compliance with the financial covenants under this Indenture.
Section 7.03. Individual Rights of Trustee . The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Trust Indenture Act Sections 310(b) and 311. For purposes of Trust Indenture Act Section 311(b)(4) and (6):
(a) “ cash transaction ” means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and
(b) “ self-liquidating paper ” means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
Section 7.04. Trustee’s Disclaimer . The Trustee (i) makes no representation as to the validity or adequacy of the Indenture or the Notes, (ii) is not accountable for the Company’s use or application of the proceeds from the Notes and (iii) is not responsible for any statement in the Notes other than its certificate of authentication.
Section 7.05. Notice of Default . If any Default occurs and is continuing of which written notice has been delivered to the Trustee, the Trustee will send notice of the Default to each Holder within 90 days after it occurs, unless the Default has been cured; provided that, except in the case of a default in the payment of the principal of or interest on any Note, the Trustee may withhold the notice if the Trustee in good faith
76
determines that withholding the notice is in the interest of the Holders. Notice to Holders under this Section will be given in the manner and to the extent provided in Trust Indenture Act Section 313(c) .
Section 7.07. Compensation and Indemnity . (a) The Company will pay the Trustee compensation as agreed upon in writing for its services. The compensation of the Trustee is not limited by any law on compensation of a Trustee of an express trust. The Company will reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee, including the reasonable compensation and expenses of the Trustee’s agents and counsel.
(b) The Company will indemnify the Trustee, its directors, employees, agents and affiliates for, and defend and hold it harmless against, any loss, damage, claim or liability or expense incurred by it without gross negligence or willful misconduct on its part arising out of or in connection with the acceptance or administration of the Indenture and its duties under the Indenture and the Notes, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under the Indenture and the Notes.
(c) To secure the Company’s payment obligations in this Section, the Trustee will have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, and interest on particular Notes.
(d) The obligations of the Company pursuant to this Section 7.07 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee or any Paying Agent incurs expenses after the occurrence of a Default or Event of Default specified in Section 6.01, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.
Section 7.08. Replacement of Trustee . (a) (1) The Trustee may resign at any time upon thirty (30) days written notice to the Company.
(2) The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee upon thirty (30) days written notice to the Trustee.
(3) If the Trustee is no longer eligible under Section 7.10 or in the circumstances described in Trust Indenture Act Section 310(b) , any Holder that satisfies the requirements of Trust Indenture Act Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(4) The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a bankrupt or an
77
insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.
A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section.
(b) If the Trustee has been removed by the Holders, Holders of a majority in principal amount of the Notes may appoint a successor Trustee with the consent of the Company. Otherwise, if the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. If the successor Trustee does not deliver its written acceptance within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the expense of the Company), the Company or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) Upon delivery by the successor Trustee of a written acceptance of its appointment to the retiring Trustee and to the Company, (i) the retiring Trustee will transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07, (ii) the resignation or removal of the retiring Trustee will become effective, and (iii) the successor Trustee will have all the rights, powers and duties of the Trustee under the Indenture. Upon request of any successor Trustee, the Company will execute any and all instruments for fully and vesting in and confirming to the successor Trustee all such rights, powers and trusts. The Company will give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders, and include in the notice the name of the successor Trustee and the address of its Corporate Trust Office.
(d) Notwithstanding replacement of the Trustee pursuant to this Section, the Company’s obligations under Section 7.07 will continue for the benefit of the retiring Trustee.
(e) The Trustee agrees to give the notices provided for in, and otherwise comply with, Trust Indenture Act Section 310(b).
Section 7.09. Successor Trustee by Merger . If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act will be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee in the Indenture.
Section 7.10. Eligibility . The Indenture must always have a Trustee that satisfies the requirements of Trust Indenture Act Section 310(a) and combined with its parent entity has a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition.
78
Section 7.11. Money Held in Trust . The Trustee will not be liable for interest on any money received by it except as it may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8 .
Article 8
Defeasance and Discharge
Section 8.01. Discharge of Company’s Obligations . (a) Subject to paragraph (b), the Company’s obligations under the Notes and the Indenture, and each Guarantor’s obligations under its Note Guarantee, will terminate when either:
(1) all Notes previously authenticated and delivered (other than (i) lost, stolen or destroyed Notes that have been replaced or (ii) Notes that are paid pursuant to Section 4.01 or (iii) Notes for whose payment money or U.S. Government Obligations have been held in trust and then repaid to the Company pursuant to Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or
(2) (A) the Notes mature within one year, or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
(B) the Company or any Guarantor irrevocably deposits in trust with the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations or a combination thereof sufficient without consideration of any reinvestment of interest, to pay principal of, premium, if any, and accrued interest on the Notes to the date of maturity or redemption,
(C) the Company has paid or caused to be paid all sums payable by it under the Indenture,
(D) no Default (other than that resulting from borrowing funds to be applied to make such deposit or any similar or simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith) with respect to the Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under any other material agreement or instrument (other than the Indenture) to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound (other than resulting from any borrowing of funds to be applied to make such deposit and any similar deposit relating to other Indebtedness and the granting of Liens in connection therewith);
79
(E) the deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound,
(F) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be; and
(G) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel to the Trustee, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of the Indenture have been complied with.
(b) After satisfying the conditions in clause (1) of Section 8.01 (a), only the Company’s obligations that expressly survive the termination of the Indenture will survive. After satisfying the conditions in clause (2) , only the Company’s obligations in Article 2 and Sections 4.01 , 4.02 , 7.07 , 7.08 , 8.05 and 8.06 will survive. In either case, the Trustee upon request will acknowledge in writing the discharge of the Company’s obligations under the Notes and the Indenture other than the surviving obligations.
Section 8.02. Legal Defeasance . After the 91st day following the deposit referred to in clause (1) , the Company will be deemed to have paid and will be discharged from its obligations in respect of the Notes and the Indenture, other than its obligations in Article 2 and Sections 4.01 , 4.02 , 7.07 , 7.08 , 8.05 and 8.06, and each Guarantor’s obligations under its Note Guarantee will terminate, provided the following conditions have been satisfied:
(1) The Company has irrevocably deposited in trust with the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations or a combination thereof sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certificate thereof delivered to the Trustee, without consideration of any reinvestment, to pay principal of and interest on the Notes to maturity or redemption, as the case may be, provided that any redemption before maturity has been irrevocably provided for under arrangements satisfactory to the Trustee.
(2) No Default has occurred and is continuing on the date of the deposit or occurs at any time during the 91-day period following the deposit.
(3) The deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound.
(4) (A) with respect to clause (1), the Company shall have delivered to the Trustee an Opinion of Counsel confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a
80
ruling or (B) since the date of the Indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the beneficial owners of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; or, with respect to clause (2), the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the beneficial owners of the outstanding Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such deposit and defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred;, and
(B) an Opinion of Counsel to the effect that (i) the creation of the defeasance trust does not violate the Investment Company Act of 1940, as amended, (ii) the Holders have a valid first priority Note interest in the trust funds (subject to customary exceptions), and (iii) after the passage of 91 days following the deposit, the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law.
(5) If the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the deposit and defeasance will not cause the Notes to be delisted.
(6) The Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance have been complied with.
Prior to the end of the 91-day period, none of the Company’s obligations under the Indenture will be discharged. Thereafter, the Trustee upon request will acknowledge in writing the discharge of the Company’s obligations under the Notes and the Indenture except for the surviving obligations specified above.
Section 8.03. Covenant Defeasance . After the 91st day following the deposit referred to in clause (1) , the Company’s obligations set forth in Sections 4.06 through 4.1 7, inclusive and Article 5, and each Guarantor’s obligations under its Note Guarantee, will terminate, and clauses (4) , (5) , (6) , (7), (8) and (9) of Section 6.01 will no longer constitute Events of Default, provided the following conditions have been satisfied:
(1) The Company has complied with clauses (1) , (2) , (3) , (4)(B) , (5) and (6) of Section 8.02; and
81
(2 ) the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of the defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would otherwise have been the case.
Except as specifically stated above, none of the Company’s obligations under the Indenture will be discharged.
Section 8.04. Application of Trust Money . Subject to Section 8.05 , the Trustee will hold in trust the money or U.S. Government Obligations deposited with it pursuant to Section 8.01 , 8.02 or 8.03, and apply the deposited money and the proceeds from deposited U.S. Government Obligations to the payment of principal of and interest on the Notes in accordance with the Notes and the Indenture. Such money and U.S. Government Obligations need not be segregated from other funds except to the extent required by law.
Section 8.05. Repayment to Company . Subject to Sections 7.07 , 8.01 , 8.02 and 8.03, the Trustee will promptly pay to the Company upon request any excess money held by the Trustee at any time and thereupon be relieved from all liability with respect to such money. The Trustee will pay to the Company upon request any money held for payment with respect to the Notes that remains unclaimed for two years, provided that before making such payment the Trustee may at the expense of the Company publish once in a newspaper of general circulation in New York City, or send to each Holder entitled to such money, notice that the money remains unclaimed and that after a date specified in the notice (at least 30 days after the date of the publication or notice) any remaining unclaimed balance of money will be repaid to the Company. After payment to the Company, Holders entitled to such money must look solely to the Company for payment, unless applicable law designates another Person, and all liability of the Trustee with respect to such money will cease.
Section 8.06. Reinstatement . If and for so long as the Trustee is unable to apply any money or U.S. Government Obligations held in trust pursuant to Section 8.01 , 8.02 or 8.03 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under the Indenture and the Notes will be reinstated as though no such deposit in trust had been made. If the Company makes any payment of principal of or interest on any Notes because of the reinstatement of its obligations, it will be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held in trust.
82
Article 9
Amendments, Supplements and Waivers
Section 9.01. Amendments Without Consent of Holders. (a) The Company and the Trustee may amend or supplement the Indenture or the Notes without notice to or the consent of any Noteholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes, provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code;
(3) to comply with Article 5;
(4) provide for the assumption of the Company’s or any Guarantor’s obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company’s or such Guarantor’s assets;
(5) add Guarantees with respect to the Notes or to secure the Notes;
(6) add to the covenants of the Company or any Guarantor for the benefit of the Holders of the Notes or surrender any right or power conferred upon the Company or any Guarantor;
(7) make any change that would provide any additional rights or benefits to Holders or that does not adversely affect the legal rights of any Holder under the Indenture Documents;
(8) evidence and provide for the acceptance and appointment under the Indenture of a successor trustee pursuant to the requirements hereof;
(9) make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes as permitted by the Indenture, including to facilitate the issuance and administration of the Notes or to comply with the rules of any applicable securities depository; provided , however , that (i) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any applicable securities law and (ii) such amendment does not materially and adversely affect the rights of Holders to transfer Notes;
(10) to provide for or confirm the issuance of Additional Notes;
(11) to conform their text to any provision of the “Description of Notes” in the Offering Memorandum to the extent that such provision was intended to be a verbatim recitation of a provision in the Indenture Documents; or
83
(12 ) at the Company’s election, comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act (it being agreed that the Indenture will not on the Issue Date, and need not thereafter, qualify under the Trust Indenture Act).
Section 9.02. Amendments With Consent of Holders . (a) Except as otherwise provided in Sections 6.02 , 6.04 and 6.07 or paragraph (b) below, the Company and the Trustee may amend the Indenture and the Notes with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Notes (including consents obtained in connection with the purchase of, or tender offer or exchange offer for, the Notes), and the Holders of at least a majority in aggregate principal amount of the outstanding Notes by written notice to the Trustee may waive an existing Default or future compliance by the Company with any provision of the Indenture or the Notes (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes).
(b) Notwithstanding the provisions of paragraph (a), without the consent of each Holder affected, an amendment or waiver may not:
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of, premium, if any, or extend the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to Section 4.15 and Section 4.16 prior to the time at which an obligation to make such an offer has arisen);
(3) reduce the rate of or extend the time for payment of interest on any Note;
(4) waive a Default in the payment of principal of, premium, if any, and interest, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, premium, if any, and interest, if any, on the Notes;
(7) release any Guarantor that is a Significant Subsidiary, or any group of Guarantors that, taken together (as of the date of the latest audited financial statements of the Company), would constitute a Significant Subsidiary, from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture; or
84
(8 ) make any change in the foregoing or succeeding amendment and waiver provisions.
(c) It is not necessary for Noteholders to approve the particular form of any proposed amendment, supplement or waiver, but is sufficient if their consent approves the substance thereof.
(d) An amendment, supplement or waiver under this Section will become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Notes. After an amendment, supplement or waiver under this Section becomes effective, the Company will send to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will send supplemental indentures to Holders upon request. Any failure of the Company to send such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.
Section 9.03. Effect of Consent . (a) After an amendment, supplement or waiver becomes effective, it will bind every Holder unless it is of the type requiring the consent of each Holder affected. If the amendment, supplement or waiver is of the type requiring the consent of each Holder affected, the amendment, supplement or waiver will bind each Holder that has consented to it and every subsequent Holder of a Note that evidences the same debt as the Note of the consenting Holder.
(b) If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver it to the Trustee so that the Trustee may place an appropriate notation of the changed terms on the Note and return it to the Holder, or exchange it for a new Note that reflects the changed terms. The Trustee may also place an appropriate notation on any Note thereafter authenticated. However, the effectiveness of the amendment, supplement or waiver is not affected by any failure to annotate or exchange Notes in this fashion.
Section 9.04. Trustee’s Rights and Obligations . The Trustee is entitled to receive, and will be fully protected in relying upon, in addition to the documents set forth in Section 11.04 an Opinion of Counsel and Officer’s Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article is authorized or permitted by the Indenture. If the Trustee has received such an Opinion of Counsel, it shall sign the amendment, supplement or waiver so long as the same does not adversely affect the rights of the Trustee. The Trustee may, but is not obligated to, execute any amendment, supplement or waiver that affects the Trustee’s own rights, duties or immunities under the Indenture.
Section 9.06. Payments for Consents . The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the
85
Notes or any other Indenture Document unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 9.07. Notes Held by the Company . Solely for the purpose of determining whether the Holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under the Notes, or have directed the taking of any action provided in the Notes to be taken upon the direction of the Holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.
Section 10.01. The Guarantees . (a) Subject to the provisions of this Article, each Guarantor hereby irrevocably and unconditionally guarantees, jointly and severally, on an unsecured basis, the full and punctual payment (whether at Stated Maturity, upon redemption, purchase or acceleration, or otherwise) of the principal of, premium, if any, and interest on, and all other amounts payable under, each Note, and the full and punctual payment of all other amounts payable by the Company under the Indenture. Upon failure by the Company to pay punctually any such amount, each Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Indenture.
(b) If (i) the Company or any of its Restricted Subsidiaries shall acquire or create another Domestic Subsidiary (other than a Securitization Subsidiary) after the date of the Indenture or (ii) any Foreign Subsidiary Guarantees (or otherwise becomes liable for) Indebtedness of the Company or a Guarantor, then the Company shall cause such Subsidiary to become a Guarantor and:
(1) execute a supplemental indenture in the form of Exhibit B, in accordance with the terms of the Indenture, pursuant to which such Subsidiary shall unconditionally guarantee, on a senior secured basis, all of the Company’s obligations under the Indenture Documents on the terms set forth in the Indenture; and
(2) take such further action and execute and deliver such other documents specified in the Indenture Documents or otherwise reasonably requested by the Trustee to give effect to the foregoing.
Section 10.02. Guarantee Unconditional . The obligations of each Guarantor hereunder are unconditional and absolute and, without limiting the generality of the foregoing, will not be released, discharged or otherwise affected by
86
(1 ) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Indenture or any Note, by operation of law or otherwise;
(2) any modification or amendment of or supplement to the Indenture or any Note;
(3) any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in the Indenture or any Note;
(4) the existence of any claim, set‑off or other rights which the Guarantor may have at any time against the Company, the Trustee or any other Person, whether in connection with the Indenture or any unrelated transactions, provided that nothing herein prevents the assertion of any such claim by separate suit or compulsory counterclaim;
(5) any invalidity or unenforceability relating to or against the Company for any reason of the Indenture or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on any Note or any other amount payable by the Company under the Indenture; or
(6) any other act or omission to act or delay of any kind by the Company, the Trustee or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantor’s obligations hereunder.
Section 10.03. Discharge; Reinstatement . Each Guarantor’s obligations hereunder will remain in full force and effect until the principal of, premium, if any, and interest on the Notes and all other amounts payable by the Company under the Indenture have been paid in full. If at any time any payment of the principal of, premium, if any, or interest on any Note or any other amount payable by the Company under the Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, each Guarantor’s obligations hereunder with respect to such payment will be reinstated as though such payment had been due but not made at such time.
Section 10.04. Waiver by the Guarantors . Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Company or any other Person.
Section 10.05. Subrogation and Contribution . Upon making any payment with respect to any obligation of the Company under this Article, the Guarantor making such payment will be subrogated to the rights of the payee against the Company
87
with respect to such obligation, provided that the Guarantor may not enforce either any right of subrogation, or any right to receive payment in the nature of contribution, or otherwise, from any other Guarantor, with respect to such payment so long as any amount payable by the Company hereunder or under the Notes remains unpaid.
Section 10.06. Stay of Acceleration . If acceleration of the time for payment of any amount payable by the Company under the Indenture or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Indenture are nonetheless payable by the Guarantors hereunder forthwith on demand by the Trustee or the Holders.
Section 10.07. Limitation on Amount of Guarantee . Notwithstanding anything to the contrary in this Article, each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent conveyance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law. To effectuate that intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Note Guarantee are limited to the maximum amount that would not render the Guarantor’s obligations subject to avoidance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law.
Section 10.08. Execution and Delivery of Guarantee . The execution by each Guarantor of the Indenture (or a supplemental indenture in the form of Exhibit B) evidences the Note Guarantee of such Guarantor, whether or not the person signing as an officer of the Guarantor still holds that office at the time of authentication of any Note. The delivery of any Note by the Trustee after authentication constitutes due delivery of the Note Guarantee set forth in the Indenture on behalf of each Guarantor.
Section 10.09. Release of Guarantee . The Note Guarantee of a Guarantor will terminate upon
(1) any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition is otherwise permitted by the Indenture;
(2) in connection with any sale, issuance or other disposition of Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale, issuance or other disposition complies with Section 4.16 and the Guarantor ceases to be a Restricted Subsidiary of the Company as a result of such sale, issuance or other disposition;
88
(3 ) if the Company designates any of its Restricted Subsidiaries that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture;
(4) in the event that such Guarantor was required to become a Guarantor under the provisions of the covenant described under “Additional Note Guarantees” by virtue of clause (ii) thereof, at such time as such Guarantor shall cease to Guarantee any Indebtedness of the Company or any other Guarantor; or
(5) upon legal defeasance, covenant defeasance or satisfaction or discharge of the Notes, as provided in Article 8.
Upon delivery by the Company to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the foregoing effect and as required in Section 11.04 and Section 11.05 hereof, the Trustee will execute any documents reasonably required in order to evidence the release of the Guarantor from its obligations under its Note Guarantee.
Section 11.02. Noteholder Communications; Noteholder Actions . (a) Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under the Indenture or the Notes. The Company, the Trustee and anyone else shall have the protection of Trust Indenture Act Section 312(c).
(b) (1) Any request, demand, authorization, direction, notice, consent to amendment, supplement or waiver or other action provided by this Indenture to be given or taken by a Holder (an “ act ”) may be evidenced by an instrument signed by the Holder delivered to the Trustee. The fact and date of the execution of the instrument, or the authority of the person executing it, may be proved in any manner that the Trustee deems sufficient.
(2) The Trustee may make reasonable rules for action by or at a meeting of Holders, which will be binding on all the Holders.
(c) Any act by the Holder of any Note binds that Holder and every subsequent Holder of a Note that evidences the same debt as the Note of the acting Holder, even if no notation thereof appears on the Note. Subject to paragraph (d), a Holder may revoke an act as to its Notes, but only if the Trustee receives the notice of revocation before the date the amendment or waiver or other consequence of the act becomes effective.
(d) The Company may, but is not obligated to, fix a record date for the purpose of determining the Holders entitled to act with respect to any amendment or waiver or in any other regard, except that during the continuance of an Event of Default, only the Trustee may set a record date as to notices of default, any declaration or
89
acceleration or any other remedies or other consequences of the Event of Default. If a record date is fixed, those Persons that were Holders at such record date and only those Persons will be entitled to act, or to revoke any previous act, whether or not those Persons continue to be Holders after the record date. No act will be valid or effective for more than 90 days after the record date.
Section 11.03. Notices . (a) Any notice or communication to the Company will be deemed given if in writing (i) when delivered in person or (ii) five days after mailing when mailed by first class mail, or (iii) when sent by electronic means, with transmission confirmed. Notices or communications to a Guarantor will be deemed given if given to the Company. Any notice to the Trustee will be effective only upon receipt. In each case the notice or communication should be addressed as follows:
if to the Company:
ENOVA INTERNATIONAL, INC.
175 W. Jackson Blvd., Suite 1000
Chicago, Illinois 60604
Facsimile No.: (312) 962-4931
if to the Trustee:
COMPUTERSHARE TRUST COMPANY, N.A.
8742 Lucent Boulevard, Suite 225
Highlands Ranch, Colorado 80129
Facsimile No.: (303) 262-0608
Email: corporate.trust@computershare.com
Attention: Corporate Trust – Enova
with a copy to:
COMPUTERSHARE TRUST COMPANY, N.A.
480 Washington Boulevard
Jersey City, New Jersey 07310
Facsimile No.: (201) 680-4619
Attention: General Counsel
The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
(b) Except as otherwise expressly provided with respect to published notices, any notice or communication to a Holder will be deemed given when mailed to the Holder at its address as it appears on the Register by first class mail or, as to any Global Note registered in the name of DTC or its nominee, as agreed by the Company, the Trustee and DTC. Copies of any notice or communication to a Holder, if given by the Company, will be mailed to the Trustee at the same time. Defect in sending a notice or communication to any particular Holder will not affect its sufficiency with respect to other Holders.
90
(c ) Where the Indenture provides for notice, the notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and the waiver will be the equivalent of the notice. Waivers of notice by Holders must be filed with the Trustee, but such filing is not a condition precedent to the validity of any action taken in reliance upon such waivers.
(d) The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, pdf, facsimile transmission or other similar unsecured electronic methods, provided, however, that the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Company elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Company agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.
Notwithstanding any other provision of this Indenture or any Note, where this Indenture or any Note provides for notice of any event or any other communication (including any notice of redemption or repurchase) to a holder of a Global Note (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary (or its designee) pursuant to the standing instructions from the Depositary or its designee, including by electronic mail in accordance with accepted practices at the Depositary.
Section 11.04. Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Company to the Trustee to take any action under the Indenture, the Company will furnish to the Trustee:
(1) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in the Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that all such conditions precedent have been complied with.
Section 11.05. Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a condition or covenant provided for in the Indenture must include:
(1) a statement that each person signing the certificate or opinion has read the covenant or condition and the related definitions;
91
(2 ) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in the certificate or opinion is based;
(3) a statement that, in the opinion of each such person, that person has made such examination or investigation as is necessary to enable the person to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with, provided that an Opinion of Counsel may rely on an Officers’ Certificate or certificates of public officials with respect to matters of fact.
Section 11.06. Payment Date Other Than a Business Day . If any payment with respect to a payment of any principal of, premium, if any, or interest on any Note (including any payment to be made on any date fixed for redemption or purchase of any Note) is due on a day which is not a Business Day, then the payment need not be made on such date, but may be made on the next Business Day with the same force and effect as if made on such date, and no interest will accrue for the intervening period.
Section 11.07. Governing Law . The Indenture, including any Note Guarantees, and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.
Section 11.08. No Adverse Interpretation of Other Agreements . The Indenture may not be used to interpret another indenture or loan or debt agreement of the Company or any Subsidiary of the Company, and no such indenture or loan or debt agreement may be used to interpret the Indenture.
Section 11.09. Successors . All agreements of the Company or any Guarantor in the Indenture and the Notes will bind its successors. All agreements of the Trustee in the Indenture will bind its successor.
Section 11.10. Duplicate Originals . The parties may sign any number of copies of the Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
Section 11.11. Separability . In case any provision in the Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 11.12. Table of Contents and Headings . The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of the Indenture have been inserted for convenience of reference only, are not to be considered a part of the Indenture and in no way modify or restrict any of the terms and provisions of the Indenture.
92
Section 11.13. No Liability of Directors, Officers, Employees, Incorporators, Members and Stockholders . No director, officer, employee or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Indenture Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Section 11.14. U.S.A. Patriot Act . The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as is required to satisfy the requirements of the U.S.A. Patriot Act.
Section 11.15. Waiver of Jury Trial . EACH OF THE COMPANY, THE GUARANTORS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.
Section 11.16. Submission to Jurisdiction . The Company and each Guarantor hereby irrevocably submits to the jurisdiction of any New York State court sitting in the Borough of Manhattan in the City of New York or any federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to this Indenture, the Guarantees and the Notes, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts .
Section 11.17. Calculations . Except as otherwise provided herein, the Company will be responsible for making all calculations called for under this Indenture and the Notes. Such calculations include but are not limited to, determinations of the Applicable Premium. The Company will make all such calculations in good faith and, absent manifest error, its calculations will be final and binding on Holders.
Section 11.18. Foreign Account Tax Act Compliance (FATCA) . The Company agrees (i) to provide the Trustee with such reasonable information as it has in its possession to enable the Trustee to determine whether any payments pursuant to the Indenture are subject to the withholding requirements described in Section 1471(b) of the Code or otherwise imposed pursuant to Sections 1471 through 1474 of the Code and any regulations, or agreements thereunder or official interpretations thereof (“Applicable Law”), and (ii) that the Trustee shall be entitled to make any withholding or deduction from payments under the Indenture to the extent necessary to comply with Applicable Law, for which the Trustee shall not have any liability.
[Remainder of page intentionally left blank.]
93
IN WITNESS WHEREOF, the parties hereto have caused the Indenture to be duly executed as of the date first written above.
ISSUER
ENOVA INTERNATIONAL, INC. |
|
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:Chief Executive Officer |
GUARANTORS
CNU ONLINE HOLDINGS, LLC
OHIO CONSUMER FINANCIAL SOLUTIONS, LLC
CASHNETUSA CO, LLC
CASHNETUSA OR, LLC
THE CHECK GIANT NM, LLC
BILLERS ACCEPTANCE GROUP LLC
NC FINANCIAL SOLUTIONS, LLC
NETCREDIT FINANCE, LLC
CNU DOLLARSDIRECT INC.
CNU DOLLARSDIRECT LENDING INC.
DEBIT PLUS, LLC
DP LABOR HOLDINGS, LLC
ENOVA BUSINESS, LLC
ENOVA DECISIONS, LLC
ENOVA FINANCE 2, LLC
ENOVA FINANCE 3, LLC
ENOVA FINANCE 4, LLC
ENOVA FINANCIAL HOLDINGS, LLC
ENOVA ONLINE SERVICES, INC.
ENOVACO, LLC
HEADWAY CAPITAL, LLC
MOBILE LEASING GROUP, INC.
NETCREDIT LOAN SERVICES, LLC
CASHEURONET UK. LLC
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:President |
AEL NET MARKETING, LLC
AEL NET OF MISSOURI, LLC
CASHNETUSA OF FLORIDA, LLC
CNU OF ALASKA, LLC
[Signature Page to Indenture]
CNU OF CALIFORNIA, LLC
CNU OF COLORADO, LLC
CNU OF DELAWARE, LLC
CNU OF FLORIDA, LLC
CNU OF HAWAII, LLC
CNU OF ILLINOIS, LLC
CNU OF INDIANA, LLC
CNU OF IOWA, LLC
CNU OF LOUISIANA, LLC
CNU OF MAINE, LLC
CNU OF MICHIGAN, LLC
CNU OF MINNESOTA, LLC
CNU OF MISSISSIPPI, LLC
CNU OF MISSOURI, LLC
CNU OF MONTANA, LLC
CNU OF NEVADA, LLC
CNU OF NEW HAMPSHIRE, LLC
By: CNU Online Holdings, LLC
Its: Member
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:Chief Executive Officer |
[Signature Page to Indenture]
CNU OF NEW MEXICO, LLC
CNU OF NORTH DAKOTA, LLC
CNU OF OHIO, LLC
CNU OF OKLAHOMA, LLC
CNU OF OREGON, LLC
CNU OF RHODE ISLAND, LLC
CNU OF SOUTH CAROLINA, LLC
CNU OF TENNESSEE, LLC
CNU OF TEXAS, LLC
CNU OF VIRGINIA, LLC
CNU OF WASHINGTON, LLC
CNU OF WISCONSIN, LLC
CNU OF WYOMING, LLC
CNU TECHNOLOGIES OF IOWA, LLC
DOLLARSDIRECT, LLC
ENOVA BRAZIL, LLC
ENOVA INTERNATIONAL GEC, LLC
EURONETCASH, LLC
THE BUSINESS BACKER, LLC
By: CNU Online Holdings, LLC
Its: Member
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:Chief Executive Officer |
[Signature Page to Indenture]
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC
NC FINANCIAL SOLUTIONS OF ARIZONA, LLC
NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC
NC FINANCIAL SOLUTIONS OF DELAWARE, LLC
NC FINANCIAL SOLUTIONS OF FLORIDA, LLC
NC FINANCIAL SOLUTIONS OF GEORGIA, LLC
NC FINANCIAL SOLUTIONS OF IDAHO, LLC
NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC
NC FINANCIAL SOLUTIONS OF INDIANA, LLC
NC FINANCIAL SOLUTIONS OF KANSAS, LLC
NC FINANCIAL SOLUTIONS OF LOUISIANA, LLC
NC FINANCIAL SOLUTIONS OF MARYLAND, LLC
NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC
NC FINANCIAL SOLUTIONS OF MISSOURI, LLC
NC FINANCIAL SOLUTIONS OF MONTANA, LLC
NC FINANCIAL SOLUTIONS OF NEVADA, LLC
NC FINANCIAL SOLUTIONS OF NEW HAMPSHIRE, LLC
NC FINANCIAL SOLUTIONS OF NEW JERSEY, LLC
NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC
NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC
NC FINANCIAL SOLUTIONS OF OHIO, LLC
NC FINANCIAL SOLUTIONS OF OREGON, LLC
NC FINANCIAL SOLUTIONS OF RHODE ISLAND, LLC
NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC
NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC
NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC
NC FINANCIAL SOLUTIONS OF TEXAS, LLC
NC FINANCIAL SOLUTIONS OF UTAH, LLC
NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC
NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC
CREDITME, LLC
By: NC Financial Solutions, LLC
Its: Member
|
|
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:Chief Executive Officer |
[Signature Page to Indenture]
DEBIT PLUS TECHNOLOGIES, LLC
DEBIT PLUS SERVICES, LLC
DEBIT PLUS PAYMENT SOLUTIONS, LLC
By: Debit Plus, LLC
Member
By: |
/s/ David Fisher |
|
Name:David A. Fisher |
|
Title:Chief Executive Officer |
CASHNET CSO OF MARYLAND, LLC
CNU OF ALABAMA, LLC
CNU OF IDAHO, LLC
CNU OF KANSAS, LLC
CNU OF SOUTH DAKOTA, LLC
CNU OF UTAH, LLC
TENNESSEE CNU, LLC
By: Headway Capital, LLC
Its: Member
By: |
/s/ David Fisher |
|
Name:David Fisher |
|
Title:Chief Executive Officer |
[Signature Page to Indenture]
TRUSTEE
COMPUTERSHARE TRUST COMPANY, N.A., as Trustee |
|
By: |
/s/ Rose Stroud |
|
Name:Rose Stroud |
|
Title:Trust Officer |
[Signature Page to Indenture]
[FACE OF NOTE]
[RULE 144A][REGULATION S][IAI] GLOBAL NOTE
ENOVA INTERNATIONAL, INC.
8.500% Senior Note Due 2025
[CUSIP] [CINS] _______________
[ISIN] _______________
No. [A-1][S-1][IAI-1] Up to $_______________
ENOVA INTERNATIONAL, INC., a Delaware corporation (the “ Company ”, which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to CEDE & CO., or its registered assigns, the principal sum set forth on the Schedule of Exchanges of Notes attached hereto.
[Initial] 1 Interest Rate: 8.500% per annum.
Interest Payment Dates: March 15 and September 15, commencing March 15, 2019.
Regular Record Dates: March 1 and September 1.
Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which will for all purposes have the same effect as if set forth at this place.
|
1 |
For Initial Notes or Initial Additional Notes only. |
A-1
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers.
A-2
(Form of Trustee’s Certificate of Authentication)
This is one of the 8.500% Senior Notes Due 2025 described in the Indenture referred to in this Note.
Date: |
COMPUTERSHARE TRUST COMPANY, N.A., as Trustee |
|
|
By: |
|
|
|
Authorized Signatory |
A-3
[REVERSE SIDE OF NOTE]
ENOVA INTERNATIONAL, INC.
8.500% Senior Note Due 2025
1. Principal and Interest.
The Company promises to pay the principal of this Note on September 15, 2025.
The Company promises to pay interest on the principal amount of this Note on each interest payment date, as set forth on the face of this Note, at the rate of 8.500% per annum [(subject to adjustment as provided below)]. 1
Interest will be payable semiannually (to the Holders of record of the Notes at the close of business on the March 1 or September 1 immediately preceding the interest payment date) on each interest payment date, commencing March 15, 2019.
Interest on this Note will accrue commencing on the date of original issue and thereafter from the most recent date to which interest has been paid on this Note (or, if there is no existing default in the payment of interest and if this Note is authenticated between a regular record date and the next interest payment date, from such interest payment date) or, if no interest has been paid, from [the Issue Date]. 2 Interest will be computed in the basis of a 360-day year of twelve 30-day months.
The Company will pay interest on overdue principal, premium, if any, and, to the extent lawful, interest at a rate per annum that is 1% in excess of 8.500%. Interest not paid when due and any interest on principal, premium or interest not paid when due will be paid to the Persons that are Holders on a special record date, which will be the 15th day preceding the date fixed by the Company for the payment of such interest, whether or not such day is a Business Day. At least 15 days before a special record date, the Company will send to each Holder and to the Trustee a notice that sets forth the special record date, the payment date and the amount of interest to be paid.
2. Indentures; Note Guarantee.
This is one of the Notes issued under an Indenture dated as of September 19, 2018 (as amended from time to time, the “ Indenture ”), among the Company, the Guarantors party thereto and Computershare Trust Company, N.A., as Trustee. Capitalized terms used herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those expressly made part of the Indenture by reference to specified provisions of the Trust Indenture Act. Unless otherwise expressly made part of the Indenture by reference to such specified provisions, the Indenture is not subject to or qualified by the Trust Indenture Act. The Notes are
|
1 |
Include only for Initial Note or Initial Additional Note. |
2 |
For Additional Notes, should be the date of their original issue. |
A-4
subject to all such terms, and Holders are referred to the Indenture and the specified provisions of the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture will control.
The Notes are general senior unsecured obligations of the Company. The Indenture limits the original aggregate principal amount of the Notes to $375,000,000 but additional notes (“ Additional Notes” ) may be issued pursuant to the Indenture, and the originally issued Notes and all such Additional Notes will vote together for all purposes as a single class, provided , however , if the Additional Notes are not fungible with the Notes for U.S. federal income tax purposes, such Additional Notes will have a different CUSIP number. This Note is guarantied as set forth in the Indenture.
3. Redemption and Repurchase; Discharge Prior to Redemption or Maturity.
This Note is subject to optional redemption, and may be the subject of an Offer to Purchase, as further described in the Indenture. There is no sinking fund or mandatory redemption applicable to this Note.
If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes to redemption or maturity, the Company may in certain circumstances be discharged from the Indenture and the Notes or may be discharged from certain of its obligations under certain provisions of the Indenture.
4. Registered Form; Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of $2,000 principal amount and any multiple of $1,000 in excess thereof, in the form of both Global Notes and Certificated Notes, as provided in the Indenture. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Trustee may require a Holder to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. Pursuant to the Indenture, there are certain periods during which the Trustee will not be required to issue, register the transfer of or exchange any Note or certain portions of a Note.
5. Defaults and Remedies.
If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may by written notice, as provided in the Indenture, declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of remedies.
A-5
Subject to certain exceptions, the Indenture and the Notes may be amended, or default may be waived, with the consent of the Holders of a majority in principal amount of the outstanding Notes. Without notice to or the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency in the Indenture or the Notes or other amendments or supplements if such amendments or supplements do not adversely affect the interests of the Holders in any material respect.
7. Authentication.
This Note is not valid until the Trustee (or Authenticating Agent) signs the certificate of authentication on the other side of this Note.
8. Governing Law.
This Note shall be governed by, and construed in accordance with, the laws of the State of New York.
9. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A/ (= Uniform Gifts to Minors Act).
The Company will furnish a copy of the Indenture to any Holder upon written request and without charge.
A-6
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No. |
|
|
Please print or typewrite name and address including zip code of assignee |
|
the within Note and all rights thereunder, hereby irrevocably constituting and appointing |
|
attorney to transfer said Note on the books of the Company with full power of substitution in the premises.
A-7
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A RESTRICTED LEGEND]
In connection with any transfer of this Note occurring prior to ______________, the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:
Check One
☐ (1) This Note is being transferred to a “qualified institutional buyer” in compliance with Rule 144A under the Securities Act of 1933, as amended and certification in the form of Exhibit F to the Indenture is being furnished herewith.
☐ (2) This Note is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit E to the Indenture is being furnished herewith.
or
☐ (3) This Note is being transferred other than in accordance with (1) or (2) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee is not obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Indenture have been satisfied.
Date: ______________________
|
|
Seller |
|
By |
|
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within‑mentioned instrument in every particular, without alteration or any change whatsoever.
A-8
By |
|
To be executed by an executive officer |
|
1 |
Signatures must be guaranteed by an “ eligible guarantor institution ” meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Association Medallion Program (“ STAMP” ) or such other “ signature guarantee program ” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
A-9
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have all of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the box below:
☐Section 4.15 ☐Section 4.16
If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount (in original principal amount) below:
$_____________________.
Date:____________
Your Signature:__________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: 1 _____________________________
|
1 |
Signatures must be guaranteed by an “ eligible guarantor institution ” meeting the requirements of the Trustee, which requirements include membership or participation in the Securities Transfer Association Medallion Program (“ STAMP ”) or such other “ signature guarantee program ” as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
A-10
SCHEDULE OF EXCHANGES OF NOTES 1
The initial principal amount of this Global Note is $__________. The following exchanges of a part of this Global Note for Physical Notes or a part of another Global Note have been made:
Date of Exchange |
Amount of decrease
|
Amount of increase
|
Principal amount of
|
Signature of
|
|
|
|
|
|
|
|
|
|
|
|
1 |
For Global Notes |
A-11
SUPPLEMENTAL INDENTURE
dated as of __________, ____
among
ENOVA INTERNATIONAL, INC.,
The Guarantor(s) Party Hereto
and
COMPUTERSHARE TRUST COMPANY, N.A.,
as Trustee
8.500% Senior Notes due 2025
B-1
THIS SUPPLEMENTAL INDENTURE (this “ Supplemental Indenture ”), entered into as of __________, ____, among ENOVA INTERNATIONAL, INC., a Delaware corporation (the “ Company ”), [insert each Guarantor executing this Supplemental Indenture and its jurisdiction of incorporation] (each an “ Undersigned ”) and COMPUTERSHARE TRUST COMPANY, N.A., as trustee (the “ Trustee ”).
RECITALS
WHEREAS, the Company, the Guarantors party thereto and the Trustee entered into the Indenture, dated as of September 19, 2018 (the “ Indenture ”), relating to the Company’s 8.500% Senior Notes due 2025 (the “ Notes ”);
WHEREAS, as a condition to the Trustee entering into the Indenture and the purchase of the Notes by the Holders, the Company agreed pursuant to the Indenture to cause any newly acquired or created Subsidiaries to provide Guarantees in certain circumstances.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally bound, the parties to this Supplemental Indenture hereby agree as follows:
Section 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture.
Section 2. Each Undersigned, by its execution of this Supplemental Indenture, agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including, but not limited to, Article 10 thereof.
Section 3. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York.
Section 4. This Supplemental Indenture may be signed in various counterparts which together will constitute one and the same instrument.
Section 5. This Supplemental Indenture is an amendment supplemental to the Indenture and the Indenture and this Supplemental Indenture will henceforth be read together.
Section 6. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and the Guarantor.
B-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
ENOVA INTERNATIONAL, INC., as Issuer |
|
By: |
|
|
Name: |
|
Title: |
[GUARANTOR] |
|
By: |
|
|
Name: |
|
Title: |
COMPUTERSHARE TRUST COMPANY, N.A., as Trustee |
|
By: |
|
|
Name: |
|
Title: |
B-3
RESTRICTED LEGEND
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER
(1) REPRESENTS THAT
(A) IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT,
(B) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR” (WITHIN THE MEANING OF RULE 501(a) (1) , (2) , (3) OR (7) UNDER THE SECURITIES ACT) (AN “INSTITUTIONAL ACCREDITED INVESTOR”) OR
(C) IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND
(2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ONLY
(A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT,
(C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(D) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR
(E) IN A PRINCIPAL AMOUNT OF NOT LESS THAN $250,000 TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE TRUSTEE A DULY COMPLETED AND SIGNED CERTIFICATE (THE FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE, OR
C-1
(F ) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY RULE 144 EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
C-2
DTC LEGEND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“ DTC ”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS A BENEFICIAL INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE INDENTURE.
D-1
Regulation S Certificate
_________, ____
COMPUTERSHARE TRUST COMPANY, N.A.
8742 Lucent Boulevard, Suite 225
Highlands Ranch, Colorado 80129
Attention: Corporate Trust – Enova
Re: |
Enova International, Inc.
|
Ladies and Gentlemen:
Terms are used in this Certificate as used in Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”), except as otherwise stated herein.
[CHECK A OR B AS APPLICABLE.]
|
☐ A. |
This Certificate relates to our proposed transfer of $____ principal amount of Notes issued under the Indenture. We hereby certify as follows: |
|
1. |
The offer and sale of the Notes was not and will not be made to a person in the United States (unless such person is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by it for which it is acting is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3)) and such offer and sale was not and will not be specifically targeted at an identifiable group of U.S. citizens abroad. |
E-1
|
3. |
Neither we, any of our affiliates, nor any person acting on our or their behalf has made any directed selling efforts in the United States with respect to the Notes. |
|
4. |
The proposed transfer of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act. |
|
☐ B. |
This Certificate relates to our proposed exchange of $____ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. We hereby certify as follows: |
|
3. |
The proposed exchange of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act. |
E-2
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] |
||
By: |
|
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
Date: _________________
E-3
Rule 144A Certificate
_________, ____
COMPUTERSHARE TRUST COMPANY, N.A.
8742 Lucent Boulevard, Suite 225
Highlands Ranch, Colorado 80129
Attention: Corporate Trust – Enova
Re: |
Enova International, Inc.
|
Ladies and Gentlemen:
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
This Certificate relates to:
[CHECK A OR B AS APPLICABLE.]
|
☐ A. |
Our proposed purchase of $____ principal amount of Notes issued under the Indenture. |
|
☐ B. |
Our proposed exchange of $____ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. |
We and, if applicable, each account for which we are acting in the aggregate owned and invested more than $100,000,000 in securities of issuers that are not affiliated with us (or such accounts, if applicable), as of _________, 20__, which is a date on or since close of our most recent fiscal year. We and, if applicable, each account for which we are acting, are a qualified institutional buyer within the meaning of Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”). If we are acting on behalf of an account, we exercise sole investment discretion with respect to such account. We are aware that the transfer of Notes to us, or such exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Prior to the date of this Certificate we have received such information regarding the Company as we have requested pursuant to Rule 144A(d)(4) or have determined not to request such information.
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
F-1
[NAME OF PURCHASER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] |
||
By: |
|
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
Date: _________________
F-2
Institutional Accredited Investor Certificate
COMPUTERSHARE TRUST COMPANY, N.A.
8742 Lucent Boulevard, Suite 225
Highlands Ranch, Colorado 80129
Attention: Corporate Trust – Enova
Re: |
Enova International, Inc.
|
Ladies and Gentlemen:
This Certificate relates to:
[CHECK A OR B AS APPLICABLE.]
|
☐ A. |
Our proposed purchase of $____ principal amount of Notes issued under the Indenture. |
|
☐ B. |
Our proposed exchange of $____ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. |
We hereby confirm that:
|
2. |
Any acquisition of Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors as to which we exercise sole investment discretion. |
|
3. |
We have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of an investment in the Notes and we and any accounts for which we are acting are able to bear the economic risks of and an entire loss of our or their investment in the Notes. |
|
4. |
We are not acquiring the Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary will remain at all times within our and their control. |
G-1
|
6. |
The principal amount of Notes to which this Certificate relates is at least equal to $250,000. |
We agree for the benefit of the Company, on our own behalf and on behalf of each account for which we are acting, that such Notes may be offered, sold, pledged or otherwise transferred only in accordance with the Securities Act and any applicable securities laws of any State of the United States and only (a) to the Company, (b) pursuant to a registration statement which has become effective under the Securities Act, (c) to a qualified institutional buyer in compliance with Rule 144A under the Securities Act, (d) in an offshore transaction in compliance with Rule 904 of Regulation S under the Securities Act, (e) in a principal amount of not less than $250,000, to an Institutional Accredited Investor that, prior to such transfer, delivers to the Trustee a duly completed and signed certificate (the form of which may be obtained from the Trustee) relating to the restrictions on transfer of the Notes or (f) pursuant to an exemption from registration provided by Rule 144 under the Securities Act or any other available exemption from the registration requirements of the Securities Act.
Prior to the registration of any transfer in accordance with (c) or (d) above, we acknowledge that a duly completed and signed certificate (the form of which may be obtained from the Trustee) must be delivered to the Trustee. Prior to the registration of any transfer in accordance with (e) or (f) above, we acknowledge that the Company reserves the right to require the delivery of such legal opinions, certifications or other evidence as may reasonably be required in order to determine that the proposed transfer is being made in compliance with the Securities Act and applicable state securities laws. We acknowledge that no representation is made as to the availability of any Rule 144 exemption from the registration requirements of the Securities Act.
We understand that the Trustee will not be required to accept for registration of transfer any Notes acquired by us, except upon presentation of evidence satisfactory to the Company and the Trustee that the foregoing restrictions on transfer have been complied with. We further understand that the Notes acquired by us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of the preceding paragraph. We further agree to provide to any person acquiring any of the Notes from us a notice advising such person that resales of the Notes are restricted as stated herein and that certificates representing the Notes will bear a legend to that effect.
We agree to notify you promptly in writing if any of our acknowledgments, representations or agreements herein ceases to be accurate and complete.
G-2
We represent to you that we have full power to make the foregoing acknowledgments, representations and agreements on our own behalf and on behalf of any account for which we are acting.
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] |
||
By: |
|
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
Date: _________________
G-3
Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
By: _________________________________
Date: ________________________________
Taxpayer ID number: ___________________
G-4
[COMPLETE FORM I OR FORM II AS APPLICABLE.]
[FORM I]
Certificate of Beneficial Ownership
To: |
COMPUTERSHARE TRUST COMPANY, N.A.
|
|
Attention: Corporate Trust – Enova
OR
[Name of DTC Participant]]
Re: |
Enova International, Inc.
|
Ladies and Gentlemen:
We are the beneficial owner of $____ principal amount of Notes issued under the Indenture and represented by a Temporary Offshore Global Note (as defined in the Indenture).
We hereby certify as follows:
[CHECK A OR B AS APPLICABLE.]
|
☐ A. |
We are a non-U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended). |
|
☐ B. |
We are a U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended) that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended. |
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
H-1
[NAME OF BENEFICIAL OWNER] |
||
By: |
|
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
Date: _________________
[FORM II]
Certificate of Beneficial Ownership
To: |
COMPUTERSHARE TRUST COMPANY, N.A.
Attention: Corporate Trust – Enova |
Re: |
Enova International, Inc.
|
Ladies and Gentlemen:
This is to certify that based solely on certifications we have received in writing, by tested telex or by electronic transmission from Institutions appearing in our records as persons being entitled to a portion of the principal amount of Notes represented by a Temporary Offshore Global Note issued under the above-referenced Indenture, that as of the date hereof, $____ principal amount of Notes represented by the Temporary Offshore Global Note being submitted herewith for exchange is beneficially owned by persons that are either (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act of 1933, as amended) or (ii) U.S. persons that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended.
We further certify that (i) we are not submitting herewith for exchange any portion of such Temporary Offshore Global Note excepted in such certifications and (ii) as of the date hereof we have not received any notification from any Institution to the effect that the statements made by such Institution with respect to any portion of such Temporary Offshore Global Note submitted herewith for exchange are no longer true and cannot be relied upon as of the date hereof.
H-2
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Yours faithfully,
[Name of DTC Participant] |
||
By: |
|
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
Date: _________________
H-3
THIS NOTE IS A TEMPORARY GLOBAL NOTE. PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD APPLICABLE HERETO, BENEFICIAL INTERESTS HEREIN MAY NOT BE HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S. PERSON THAT PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”). BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR PHYSICAL NOTES OTHER THAN A PERMANENT GLOBAL NOTE IN ACCORDANCE WITH THE TERMS OF THE INDENTURE. TERMS IN THIS LEGEND ARE USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNTIL SUCH BENEFICIAL INTEREST IS EXCHANGED OR TRANSFERRED FOR AN INTEREST IN ANOTHER NOTE.
I-1
Exhibit 10.1
Secured Revolving Loan Facility
LOAN AND SECURITY AGREEMENT
Among
EFR 2018-1, LLC
,
a
Delaware limited liability company,
as Borrower,
and
PACIFIC WESTERN BANK,
as
Administrative Agent, Payment Agent, Collateral Agent
and a Lender
Dated as of
July 23, 2018
|
|
|
Page
|
I. |
DEFINITIONS |
5 |
|
|
1.1 |
General Terms |
5 |
II. |
LOAN, PAYMENTS, INTEREST AND COLLATERAL |
34 |
|
|
2.1 |
The Loan |
34 |
|
2.2 |
Interest on the Loan |
35 |
|
2.3 |
Loan Collections; Repayment. |
36 |
|
2.4 |
Promise to Pay; Manner of Payment. |
37 |
|
2.5 |
Voluntary Prepayments |
38 |
|
2.6 |
Mandatory Prepayments |
39 |
|
2.7 |
Protective Advances |
39 |
|
2.8 |
Grant of Security Interest; Collateral |
40 |
|
2.9 |
Collateral Administration |
41 |
|
2.1 |
Power of Attorney |
42 |
|
2.11 |
Collateral Account |
43 |
|
2.12 |
Maximum Loan Amount |
43 |
III. |
FEES AND OTHER CHARGES |
44 |
|
|
3.1 |
Computation of Fees; Lawful Limits |
44 |
|
3.2 |
Default Rate of Interest |
44 |
|
3.3 |
Increased Costs; Capital Adequacy |
44 |
|
3.4 |
Commitment Fee |
45 |
|
3.5 |
Unused Line Fee |
46 |
IV. |
CONDITIONS PRECEDENT |
46 |
|
|
4.1 |
Conditions to Closing |
46 |
|
4.2 |
Conditions to Revolving Advances and Funding of Borrowings |
48 |
V. |
REPRESENTATIONS AND WARRANTIES |
50 |
|
|
5.1 |
Organization and Authority |
50 |
|
5.2 |
Loan Documents |
51 |
|
5.3 |
Subsidiaries, Capitalization and Ownership Interests |
51 |
|
5.4 |
Receivables |
52 |
|
5.5 |
Other Agreements |
52 |
|
5.6 |
Litigation |
52 |
|
5.7 |
Financial Statements and Reports |
52 |
|
5.8 |
Compliance with Law |
53 |
|
5.9 |
Licenses and Permits |
53 |
|
5.1 |
No Default; Solvency |
53 |
|
5.11 |
Disclosure |
53 |
|
5.12 |
Existing Indebtedness; Investments, Guarantees and Certain Contracts |
54 |
|
5.13 |
Affiliated Agreements |
54 |
|
5.14 |
Reserved |
54 |
1
|
5.15 |
Names; Location of Offices, Records and Collateral |
54 |
|
5.16 |
Deposit Accounts and Investment Property |
54 |
|
5.17 |
Non-Subordination |
54 |
|
5.18 |
Receivables |
55 |
|
5.19 |
Servicing |
55 |
|
5.2 |
Legal Investments; Use of Proceeds |
55 |
|
5.21 |
Broker’s or Finder’s Commissions |
55 |
|
5.22 |
Anti-Terrorism; OFAC |
55 |
|
5.23 |
Security Interest |
56 |
|
5.24 |
Survival |
56 |
VI. |
AFFIRMATIVE COVENANTS |
56 |
|
|
6.1 |
Financial Statements, Reports and Other Information |
57 |
|
6.2 |
Payment of Obligations |
59 |
|
6.3 |
Conduct of Business and Maintenance of Existence and Assets |
59 |
|
6.4 |
Compliance with Legal and Other Obligations |
59 |
|
6.5 |
Reserved |
59 |
|
6.6 |
True Books |
59 |
|
6.7 |
Inspection; Periodic Audits; Quarterly Review |
60 |
|
6.8 |
Further Assurances; Post Closing |
60 |
|
6.9 |
Other Liens |
61 |
|
6.1 |
Use of Proceeds |
61 |
|
6.11 |
Collateral Documents; Security Interest in Collateral |
61 |
|
6.12 |
Servicing Agreement; Backup Servicer; |
61 |
|
6.13 |
Special Purpose Entity |
62 |
|
6.14 |
Collections. |
64 |
|
6.15 |
Reserved |
64 |
|
6.16 |
Changes to Underwriting Guidelines |
64 |
|
6.17 |
Collateral Performance and Financial Covenants |
64 |
VII. |
NEGATIVE COVENANTS |
66 |
|
|
7.1 |
Indebtedness |
66 |
|
7.2 |
Liens |
66 |
|
7.3 |
Investments; Investment Property; New Facilities or Collateral; Subsidiaries |
66 |
|
7.4 |
Dividends; Redemptions; Equity |
67 |
|
7.5 |
Transactions with Affiliates |
67 |
|
7.6 |
Charter Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names |
67 |
|
7.7 |
Transfer of Collateral; Amendment of Receivables |
68 |
|
7.8 |
Contingent Obligations and Risks |
68 |
|
7.9 |
[Reserved] |
68 |
|
7.1 |
Modifications of Agreements |
68 |
|
7.11 |
Anti-Terrorism; OFAC |
68 |
|
7.12 |
Deposit Accounts and Payment Instructions |
69 |
|
7.13 |
Servicing Agreement |
69 |
|
7.14 |
No Adverse Selection; Minimum Purchase |
69 |
2
3
|
13.8 |
Taxes |
99 |
|
13.9 |
Patriot Act |
102 |
SCHEDULES
Schedule A |
Terms, Conditions and Disclosure Schedules |
Schedule B |
Wiring Instructions |
Schedule C |
Revolving Loan Commitments |
Schedule D |
Approved States |
Schedule E |
State Licenses |
Schedule F |
Permitted Modifications |
Schedule G |
Borrower Competitors |
EXHIBITS
Exhibit A |
Form of Borrowing Base Certificate |
Exhibit B |
Form of Note |
Exhibit C |
Form of Monthly Collateral and Servicing Report |
Exhibit D |
Form of Portfolio Documents |
Exhibit E |
Form of Request for Revolving Advance |
Exhibit F |
[Reserved] |
Exhibit G |
Underwriting Guidelines |
Exhibit H |
Servicing Policy |
|
|
4
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the “ Agreement ” ) dated as of July 23, 2018, is entered into by and between EFR 2018-1, LLC , a Delaware limited liability company (“ Borrower ”), each of the financial institutions from time to time party hereto (individually each a “ Lender ” and collectively the “ Lenders ”) and PACIFIC WESTERN BANK , a California state-chartered bank (“ PacWest ”), as administrative, payment and collateral agent for itself, as a Lender and for the other Lenders (in such capacities, “ Agent ”).
WHEREAS , Borrower has requested that Lenders make available to Borrower a secured revolving loan facility in an initial principal amount of $150,000,000, the proceeds of which shall be used by Borrower to purchase certain Eligible Receivables, to pay closing expenses and for payment of fees and expenses to the Agent and Lenders, and to pay for operating expenses;
WHEREAS , Borrower is willing to grant Agent, for the benefit of itself and the other Lenders, a lien on and security interest in the Collateral to secure the Loan and other financial accommodations being granted by Agent and Lenders to Borrower; and
WHEREAS , Lenders are willing to make the Loan available to Borrower upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE , in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Borrower, Agent and Lenders hereby agree as follows:
(a) For purposes of the Loan Documents and all Annexes, Schedules and Exhibits thereto, in addition to the definitions above and elsewhere in this Agreement or the other Loan Documents, the terms listed in this Article I shall have the meanings given such terms in this Article I . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. The word “law” shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply), and all judgments, orders and decrees, of all Governmental Authorities. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (ii) any definition of or reference to any statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), (iii) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to any restrictions on
5
assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (iv) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (v) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) All capitalized terms used which are not specifically defined shall have the meanings provided in Article 9 of the UCC in effect on the date hereof to the extent the same are used or defined therein.
(c) Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if Borrower notifies Agent that Borrower requests an amendment to any provision hereof, including a Trigger Event, to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision or Trigger Event (or if Agent notifies Borrower that Requisite Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of Borrower or any Subsidiary at “fair value”, as defined therein and (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof.
“ Accession Agreement ” shall mean an Accession Agreement to the Intercreditor Agreement, executed by and among Enova, the Intercreditor Agent, Enova Loan Services, LLC, as master servicer , EFR 2016-1, LLC, Enova Finance 5, LLC, the Account Holder, and the new party or parties to be joined to the Intercreditor Agreement (in connection with this Agreement, the Borrower and the Agent).
“ Account Holder ” shall mean CNU Online Holdings, LLC, together with its successors and permitted assigns, in its capacity as such under and pursuant to the terms of the Intercreditor Agreement.
“ Account Debtor ” shall mean any Person or Persons that are an obligor in respect of any Receivable.
6
“ ACH Sweep Account ” shall mean an account established at Green Bank, N.A. bearing the account number 5501272255 , in the name of Borrower , and which is subject to an ACH Sweep Account Control Agreement, and to which a Servicer shall direct all ACH payments, if applicable, under its applicable Portfolio Documents .
“ ACH Sweep Account Control Agreement ” shall mean the Deposit Account Control Agreement, dated as of the Closing Date, by and among Agent, Borrower and Green Bank, N.A., as the depositary bank.
“ Advance ” shall mean any borrowing under and advance of the Loan, including, but not limited to, each Revolving Advance and any Protective Advance. Any amounts paid by Agent on behalf of Borrower under any Loan Document shall be an Advance for purposes of this Agreement.
“ Advance Rate ” shall mean (a) at all times prior to the commencement of the Amortization Period, eighty percent (80%) and (b) at all times from and after the commencement of the Amortization Period, seventy percent (70%); subject in each case to adjustment in accordance with the terms hereof.
“ Affiliate ” or “ affiliate ” means, as to any Person, any other Person who directly or indirectly controls, is under common control with, is controlled by or is a director or officer of such Person. As used in this definition, “control” (including its correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person who owns directly or indirectly ten percent (10%) or more of the securities having ordinary voting power for the election of the members of the board of directors or other governing body of a corporation or ten percent (10%) or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation, partnership or other Person.
“ Agent ” shall have the meaning assigned to it in the introductory paragraph hereof.
“ Agreement ” shall have the meaning assigned to it in the introductory paragraph hereof.
“ Amortization Period ” shall mean the period beginning on the expiration of the Borrowing Period and continuing through the Maturity Date.
“ Applicable Rate ” shall have the meaning assigned to it in Section 2.2(a) .
“ Applicable Law ” shall mean any and all federal, state, local and/or applicable foreign statutes, ordinances, rules, regulations, court orders and decrees, administrative orders and decrees, and other legal requirements of any and every conceivable type applicable to the Loan, the Loan Documents, Borrower, Indemnitor, Originator, Servicer or the Collateral or any portion thereof, including, but not limited to, Credit Protection Laws, credit disclosure laws and regulations, the Fair Labor Standards Act, and all applicable state and federal usury laws.
“ Applicable Margin ” shall mean four percent (4.00%).
7
“ Applicable Percentage ” shall mean, with respect to any Lender as to all Lenders, the percentage obtained by dividing (a) the aggregate amount of the Advances outstanding made by such Lender by (b) the aggregate amount of all the Advances outstanding, as such percentage may be adjusted by assignments as permitted hereunder.
“ Approved State ” shall mean, individually and collectively, each state set forth on Schedule D , as the same may be modified from time to time as agreed to in writing by Agent in its sole discretion.
“ Availability ” shall mean, at any date of determination, the lesser of (a) the Borrowing Base or (b) the aggregate of the Revolving Loan Commitments, minus , in each case, the aggregate principal balance of the outstanding Advances.
“ Available Amounts ” shall mean, as of any date of determination, any and all Collections on deposit in the Collateral Account.
“ Average Daily Balance ” shall have the meaning assigned to it in Section 2.2(b) hereof.
“ Backup Servicer ” shall mean First Associates Loan Servicing, LLC, a Delaware limited liability company, or such other Person as Agent engages from time to time in accordance with this Agreement, all in accordance with the terms, provisions, and conditions of Backup Servicing Agreement.
“ Backup Servicing Fee ” shall mean any fee payable monthly by Borrower to Backup Servicer, such fee to be as specified in the applicable Backup Servicing Agreement.
“ Backup Servicing Agreement ” shall mean a Backup Servicing Agreement entered into by and among Servicer, Borrower and Backup Servicer, dated on or about the Closing Date, regarding the provision of certain backup servicing and verification services by the Backup Servicer with respect to the Receivables, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“ Bank Partner ” means Republic Bank & Trust Company.
“ Bank Program Receivable ” shall mean a Receivable originated by Bank Partner and sold to NetCredit Finance, LLC pursuant to that certain Loan Purchase Agreement dated as of February 15, 2016, and then further sold to Holdings pursuant to a Transfer Agreement.
“ Bankruptcy Code ” shall mean Title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq., as amended from time to time.
“ Blocked Account Control Agreement ” shall mean any of (a) the Blocked Account Control Agreement, dated as of December 14, 2016 (as amended, restated, supplemented or otherwise modified from time to time), by and among the Intercreditor Agent, the Account Holder and Green Bank, N.A., as the depositary bank, or (b) any blocked account control agreement, by and among the Intercreditor Agent, the relevant account holder and the depositary bank where the related account is held, which is in form and substance reasonably acceptable to Agent.
8
“ Borrower ” shall have the meaning assigned to it in the introductory paragraph hereof.
“ Borrower Competitor ” shall mean (i) each Person identified on Schedule G hereto and (ii) any Person engaged in a substantially similar business as Borrower, Holdings and/or Enova, provided, however, any such Person that is an Eligible Assignee and not identified on Schedule G shall not be considered a “Borrower Competitor” for any purpose hereunder.
“ Borrowing Base ” shall mean, at any time, (i) an amount equal to the product of the then applicable Advance Rate multiplied by the sum of the Receivable Balances due under or in respect of all Eligible Receivables pledged to Agent as Collateral hereunder or pursuant to any other Loan Document, plus (ii) the aggregate amount of Excess Principal Collections on deposit in the Collateral Account, minus (iii) the Excess Concentration Amounts.
“ Borrowing Base Certificate ” shall mean a Borrowing Base Certificate substantially in the form of Exhibit A hereto.
“ Borrowing Period ” shall mean the period from and including the Closing Date through and including the earlier of (a) the Termination Date, (b) July 22, 2021, (c) any Trigger Event, or (d) the occurrence and continuance of a Default or an Event of Default.
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, the State of New York or the State of Illinois and, if such day relates to the calculation of the LIBOR Rate, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
“ Cash Equivalents ” shall mean (a) securities issued, or directly and fully guaranteed or insured, by the United States or any agency or instrumentality thereof ( provided , that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six (6) months from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposit and bankers’ acceptances of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000, or (ii) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor’s Ratings Services (“ S&P ”) is at least A‑2 or the equivalent thereof or from Moody’s Investors Service, Inc. (“ Moody’s ”) is at least P‑2 or the equivalent thereof in each case with maturities of not more than six months from the date of acquisition, or (iii) Agent (any bank meeting the qualifications specified in clauses (b)(i), (ii) or (iii), an “ Approved Bank ”), (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a), above, entered into with any Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A‑2 or the equivalent thereof by S&P or at least P‑2 or the equivalent thereof by Moody’s, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody’s, as the case may be, and in each case maturing within six months after the date of acquisition and (e) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (a) through (d) above.
9
“ Change in Law ” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided however , that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“ Change of Control ” shall mean with respect to Borrower, the occurrence of any of the following:
(a) Enova, at any time for any reason ceases to directly or indirectly own 100% of the issued and outstanding Equity Interests of Borrower, Holdings, Servicer, any Subsidiary that is an Originator or any Subsidiary that is a purchaser of Bank Program Receivables (as the same may be adjusted for any combination, recapitalization or reclassification into a greater or smaller number of shares or units), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings (other than Liens evidenced by the Pledge Agreement); or
(b) an event or series of events by which any one “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of Enova or its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 50% or more of the equity securities of Enova entitled to vote for members of the board of directors or equivalent governing body of Enova on a fully-diluted basis.
“ Charged-Off Percentage ” shall mean, with respect to any calendar month, the percentage calculated by dividing (a) the aggregate Receivable Balance of all Receivables that became Charged-Off Receivables during such month (calculated as of the date each such Receivable became a Charged-Off Receivable hereunder) by (b) the aggregate Receivable Balance (calculated as of the first day of such month) of all Receivables pledged as Collateral.
“ Charged-Off Receivable ” shall mean a Receivable that (i) has been specifically and separately reserved against by any Originator, Servicer, Borrower or the applicable owner thereof or deemed charged-off or non-collectible by any such Person in accordance with the Underwriting Guidelines (including, without limitation, because of fraud), (ii) at any point is sixty-five (65) days or more past due, or (iii) unless otherwise approved by Agent in writing in its sole discretion, for which Servicer or Borrower or any Affiliate of Servicer or Borrower shall have been notified that the related Account Debtor shall have become the subject of a proceeding under a Debtor Relief Law.
10
“ Charter and Good Standing Documents ” shall mean, for the applicable Person, (a) a copy of the certificate of incorporation, certificate of formation, statutory certificate of trust or other applicable charter document certified as of a date not more than thirty (30) days before the Closing Date by the applicable Governmental Authority of the jurisdiction of incorporation of such Person, (b) a copy of the bylaws, operating agreement, trust agreement or other applicable organizational document certified as of the Closing Date by an authorized officer or member of such Person, (c) an original certificate of good standing or existence, as applicable, as of a date not more than thirty (30) days before the Closing Date issued by the applicable Governmental Authority of the jurisdiction of incorporation of such Person and of every other jurisdiction in which such Person is otherwise required to be in good standing, and (d) copies of the resolutions of the Board of Directors (or other applicable governing body or trustee) and, if required, stockholders or other equity owners authorizing the execution, delivery and performance of the Loan Documents to which such Person, as applicable, is a party, certified by an authorized officer or member of such Person as of the Closing Date.
“ Claims ” shall have the meaning assigned to such term in Section 12.4 .
“ Closing ” shall mean the satisfaction, or written waiver by Agent and Lenders, of all of the conditions precedent set forth in this Agreement required to be satisfied prior to the consummation of the transactions contemplated hereby.
“ Closing Date ” shall mean the date of this Agreement.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and all rules and regulations promulgated thereunder.
“ Collateral ” shall have the meaning assigned to such term in Section 2.8 of this Agreement.
“ Collateral Account ” shall mean that certain deposit account at Pacific Western Bank, held in the name of Borrower, with account number 1001850377, or such other replacement deposit account acceptable to Agent in its sole discretion.
“ Collateral Account Control Agreement ” means that certain Account Control Agreement dated as of the Closing Date among Agent, Pacific Western Bank (in its capacity as the deposit account bank for the Collateral Account) and Borrower, as amended, restated or modified from time to time.
“ Collection Receipt Accounts ” shall mean the accounts (1) bearing account number 5501156086, held by the Account Holder on behalf of the Servicer at Green Bank, N.A., and (2) any other account (other than the Wells Fargo Account) designated by Servicer in a notice to Agent as an account into which Collections may be deposited, each of which shall (prior to, and as a condition precedent to, any amounts being deposited therein) be subject to a Blocked Account Control Agreement and the Intercreditor Agreement, and for which the Account Debtor may (once such account is subject to a Blocked Account Control Agreement and the Intercreditor Agreement) remit all payments under its applicable Receivable other than ACH payments, which shall be remitted to the Collateral Account.
11
“ Collections ” shall mean, individually and collectively, as it relates to any and all Receivables, (a) all Scheduled Payments, interest, principal, prepayments (both voluntary and mandatory), fees or late charges collected from or on behalf of the Account Debtors on the Receivables, (b) all amounts received pursuant to a Permitted Securitization related to Collateral released in connection therewith, (c) all liquidation proceeds collected from the sale or disposition of any Receivable and/or any property related thereto, whether to a third party purchaser or an Affiliate of Borrower and (d) any and all proceeds of Collateral and/or other amounts received of any and every description payable to Borrower by or on behalf of such Account Debtor pursuant to the applicable Receivable, the related Portfolio Documents, or any other related documents or instruments, including, but not limited to, judgment awards or settlements, and refinancing proceeds.
“ Commitment Fee ” shall have the meaning assigned to it in Section 3.4 .
“ Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“ Contingent Obligations ” shall mean, as to any Person, any obligation of such Person guaranteeing any Indebtedness, leases, dividends or other obligations (“ primary obligations ”) of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or to hold harmless the owner of such primary obligation against loss in respect thereof, provided , however , that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.
“ Contract Right ” shall mean any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.
“ Credit Protection Laws ” means all federal, state and local laws in respect of the business of extending credit to borrowers, including the Truth in Lending Act (and Regulation Z promulgated thereunder), Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, GLBA, Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, anti-discrimination and fair lending laws, laws relating to servicing procedures or maximum charges and rates of interest, and other similar laws, each to the extent applicable, and all applicable regulations in respect of any of the foregoing.
12
“ Debtor Relief Law ” shall mean, collectively, the Bankruptcy Code and all other United States or foreign applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws from time to time in effect affecting the rights of creditors generally, as amended from time to time.
“ Default ” shall mean any event, fact, circumstance or condition that, with the giving of applicable notice or passage of time, if any, or both, would constitute or be or result in an Event of Default.
“ Default Rate ” shall have the meaning assigned to it in Section 3.2 hereof.
“ Delinquency Percentage ” shall mean, with respect to any calendar month, the percentage calculated by dividing (a) the aggregate Receivable Balance of all Delinquent Receivables at the end of such month by (b) the aggregate Receivable Balance (calculated as of the last day of such month) of all Receivables pledged as Collateral.
“ Delinquent Receivable ” shall mean any Eligible Receivable which is one (1) to sixty-four (64) days past due and is not a Charged-Off Receivable; provided, that, any Receivable that is subject to a Permitted Modification, as described in clause (iv) of such definition, shall not be a Delinquent Receivable until such Receivable becomes past due following its updated scheduled payment date and at such time the days past due shall be calculated as of the corresponding original due date. However, if a Payment Deferral is effected for an otherwise Delinquent Receivable, the Payment Deferral shall not cure or stay the loan delinquency status upon the Payment Deferral being effected.
“ Deposit Account ” shall mean, individually and collectively, the Collateral Account and any bank or other depository accounts of Borrower.
“ Dollars ” and “ $ ” shall mean lawful money of the United States of America.
“ Due Period ” shall mean, as of any date of determination, the immediately preceding calendar month.
“ E-Fax ” means any system used to receive or transmit faxes electronically.
“ Electronic Transmission ” means each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by electronic mail (“e-mail”) or E-Fax, or otherwise to or from an electronic system or other equivalent service.
“ Eligible Assignee ” means (a) any Lender or Affiliate of a Lender, (b) a commercial bank organized under the laws of the United States, any state thereof, or the laws of any other country, (c) a finance company, insurance company or other financial institution or fund which is engaged in making, purchasing or otherwise investing in commercial loans or other debt obligations for its own account in the ordinary course of its business, (d) any fund, trust or similar entity that invests in commercial loans in the ordinary course of its business and is advised or managed by (i) a Lender, (ii) an Affiliate of a Lender, (iii) the same investment adviser that manages a Lender or (iv) an Affiliate of an investment adviser that manages a Lender, or (e) any finance company,
13
insurance company or other financial institution which temporarily warehouses Loans for any Lender or any Person described in clause ( d ) above .
“ Eligible LMP Refinancing Receivable ” shall mean an Eligible Refinancing Receivable as to which (i) the principal balance on the date such Eligible Refinancing Receivable was originated is the same as the Receivable Balance plus its capitalized accrued interest on such date of the applicable refinanced Receivable and (ii) the final scheduled maturity date is later than the final scheduled maturity date of the applicable refinanced Receivable.
“ Eligible LMR Refinancing Receivable ” shall mean any Receivable related to a Refinancing that has had its original interest rate lowered for any reason, other than as a result of the requirements of the Servicemembers Civil Relief Act of 2003.
“ Eligible Receivables ” shall mean those Receivables that meet all of the following requirements:
(a) payments under such Receivable are due in Dollars and the Portfolio Documents do not permit the currency in which such Receivable is payable to be changed, and all previous payments have been made by the related Account Debtor and not by Originator, Servicer, Borrower or any Affiliate thereof;
(b) no Account Debtor with respect to such Receivable is a “ foreign person ” within the meaning of Sections 1445 and 7701 of the Code (i.e. no Account Debtor is a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Code and regulations promulgated thereunder); provided however, United States military employees and personnel living, working or deployed outside of the United States shall not be excluded or deemed a “foreign person” described above;
(c) such Receivable was acquired by Holdings pursuant to the Transfer Agreement and by Borrower pursuant to the Purchase and Sale Agreement, such Receivable shall be 100% owned directly by Borrower, no other Person (other than Borrower and Agent, for the benefit of the Lenders) owns or claims any legal or beneficial interest therein or lien thereon, and such Receivable has not been participated, bifurcated syndicated or otherwise divided by Originator or any other Person;
(d) such Receivable is a fully amortizing loan and payments in respect of such Receivable shall be due and payable no less frequently than once per month and no more frequently than three times per month in equal installments of interest and principal (other than one or two unequal scheduled payments);
(e) such Receivable shall be a State Licensed Receivable;
(f) the Account Debtor for any Receivable shall not have resided in the States of Virginia, West Virginia, Maryland or Colorado when such Receivable was originated;
(g) such Receivable and all related Portfolio Documents shall have been duly authorized, shall be in full force and effect and shall represent a legal, or valid and binding and absolute and unconditional payment obligation of the applicable Account Debtor enforceable
14
against such Account Debtor in accordance with its terms for the amount outstanding thereof without any right of rescission, offset, counterclaim, dispute, discount, adjustment or defense, except to the extent that enforceability may be limited by Debtor Relief Laws and general principles of equity, and is not contingent in any respect for any reason, there are no conditions precedent to the enforceability or validity of the Receivable that have not been satisfied or waived, and the Account Debtor has no bona fide claim against Borrower or Originator or any Affiliate thereof, and there are no restrictions or prohibitions on the sale, transfer, or assignment of such Receivable by the holder thereof as of any date of determination, and all statutory or other applicable cancellation or rescission periods related thereto have expired;
(h) the promissory note and all other Portfolio Documents requiring the signature of an Account Debtor were executed by the applicable Account Debtor Originator via a power of attorney with a digital or electronic signature in accordance with the Uniform Electronic Transaction Act or, as applicable to the jurisdiction governing such promissory note, the Electronic Signatures in Global and National Commerce Act (E-Sign Act), including all consumer consent and other applicable provisions thereof;
(i) all amounts and information in respect of such Receivable furnished by Borrower or Servicer to Agent shall be true and correct as of the date such information is furnished and, to the knowledge of the Borrower, is undisputed by the Account Debtor thereon or any guarantor thereof;
(j) the form of Portfolio Documents relating to such Receivable shall be substantially in the form of Exhibit D attached hereto or shall otherwise be in form and content acceptable to Agent in its reasonable discretion;
(k) such Receivable represents the undisputed, bona fide transaction created by the lending of money by Originator in the ordinary course of Originator’s business and completed in accordance with the terms and provisions contained in the related Portfolio Documents;
(l) the applicable Account Debtor shall have personal recourse for all amounts owed with respect to such Receivable;
(m) the Account Debtor with respect to such Receivable is not the subject of any proceeding under any Debtor Relief Law, and shall not have been the subject of any proceeding under any Debtor Relief Law for the immediately preceding calendar year;
(n) such Receivable shall not be a revolving line of credit;
(o) such Receivable shall have been originated, serviced and administered in accordance with the Underwriting Guidelines and Servicing Policy, as applicable;
(p) such Receivable shall not have been specifically and separately reserved against by Borrower or deemed charged-off or non-collectible by Borrower, any Originator or Servicer;
(q) such Receivable is not a Charged-Off Receivable;
15
(s) no instrument of release or waiver has been executed by Borrower, Servicer or any Affiliate thereof in connection with any Portfolio Document related to such Receivable, and the Account Debtor has not been released from its obligations under such Receivable in whole, or in part;
(t) such Receivable shall not have been modified in any way to alter or obscure its status as an Ineligible Receivable after having been substituted with an Eligible Receivable (for the avoidance of doubt, this clause shall not include Permitted Modifications);
(u) other than Permitted Modifications, such Receivable and the related Portfolio Documents shall not have been amended, modified or waived from their original terms;
(v) such Receivable and all Portfolio Documents entered into in connection therewith and the origination by Originator, acquisition thereof by Borrower and servicing and administration by Servicer shall comply in all material respects with all Applicable Laws;
(w) the Receivable is not subject to a Level Two Regulatory Event;
(x) such Receivable shall have an annual percentage rate of not less than twenty percent (20%) per annum;
(y) such Receivable shall have an annual percentage rate of not greater than ninety nine and ninety nine one hundredths percent (99.99%) per annum;
(z) such Receivable shall not have a gap between any two chronological payments greater than sixty-two (62) days;
(aa) no portion of any Scheduled Payment for such Receivable shall be (i) delinquent at the time such Receivable is pledged as Collateral or (ii) more than thirty (30) days delinquent at any time thereafter;
(bb) the original term to maturity of such Receivable does not exceed sixty (60) months, when rounded to the nearest month;
(cc) the outstanding principal balance and the original principal balance of such Receivable does not exceed $10,000;
(dd) none of Originator, Servicer, Borrower, not any Affiliate thereof shall be engaged in any adverse proceeding or other adverse litigation with the applicable Account Debtor related to such Receivable;
(ee) all repurchase obligations of Holdings related to such Receivable pursuant to the Purchase and Sale Agreement have been guaranteed by Enova;
(ff) such Receivable shall not be evidenced by a judgment or have been reduced to judgment;
16
(gg) the Portfolio Documents with respect to such Receivable do not constitute “electronic chattel paper” (as such term is defined in the UCC);
(hh) the representations and warranties (i) the applicable Seller made with respect to such Receivable in the Transfer Agreement and (ii) Holdings made with respect to such Receivable in the Purchase and Sale Agreement were true and correct when made in each instance;
(ii) such Receivable is not an Ineligible Receivable;
(jj) the Account Debtor in relation to such Receivable is not an officer, director or manager of Borrower or any Affiliate thereof and is not employed by, related to or otherwise an Affiliate of Borrower;
(kk) such Receivable shall have been originated exclusively for consumer purposes and not commercial purposes;
(ll) such Receivable shall not be a “Credit Counseling Receivable” (as defined in the Servicing Policy);
(mm) no Account Debtor with respect to such Receivable is confirmed to be deceased;
(nn) such Receivable was originated or purchased by Enova or its Subsidiary and constitutes a “NetCredit” product offered by Enova or such Subsidiary, and is not a “CashNetUSA”, “DollarsDirect”, “Pounds to Pocket”, “QuickQuid”, “OnStride Financial”, “Headway Capital” or “Business Backer” product offered by Enova and its Subsidiaries; and
(oo) if resulting from a Refinancing, such Receivable is an Eligible Refinancing Receivable;
(pp) as of the Origination Date with respect to such Receivable, the applicable Account Debtor has a Vantage Score equal to or greater than 500; and
(qq) such Receivable shall have been originated in an Approved State.
“ Eligible Refinancing Receivable ” shall mean a Receivable that was (i) originated or underwritten pursuant to the Underwriting Guidelines and (ii) originated or acquired in connection with a Refinancing as to which, as of the date of such Refinancing, such refinanced Receivable’s status was current with no amount past due.
“ Enova ” means Enova International, Inc., a Delaware corporation.
“ Enova Loan Agreement ” means that certain Credit Agreement dated as of June 30, 2017 among Enova, certain wholly-owned Restricted Subsidiaries (as defined in the Enova Loan Agreement), the guarantors party thereto, the lenders party thereto and TBK BANK, SSB, as administrative agent and collateral agent for such lenders as amended, restated, extended, supplemented and/or otherwise modified from time to time.
17
“ Equity Interests ” shall mean, with respect to any Person, its equity ownership interests, its common stock and any other capital stock or other equity ownership units of such Person authorized from time to time, and any other shares, options, interests, participations or other equivalents (however designated) of or in such Person, whether voting or nonvoting, including common stock, options, warrants, preferred stock, phantom stock, membership units (common or preferred), stock appreciation rights, membership unit appreciation rights, convertible notes or debentures, stock purchase rights, membership unit purchase rights and all securities convertible, exercisable or exchangeable, in whole or in part, into any one or more of the foregoing.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“ Event of Default ” shall mean the occurrence of any event defined as such set forth in Article VIII .
“ Excess Concentration Amount ” shall mean, without duplication, the aggregate Receivable Balance of Eligible Receivables that cause the applicable Excess Concentration Limits to not be met.
“ Excess Concentration Limits ” shall mean the following limitations:
(a) The weighted average original term to maturity of the Financed Portfolio shall be equal to or less than fifty-six (56) calendar months;
(b) The weighted average per annum annual percentage rate of the Financed Portfolio shall be equal to or greater than forty-five percent (45%);
(c) The average original principal balance of the Financed Portfolio shall be less than $7,500;
(d) No more than fifty-five percent (55%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall consist of Receivables with Account Debtors who were domiciled in any individual state at the Origination Date of such Receivable;
(e) No more than forty-five percent (45%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall have a Vantage Score of less than 600;
(f) No more than seven and one half percent (7.5%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall have been subject to a Permitted Modification;
(g) No more than forty percent (40%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall have a per annum annual percentage rate of greater than seventy percent (70%);
(h) No more than ten percent (10%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall have a Vantage Score of less than 550;
18
(i) No more than sixty-five percent (65%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall have an original term greater than forty-eight (48) months;
(j) No more than twenty-five percent (25%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall consist of Eligible Refinancing Receivables;
(k) No more than three percent (3%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall consist of Eligible LMP Refinancing Receivables;
(l) No more than three percent (3%) (as determined by aggregate Receivables Balance) of the Financed Portfolio shall consist of Eligible LMR Refinancing Receivables; and
(m) The weighted average payment-to-income ratio of all Account Debtors (determined and calculated in accordance with the Underwriting Guidelines) shall be less than ten percent (10%).
“ Excess Principal Collections ” shall mean, as of any date that is one day prior to any date of determination, an amount equal to the amount of principal payments received by Servicer since the culmination of the last Due Period, solely to the extent such payments (i) consist of principal payments on Eligible Receivables and (ii) are in excess of the amounts necessary to satisfy an amount equal to the product of (x) one and one-quarter (1.25) and (b) all estimated accrued and unpaid Interest, Servicing Fees, and known expenses in excess of $10,000 that will be payable on the next payment date pursuant to Section 2.4(a)(i) – (v) .
“ Excess Spread ” shall mean for any calendar month, the product of (a) a fraction (expressed as a percentage) (i) the numerator of which is the sum of (x) all interest and fees collected in the Collateral Account during such immediately preceding calendar month with respect to Receivables pledged hereunder, less (y) the sum of (A) the interest paid by Borrower on the Loan for the immediately preceding calendar month and (B) the expenses paid by Borrower for the immediately preceding calendar month to third-party service providers pursuant to Section 2.4(a)(i) and (ii) , less (z) the Receivables Balance of all Receivables pledged hereunder that became Charged-Off Receivables (calculated as of the date such Receivable became a Charged-Off Receivable hereunder) during the immediately preceding calendar, and (ii) the denominator of which is the Receivable Balance of all Receivables pledged as Collateral at such time of determination multiplied by (b) twelve (12).
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
“ Excluded Taxes ” shall mean any of the following Taxes imposed on or with respect to the Agent and any Lender (each a “ Recipient ”) or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the
19
date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by Borrower under Section 3.3(e)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 13.8, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 13.8(f) and (d) any U.S. federal withholding Taxes imposed under FATCA.
“ Fair Valuation ” shall mean the determination of the value of the consolidated assets of a Person on the basis of the amount which may be realized by a willing seller within a reasonable time through collection or sale of such assets at market value on a going concern basis to an interested buyer who is willing to purchase under ordinary selling conditions in an arm’s length transaction.
“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code
or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.
“ Federal Funds Rate ” shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Agent on such day on such transactions as determined by Agent.
“ Financed Portfolio ” shall mean, on any date of determination, all Eligible Receivables included within the calculation of the Borrowing Base as set forth in the most recently-delivered Borrowing Base Certificate delivered to Agent by Borrower.
“ GAAP ” means generally accepted accounting principles in the United States set forth in the statements and pronouncements of the Financial Accounting Standards Board, that are applicable to the circumstances as of the date of determination, consistently applied.
“ GLBA ” shall mean, collectively, Title V – Privacy – of the Gramm-Leach-Bliley Act, P.L. 106-102 and the standards for safeguarding customer information set forth in 12 C.F.R. Part 364 and 16 C.F.R. Part 314, all as amended, supplemented or interpreted in writing by federal Governmental Authorities.
“ Governmental Authority ” shall mean any federal, state, municipal, national, local or other governmental department, court, commission, board, bureau, agency or instrumentality or political subdivision thereof, including any attorney general or agency related thereto, or any entity or
20
officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case, whether of the United States or a state, territory or possession thereof, a foreign sovereign entity or country or jurisdiction or the District of Columbia.
“ Holdings ” shall mean NetCredit Funding, LLC, a Delaware limited liability company.
“ Indebtedness ” of any Person shall mean, without duplication, (a) all items which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute Indebtedness, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, Equity Interests, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable and (d) any Contingent Obligations.
“ Indemnified Person ” shall have the meaning assigned to it in Section 12.4 hereof.
“ Indemnified Taxes ” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Borrower under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“ Indemnitor ” shall mean, individually and collectively, (i) Enova and (ii) any other Person party to the Guaranty as a guarantor from time to time.
“ Indemnity Agreement ” shall mean that certain Indemnity Agreement, dated as of the Closing Date, executed by each Indemnitor in favor of Agent, as the same may be further amended, modified, supplemented, restated, replaced or renewed in writing from time to time.
“ Ineligible Receivable ” shall mean any Receivable that (a) must be repurchased by the applicable seller under the Transfer Agreement because of a breach by such seller of a related representation or warranty, (b) must be repurchased by Holdings under the Purchase and Sale Agreement because of a breach by Holdings of a related representation or warranty, (c) must be repurchased by the Bank Partner because of a breach by Bank Partner of a related representation or warranty, (d) subsequent to such Receivable being pledged to Agent as Collateral pursuant to this Agreement, fails to meet any or all of the requirements to be an Eligible Receivable, or (e) is a Bank Program Receivable.
“ Intercreditor Agent ” shall mean Bankers Trust Company, in its capacity as the “Agent” under and pursuant to the terms of the Intercreditor Agreement.
“ Intercreditor Agreement ” shall mean the Intercreditor Agreement re Collection Receipt Accounts, dated as of January 15, 2016, as amended by the First Amendment thereto, dated as of
21
December 14, 2016 (as further amended, restated, supplemented or otherwise modified from time to time), by and among Enova, Servicer, Enova Finance 5, LLC, EFR 2016-1, LLC , Borrower, the Account Holder, Agent and the Intercreditor Agent, and such other Persons as may become parties thereto by executing an Accession Agreement.
“ Interest Coverage Ratio ” shall mean, as of any date of determination, the ratio calculated by Agent of (i) net interest income of Borrower for the most-recently completed consecutive six (6) calendar month period (net of any Servicing Fees paid to Servicer) to (ii) the Interest Expense payable by Borrower for such period.
“ Interest Expense ” shall mean total interest expense generated during the period in question of Borrower with respect to all outstanding Indebtedness under this Agreement and the other Loan Documents.
“ Investment Company Act ” means the Investment Company Act of 1940, as amended.
“ Lender ” and “ Lenders ” shall have the meanings assigned to them in the introductory paragraph hereof.
“ Lender Addition Agreement ” shall have the meaning assigned to it in Section 12.2(a ) hereof.
“ Lender Register ” shall have the meaning assigned to it in Section 12.2(c) hereof.
“ Leverage Ratio ” shall mean, with respect to Enova and its Subsidiaries on a consolidated basis, at any date of determination, the ratio of (a) the total Indebtedness minus the amounts of any obligations outstanding under any Permitted Receivables Financing to (b) the total shareholders’ equity, as provided on the balance sheet of Enova and its Subsidiaries on a consolidated basis prepared in accordance with GAAP.
“ LIBOR Rate ” means a daily fluctuating rate per annum equal to the rate of interest which is identified and normally published by Bloomberg Professional Service page USD-LIBOR-ICE as the offered rate for loans in United States dollars for a thirty (30) day period. The rate is set by the ICE Benchmark Administration Limited as of 11:00 a.m. (London time) as adjusted on a daily basis and effective on the second full Business Day after each such day (unless such date is not a Business Day, in which event the next succeeding Business Day will be used). If Bloomberg Professional Service (or another nationally-recognized rate reporting source acceptable to Agent) no longer reports the LIBOR Rate or Agent determines in good faith that the rate so reported no longer accurately reflects the rate available to Agent in the London Interbank Market or if such index no longer exists or if page USD-LIBOR-ICE no longer exists or accurately reflects the rate available to Agent in the London Interbank Market, Agent may select a replacement index or replacement page, as the case may be. Notwithstanding anything contained herein to the contrary, in no event shall the LIBOR Rate be less than one percent (1.0%) per annum.
“ Lien ” shall mean any mortgage, deed of trust, deed to secure debt, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof), or any other arrangement pursuant to which title to the property is retained by or vested in some other Person for security purposes.
22
“ Liquidity ” shall mean , as of any date of determination, the amount of Enova’s Qualified Cash on such date .
“ Loan ” shall mean, collectively, each Revolving Advance, any Protective Advances or other Advances by Agent or Lenders pursuant to the terms hereof, and all Obligations related thereto.
“ Loan Documents ” shall mean, collectively and each individually, this Agreement, any Notes, the Security Documents, the Servicing Agreement, the Backup Servicing Agreement, the Indemnity Agreement, each Borrowing Base Certificate, each Transfer Agreement, the Purchase and Sale Agreement, the Intercreditor Agreement and any account control agreement and all other agreements, documents, instruments and certificates heretofore or hereafter executed or delivered to Agent and/or Lenders in connection with any of the foregoing or the Loan, as the same may be amended, modified or supplemented from time to time.
“ Material Adverse Effect ” or “ Material Adverse Change ” shall mean any development, event, condition, obligation, liability or circumstance or set of events, conditions, obligations, liabilities or circumstances or any change(s) which:
(a) has, had or reasonably could be expected to have a material adverse effect upon or change in (i) the legality, validity or enforceability of any Loan Document, (ii) the perfection or priority of any Lien granted to Agent or any Lender under any of the Security Documents or (iii) the value, validity, enforceability or collectability of the Receivables or any of the other Collateral;
(b) has been or reasonably could be expected to be material and adverse to the value of any of the Collateral or to the business, operations, properties, assets, liabilities or condition (financial or otherwise) of Borrower; or
(c) has materially impaired or reasonably could be expected to materially impair the ability of Borrower to perform any of the Obligations or its other obligations, or to consummate the transactions, under the Loan Documents.
“ Maturity Date ” shall mean July 22, 2023.
“ Maximum Loan Amount ” shall mean an amount equal to the lesser of (a) $150,000,000, as such amount may be increased in accordance with Section 2.12 , below and (b) the aggregate amount of the Revolving Loan Commitments held by all of the Lenders.
“ Maximum Rate ” shall mean the highest lawful and non-usurious rate of interest applicable to the Loan, that at any time or from time to time may be contracted for, taken, reserved, charged, or received on the Loan and the Obligations under the laws of the United States and the laws of such states as may be applicable thereto, that are in effect or, to the extent allowed by such laws, that may be hereafter in effect and that allow a higher maximum non-usurious and lawful interest rate than would any Applicable Laws now allow.
23
“ Monthly Collateral and Servicing Report ” shall mean each monthly report prepared by Borrower substantially in the form of Exhibit C attached hereto, or as otherwise approved by Agent in its sole discretion.
“ NCLS ” shall mean NetCredit Loan Services, LLC, a Delaware limited liability company.
“ Net Charge-Off Ratio ” shall mean, as of any date of determination, with respect to any Quarterly Vintage Pool, the percentage calculated by dividing (a) the aggregate Receivable Balances of all Charged-Off Receivables in such Quarterly Vintage Pool (calculated as of the date each such Receivable became a Charged-Off Receivable hereunder), minus all Collections received on each such Charged-Off Receivable from and after the date such Receivable became a Charged-Off Receivable hereunder, by (b) the aggregate Receivable Balance (calculated as of the Origination Dates of such Receivables) of all Receivables in such Quarterly Vintage Pool.
“ Net Income ” shall mean the net income (or loss) of any Person for such period taken as a single accounting period determined by reference to GAAP.
“ Net Worth ” shall mean, as of any date, the total shareholder’s equity (including capital stock (including preferred stock), additional paid-in capital, and retained earnings after deducting treasury stock) which would appear on a balance sheet of Enova and its Subsidiaries on a consolidated basis prepared as of such date in accordance with GAAP, but excluding all other comprehensive income or losses resulting from foreign currency translation adjustments or derivative value fluctuation.
“ New Lending Office ” shall have the meaning assigned to it in Section 13.8(g) .
“ Non-Funding Lender ” shall have the meaning assigned to it in Section 13.7 .
“ Note(s) ” shall mean, individually and collectively, any promissory notes payable to the order of the Agent, for the benefit of Lenders or payable to a Lender, executed by Borrower evidencing the Loan, as the same may be amended, modified, supplemented and/or restated from time to time.
“ Obligations ” shall mean, without duplication, all present and future obligations, Indebtedness and liabilities of Borrower to Agent and Lenders at any time and from time to time of every kind, nature and description, direct or indirect, secured or unsecured, joint and several, absolute or contingent, due or to become due, matured or unmatured, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, under any of the Loan Documents or otherwise relating to this Agreement, any Notes and/or the Loan, including interest, all applicable fees, charges and expenses and/or all amounts paid or advanced by Agent or a Lender on behalf of or for the benefit of Borrower for any reason at any time, and including, in each case, obligations of performance as well as obligations of payment and interest that accrue after the commencement of any proceeding under any Debtor Relief Law by or against Borrower.
“ OFAC ” shall mean the U.S. Department of Treasury’s Office of Foreign Asset Control.
“ Origination Date ” shall mean the date of the closing and funding of the applicable Receivable between the Originator and the applicable Account Debtor.
24
“ Originator ” shall mean, individually and collectively, (i) with respect to any Bank Program Receivable, Bank Partner, and any other banking institution which is approved by Agent in writing, in its sole discretion, to be an originator of any Bank Program Receivables, and (ii) with respect to State Licensed Receivables, Enova and its Subsidiaries.
“ Other Connection Taxes ” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“ Other Lender ” shall have the meaning assigned to it in Section 13.7 .
“ Other Taxes ” shall have the meaning assigned to in Section 13.8(b) .
“ Participant ” shall have the meaning assigned to it in Section 12.2(b) hereof.
“ Participant Register ” shall have the meaning assigned to it in Section 12.2(b).
“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56 (signed into law October 26, 2001), as amended.
“ Payment Date ” shall mean the twentieth (20 th ) day of each calendar month, or if such day is not a Business Day, on the next succeeding Business Day.
“ Payment Deferral ” shall mean, with respect to a Receivable and a related Account Debtor, the deferral of a scheduled installment payment from such Account Debtor’s next Scheduled Payment date to a new Scheduled Payment date, which follows the Scheduled Payment date that theretofore had been the final scheduled maturity date of such Receivable.
“ Permit ” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations and approvals.
“ Permitted Dispositions ” means, so long as no Trigger Event or Event of Default has occurred and is continuing as of such date of determination, each of the following, provided that in each case, all net cash proceeds of such disposition are immediately deposited in a Collection Receipts Account:
(a) a sale of Charged-Off Receivables in the ordinary course of business to a third party purchaser on an arms-length basis; or
(b) a sale of one or more Receivables by Borrower to any Originator from time to time in connection with a repurchase by such Originator of such Receivable(s) as a result of a breach of the representations and warranties of such Person under the Purchase and Sale Agreement.
25
“ Permitted Liens ” shall have the meaning assigned to it in Section 7.2 .
“ Permitted Modification ” shall mean any modification described in the Section labeled “Servicing Modifications” of the Servicing Policy and set forth on Schedule F attached hereto. For the avoidance of doubt, any change to such sections shall be deemed a material change, and shall require prior approval from the Agent.
“ Permitted Receivables Financing ” shall mean any non-recourse Receivables financing facility or Permitted Securitization.
“ Permitted Securitization ” shall mean an off-balance sheet Receivables term financing facility pursuant to which Receivables are sold, transferred or contributed to a Securitization Affiliate which are then pledged to a Securitization Lender in connection with a broadly marketed and distributed issuance of asset-backed securities; provided , that, (a) only three (3) Permitted Securitizations shall be permitted to occur during the Borrowing Period and (b) any Receivables selected to be sold, transferred or contributed by Borrower, Holdings, Enova or any other Subsidiary of Enova in connection with such facility must be selected from all similar Receivables of Borrower or Holdings at random and with no intention to select Receivables that would result in an adverse effect to the pool of Receivables pledged as Collateral hereunder or Agent’s collateral position generally (as determined by Agent in its sole discretion); provided further , that selection procedures that merely reflect differing eligibility criteria and excess concentration limits between this Facility and other credit facilities shall not be deemed to violate this provision.
“ Person ” shall mean an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature.
“ Pledge Agreement ” shall mean that certain Pledge Agreement, dated as of the date hereof, made by Holdings in favor of Agent, for the benefit of Lenders, as the same may be amended, modified or restated from time to time.
“ Portfolio Documents ” collectively means a promissory note, a truth-in-lending disclosure and any other agreement or document executed and delivered by an Account Debtor in connection with a Receivable to or for the benefit of Originator, Servicer, Borrower or any subsequent transferee thereof, including renewals, extensions, modifications and amendments thereof.
“ Prepayment Date ” shall mean any date that all of the Obligations are prepaid by Borrower pursuant to Section 2.5 or Section 2.6 in connection with the termination of this Agreement.
“ Prepayment Fee ” shall mean a fee due and payable to Agent, for the benefit of Lenders, on any Prepayment Date, in an amount equal to the applicable amount set forth below:
(a) if the applicable Prepayment Date occurs after the termination of the Borrowing Period and on or before January 22, 2021, two percent (2%) of the Maximum Loan Amount; or
(b) if the applicable Prepayment Date occurs after January 23, 2022 and on or before July 22, 2022, one percent (1%) of the Maximum Loan Amount; or
26
(c) if the applicable Prepayment Date occurs after July 23, 2022, no Prepayment Fee shall be due and payable.
“ Pro Rata Share ” shall mean, with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or Advances of any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender, by (b) the aggregate Revolving Exposure of all Lenders.
“ Protective Advance ” shall have the meaning assigned to it Section 2.7(b) .
“ Purchase and Sale Agreement ” shall mean that certain Receivables Purchase Agreement, dated as of the Closing Date, by and between Holdings, as seller of Receivables from time to time and Borrower, as purchaser, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time in accordance with this Agreement.
“ Qualified Cash ” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of Enova that are on deposit in various accounts owned by Enova and available to be withdrawn without restriction by Enova.
“ Quarterly Vintage ” shall mean, with respect to each Receivable, as applicable, the calendar quarter during which the Origination Date for such Receivable occurred. For the avoidance of doubt, a Quarterly Vintage shall only be created upon the end of each calendar quarter.
“ Quarterly Vintage Pool ” shall mean a group of Receivables with Origination Dates in the same Quarterly Vintage.
“ Receipt ” shall have the meaning assigned to it in Section 12.5 .
“ Receivable ” or “ Receivables ” shall mean all rights to payment of indebtedness and other obligations (including unpaid principal, accrued interest, costs, fees, expenses and indemnity obligations) owing by an Account Debtor in respect of a loan or loans or other financial accommodations made or extended by an Originator to or for the benefit of such Account Debtor as such rights to payment of indebtedness and obligations have been originated by Enova or its Subsidiary, or sold, transferred and assigned to Enova or its Subsidiary by an Originator pursuant to that certain Bank Program Agreement (as described in the definition of Bank Program Receivables) and further sold. transferred and assigned to Holdings (if not originated by Holdings) pursuant to a Transfer Agreement and further sold, transferred and assigned to Borrower by Holdings pursuant to the Purchase and Sale Agreement. Each Receivable shall include, without limitation, all rights (including enforcement rights) under or pursuant to all related Portfolio Documents in respect thereof, and all supporting obligations in connection therewith.
“ Receivable Balance ” shall mean, at any specified time, the then outstanding aggregate principal amount payable on a Receivable, minus any capitalized fees, closing costs and other expenses added to the outstanding principal balance of such Receivable.
27
“ Refinancing ” shall mean, those occurrences when an Originator enters into (or acquires) a new consumer loan arrangement with an Account Debtor, and whereby a Receivable is paid in full with the proceeds of a new Receivable.
“ Regulatory Event ” shall mean:
(i) a “ Level One Regulatory Event ”, which shall comprise the commencement by any Governmental Authority of any formal inquiry or investigation, any legal action or proceeding against (A) any of Borrower, Servicer, any Originator (or the originator thereof as it relates to any Purchased Receivable), or any of their respective Affiliates challenging its authority to originate, hold, own, service, collect, administer, pledge or enforce any Receivable, or otherwise alleging any non- compliance by any of Borrower, Servicer, any Originator (or the originator thereof as it relates to any Purchased Receivable), or any of their respective Affiliates with any Applicable Laws related to originating, holding, collecting, pledging, servicing, administering or enforcing such Receivable; or (B) any of Borrower, Servicer, any Originator (or the originator thereof as it relates to any Purchased Receivable) or any of their respective Affiliates challenging its authority to operate the business as it is being operated as of such date; which inquiry, investigation, legal action or proceeding, in each case, is not released, terminated or in other status acceptable to Agent within sixty (60) calendar days of commencement thereof; or
(ii) a “ Level Two Regulatory Event ”, which shall comprise the issuance or entering of any stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order or ruling (an “ Order ”) (A) against any of Borrower, Servicer, any Originator (or the originator thereof as it relates to any Purchased Receivable), or any of their respective Affiliates that could impair Borrower, Servicer, any Originator, or any of their respective Affiliates from originating, holding, pledging, administering, collecting, servicing or enforcing of any Receivable, or otherwise rendering any Portfolio Document unenforceable, or (B) against any third party to the extent that such Order that could, in the determination of Agent, render any Receivable or the related Portfolio Documents unenforceable; provided, that, in each case, upon the favorable resolution of such Order as determined by Agent in its sole discretion and confirmed by written notice from Agent (whether by judgment, withdrawal of such Order or settlement of such Order), such Regulatory Event for such Governmental Authority shall cease to exist immediately upon such determination by Agent. Notwithstanding the foregoing to the contrary, a Routine Inquiry, in and of itself, shall not be deemed to be a Level One Regulatory Event or a Level Two Regulatory Event; provided , that, in the case of a Level One Regulatory Event or a Level Two Regulatory Event, upon the favorable resolution of such Order as determined by Agent in its Permitted Discretion and confirmed by written notice from Agent (whether by judgment, withdrawal of such Order or settlement of such Order), such Regulatory Event for such Governmental Authority shall cease to exist immediately upon such determination by Agent.
For the avoidance of doubt, the following shall not, on their own, constitute a Regulatory Event:
(1) The issuance of a civil investigative demand by the Consumer Financial Protection Bureau or any attorney general (or any other similar proceeding by any other Governmental Authority); or
28
(2) Any adverse exam findings that do not result in a formal investigatio n , enforcement action, lawsuit, arbitration, or mediation, or that otherwise do not materially impair Borrower, Servicer, any Originator, or any of their respective Affiliates from originating, holding, collecting, pledging, servicing, administering or enforcing any Purchased Receivable; or
(3) Any adverse exam findings that do not result in a stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order or ruling, or that otherwise do not materially impair Borrower, Servicer, any Originator, or any of their respective Affiliates from originating, holding, collecting, pledging, servicing, administering or enforcing any Purchased Receivable.
“ Related Parties ” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and such Person’s Affiliates.
“ Related Fund ” shall mean (a) any fund, trust or similar entity that invests in commercial loans in the ordinary course of its business and is advised or managed by (i) a Lender, (ii) an Affiliate of a Lender, (iii) the same investment advisor that manages a Lender or (iv) an Affiliate of an investment advisor that manages a Lender, or (b) any finance company, insurance company or other financial institution which temporarily warehouses loans for any Lender or any Person described in clause (a) above.
“ Request for Revolving Advance ” shall have the meaning assigned in Section 4.2(a) .
“ Required Principal Payment ” shall mean, as of any date of determination, the amount by which the aggregate outstanding Revolving Advances exceeded the then applicable Borrowing Base.
“ Requisite Lenders ” shall mean, at any time, Lenders holding Revolving Advances and unused Revolving Loan Commitments representing more than 50% of the sum of the total Revolving Advances outstanding and unused Revolving Loan Commitments at such time; provided that, the Revolving Advances and Revolving Loan Commitments held by any Non-Funding Lender shall be disregarded in determining Requisite Lenders at any time.
“ Reset Date ” shall mean the Closing Date, and the first day of each calendar month thereafter (or if such day is not a Business Day, the next succeeding Business Day).
“ Responsible Officer ” shall mean the president, chief operating officer, the chief financial officer, the secretary or the vice president of capital markets and treasury of Borrower, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with collateral performance or financial covenants or delivery of financial information, the chief financial officer, the treasurer or the controller of Borrower, or any other officer having substantially the same authority and responsibility (or where such Person is trust, such officer having substantially the same authority and responsibility of the administrator of such trust or such other Person authorized to act on behalf of such trust in such matters), and in all cases such person shall be listed on an incumbency certificate delivered to Agent, in form and substance acceptable to Agent in its sole discretion.
29
“ Revolving Advance ” shall have the meaning assigned to such term in Section 2.1(a) hereof.
“ Revolving Exposure ” shall mean, with respect to any Lender as of any date of determination, (a) prior to the termination of the Revolving Loan Commitments, that Lender’s Revolving Loan Commitment, and (b) after the termination of the Revolving Loan Commitments the aggregate outstanding principal amount of all Advances made by that Lender.
“ Revolving Loan Commitment ” means the commitment of a Lender to make or otherwise fund Revolving Advances and “ Revolving Loan Commitments ” means such commitments of all Lenders to fund Revolving Advances in the aggregate. The amount of each Lender’s Revolving Loan Commitment, if any, is set forth on Schedule C attached hereto, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Closing Date is $150,000,000.00.
“ Routine Inquiry ” means any inquiry, written or otherwise, made by a Governmental Authority to any Person in connection with (i) the routine transmittal of a customer complaint, (ii) a formal or informal request for information regarding the Person’s business activities, licensing status and/or regulatory posture, other than a formal or informal inquiry that alleges any violation or wrongdoing by such Person, or (iii) a civil investigative demand by the Consumer Financial Protection Bureau or any attorney general (or any other similar proceeding by any other Governmental Authority).
“ Scheduled Payment ” shall mean the scheduled monthly payment of principal and interest by or on behalf of an Account Debtor on a Receivable.
“ Seasoning ” shall mean, with respect to a Receivable and any date of determination, the number of days (based on a 360 day year) elapsed from the Origination Date of such Receivable to such date of determination divided by 30.
“ Securitization Affiliate ” shall mean a direct or indirect wholly-owned, special purpose bankruptcy remote Affiliate of Borrower formed for the purpose of directly or indirectly purchasing Receivables from Borrower pursuant to a Permitted Securitization.
“ Securitization Lender ” shall mean a third party lender or indenture trustee to a Securitization Affiliate in connection with a Permitted Securitization. For the avoidance of doubt, a Securitization Lender does not include any Affiliate of Borrower.
“ Security Documents ” shall mean this Agreement, UCC financing statements, the Pledge Agreement, any Blocked Account Control Agreement, any other agreements related to Deposit Accounts, and all other documents or instruments necessary to create or perfect the Liens in the Collateral, as such may be modified, amended or supplemented from time to time.
“ Servicer ” shall mean, individually and collectively, NCLS in its capacity as master servicer and asset servicer of the Receivables under the Servicing Agreement, the Backup Servicer and any other Person becoming a servicer of the Receivables (i) in accordance with the terms of the Servicing Agreement or (ii) upon termination of NCLS as a servicer in accordance with the terms of this Agreement or the Servicing Agreement.
30
“ Servicer Event of Default ” shall mean a “ Servicer Default ” as such term is defined in the Servicing Agreement.
“ Servicing Agreement ” shall mean that certain Servicing Agreement, dated as of the Closing Date, by and between Borrower, Servicer, Agent and Backup Servicer, in its capacity as verification agent, as the same may be amended, modified, supplemented, restated, replaced or renewed in accordance with this Agreement.
“ Servicing Fee ” shall mean the fee payable monthly to Servicer as set forth in the Servicing Agreement as in effect on the Closing Date, but not to exceed, in the aggregate, two and three-fourths of one percent (2.75%) per annum of the Receivables Balance of all Eligible Receivables at the time of determination, unless otherwise approved by Agent in its sole discretion.
“ Servicing Policy ” shall mean, the collections policy and the payment plan policy of the Servicer, as such policies may be amended, modified or supplemented from time to time in compliance with the Servicing Agreement.
“ Solvency Certificate ” shall have the meaning assigned to it in Section 4.1(e) hereof.
“ State Licensed Receivable ” means a Receivable originated by Enova or its Subsidiaries in compliance with a state license or permit described in Schedule E attached hereto.
“ Subsidiary ” shall mean, as to any Person, any other Person in which more than fifty percent (50%) of all Equity Interests are owned directly or indirectly by such Person.
“ Taxes ” shall have the meaning assigned to it in Section 13.8(a) hereof.
“ Termination Date ” shall have the meaning assigned to it in Section 11.1 hereof.
“ Total Liabilities ” shall mean, for any Person, as at any date of determination, the aggregate amount of all Indebtedness of such Person, as determined on a consolidated basis in accordance with GAAP.
“ Transfer Agreement ” shall mean the Transfer Agreement, dated as of July 23, 2018 by and between Holdings, as purchaser of Receivables, and any Subsidiary of Enova, as seller of Receivables, from time to time, as the same may be amended, modified, supplemented, restated, replaced or renewed in writing from time to time in accordance with this Agreement.
“ Transferee ” shall have the meaning assigned to it in Section 12.2(a) hereof.
“ Trigger Event ” shall mean the occurrence of any one of the following:
(i) if, as of the end of any calendar month, beginning with the end of the first calendar month in which the first Quarterly Vintage is created, the Net Charge-Off Ratio with respect to any Quarterly Vintage shall be greater than the applicable percentage corresponding to the Weighted Average Seasoning of such Quarterly Vintage increased by one for each month since the creation of the related Quarterly Vintage set forth below:
31
(ii) if, as of the end of any calendar month, beginning with the third calendar month after the Closing Date, the three-month rolling average Charged-Off Percentage for the most recently
32
completed three (3) calendar month period (including such calendar month) is greater than four and one-quarter percent (4.25%);
(iii) if, as of the end of any calendar month, beginning with the third calendar month after the Closing Date, beginning with September 2018, the three-month rolling average Delinquency Percentage for the most recently completed three (3) calendar month period (including such calendar month) is greater than thirteen percent (13.0%);
(iv) if Enova shall fail to maintain Liquidity as at the end of each calendar quarter of at least $20,000,000;
(v) if Enova permits Net Worth to be less than the sum of (i) $225,000,000, plus (ii) 25% of Net Income (with no deduction for net losses during any quarterly period) earned in each fiscal quarter of Enova ending on or after September 30, 2018, plus (iii) 100% of the proceeds received by Enova and its Subsidiaries from the issuance and sale of capital stock of Enova or any of its Subsidiaries (other than an issuance to Enova or its wholly-owned Subsidiaries), including any conversion of debt securities of Enova into such capital stock after September 30, 2018 to the extent of any increase in Net Worth resulting therefrom;
(vi) if Enova shall fail to maintain a Leverage Ratio of less than 3.50 to 1.00, measured as of the last day of each calendar quarter;
(vii) if, as of the end of any calendar month, beginning with the sixth calendar month after the Closing Date, the Interest Coverage Ratio shall be less than 4.50 to 1.00 for the six month period ending on the last day of such calendar month;
(viii) the occurrence of any “default”, “event of default”, “amortization event” or similar event resulting from the failure to make any payment when due or failure to meet any collateral or performance trigger or covenant under any documents or agreements evidencing any material Indebtedness of Enova or any of its Affiliates or Subsidiaries (including, without limitation, the Enova Loan Agreement and any Permitted Securitization) which permits the holder of such material Indebtedness to cease funding or making advances under such agreement, or accelerate payments or collections thereunder; or
(ix) the occurrence of a Servicer Event of Default.
“ UCC ” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “ UCC ” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“ Underwriting Guidelines ” shall mean NetCredit’s Underwriting Policy, as set forth on Exhibit G , as such exhibit may be updated, from time to time as agreed to by Agent.
“ Unused Line Fee ” shall have the meaning assigned to it in Section 3.5 .
33
“ Unused Portion ” shall mean, during the calendar month being measured, the amount by which the Maximum Loan Amount, as of the last day of the prior calendar month, exceeds the average outstanding principal balance of the Loan during such calendar month.
“ U.S. Person ” shall mean a “United States person” as defined in Section 7701(a)(30) of the Code.
“ Vantage Score ” shall mean, for each Account Debtor with respect to a Receivable, the credit score of such Account Debtor obtained from Vantage Score Solutions, LLC as of the Origination Date of such Receivable.
“ Verification Certificate ” shall mean a certificate in the form annexed to the Backup Servicing Agreement, duly completed and signed by the Backup Servicer, and delivered in accordance with the Servicing Agreement and Backup Servicing Agreement.
“ Verification Deliverables ” shall mean, with respect to each Receivable, those certain Portfolio Documents to be reviewed by the Backup Servicer pursuant to the terms of the Servicing Agreement and Backup Servicing Agreement.
“ Voting Interests ” shall mean securities, membership interests, partnership interests or any other equity interests of any class or classes of an entity, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors or managers (or Persons performing similar functions) and otherwise control the policies of such entity.
“ Weighted Average Seasoning ” shall mean, with respect to each Quarterly Vintage, the weighted average Seasoning of the Receivables included in such Quarterly Vintage as of the last day of the related calendar quarter in which such Quarterly Vintage is created, weighted on the basis of the Receivable Balance (calculated as of the Origination Dates of such Receivables) of each Receivable included in such Quarterly Vintage and rounded to the nearest integer.
“ Wells Fargo Account ” shall mean that certain lockbox account at Wells Fargo Bank, held in the name of Servicer, with account number 41238117173, into which Servicer shall direct all check payments, if applicable, under its applicable Portfolio Documents.
II. LOAN, PAYMENTS, INTEREST AND COLLATERAL
(a) Subject to the provisions of this Agreement, including satisfaction or waiver in writing by Agent of all conditions set forth in Article IV hereof, each Lender severally agrees to make Advances up to such Lender’s respective Revolving Loan Commitment to Borrower under the Loan from time to time during the Borrowing Period (collectively, the “ Revolving Advances ”). Each Revolving Advance shall be made in an amount requested by Borrower not to exceed Availability as of such date of determination by deposit into an account designated in writing by the Borrower; provided , that under no circumstances shall the cumulative amount of all Revolving Advances made hereunder exceed the Maximum Loan Amount, and provided , further , no Lender shall be obligated to provide funding for any Advance that would increase the aggregate of all outstanding amounts funded by such Lender (including any Advances made by any
34
predecessor in interest to such Lender) to an amount in excess of the stated principal amount of that Lender’s Note or such Lender’s Revolving Loan Commitment and no Lender shall be responsible for the failure of any other Lender to fund any Advance. Unless otherwise permitted by Agent, each Revolving Advance shall be in an amount of at least Two Hundred Thousand Dollars ($2 0 0,000) , in increased increments of One Hundred Thousand Dollars ($100,000). Subject to the terms of Section 4.2(c) , Revolving Advances may be made hereunder on any Business Day during the Borrowing Period. Subject to the terms of Sections 2.5 and 2.6 , Revolving Advances may be repaid and reborrowed at any time during the Borrowing Period. The failure of any Lender to make any Advance required to be made by it shall not relieve any other Lender of its obligations hereunder; provided, that the Revolving Loan Commitment of each Lender is several and no Lender shall be responsible for any other Lender’s failure to make required Advances.
(b) Notes . The Advances made by each Lender shall be evidenced by a promissory note payable to the order of such Lender, substantially in the form of Exhibit B (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, a “ Note ”), executed by Borrower and delivered to the Agent on the Closing Date (or after the Closing Date in respect of any assignee of a Lender who becomes a Lender pursuant to Section 12.2 ). Each Note payable to the order of a Lender shall be in a stated maximum principal amount equal to such Lender’s Revolving Loan Commitment.
(i) Agent shall maintain, as a part of its Lender Registry, a record of (A) the amount of each Advance made hereunder, (B) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder and (C) the amount of any sum received by Agent hereunder for the account of Lenders and each Lender’s share thereof.
(ii) The entries made in the accounts maintained pursuant to paragraph (i) above of this Section 2.1(c) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of Borrower to repay the Loans in accordance with the terms of this Agreement.
(d) Payment of the Loan . Borrower shall repay the Loan pursuant to and in accordance with the terms of this Agreement and the Notes evidencing the Loans. The outstanding principal balance of all of the outstanding Revolving Advances shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. All other amounts outstanding under the Loan and all other Obligations under the Loan shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date.
(a) Borrower agrees to pay interest to Agent for the account of Lenders in respect of the outstanding principal amount of the Loan, which interest shall be calculated monthly in arrears, from the date the proceeds of such Loan are made available to Borrower until paid in
35
full, at a rate per annum equal to the lesser of (i) the LIBOR Rate plus the Applicable Margin (the “ Applicable Rate ”), and (ii) the Maximum Rate. All such payments of accrued interest shall be due and payable on each Payment Date for the related Due Period , and all such payments of interest shall be made pursuant to Section 2.4(a) or (b) , as applicable . If Lenders are prevented from charging or collecting interest at the Applicable Rate, then, to the extent permitted by law, the interest rate shall continue to be the Maximum Rate until such time as Lenders have charged and collected the full amount of interest that would be chargeable and collectable if interest at the Applicable Rate had always been lawfully chargeable and collectible.
(b) On each Reset Date when the LIBOR Rate is increased or decreased (as determined in accordance with the definition of “LIBOR Rate” as set forth herein), the Applicable Rate shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the LIBOR Rate. The monthly interest due on the principal balance of the Loan outstanding shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days and shall be calculated by determining the average daily principal balance of the Obligations outstanding for each day of the calendar month in question (the “ Average Daily Balance ”).
2.3 Loan Collections; Repayment.
(a) Borrower shall, or shall direct Servicer to, direct or otherwise cause the Account Debtor of each Receivable, to pay all Collections (other than checks) to the Collection Receipt Accounts other than Collections that consist of ACH payments, which shall be directed to the ACH Sweep Account. In the event that Borrower or any Affiliate of Borrower receives any Collections (including checks) directly from or on behalf of an Account Debtor in a manner other than through a deposit into the Collection Receipt Accounts or the ACH Sweep Account, as applicable, Borrower or such Affiliate shall receive all such Collections in trust for the benefit of Agent as secured party hereunder. Any checks received by Borrower or Servicer shall be deposited in the Wells Fargo Account within three (3) Business Days of receipt. To the extent not paid directly to the Collection Receipt Accounts or the ACH Sweep Account, as applicable, Borrower or, pursuant to the Servicing Agreement, Servicer, as applicable, shall deliver to the Collateral Account, within two (2) Business Days of receipt thereof, all such Collections (in the form so received) received by Servicer or Borrower, as applicable, unless Agent shall have notified Servicer or Borrower, as applicable, to deliver directly to Agent all such Collections after the occurrence and during the continuance of an Event of Default, in which event all such Collections (in the form received) shall, if applicable, be endorsed by Servicer or Borrower, as applicable, to Agent and delivered to Agent promptly upon Borrower’s receipt thereof. Servicer shall deliver all Collections deposited in the Collection Receipt Accounts to the Collateral Account in accordance with the Servicing Agreement and the Intercreditor Agreement. All Collections received, net of returns, in the ACH Sweep Account shall be remitted to the Collateral Account on each Business Day by the Servicer. If the aggregate amount of Collections in the form of checks during any three (3) month period exceeds seven and one-half percent (7.5%) of the total Collections received during such period, Agent may require the Borrower to enter into a blocked account control agreement with respect to the Wells Fargo Account.
(b) At any time after the occurrence of an Event of Default (but not before), in accordance with Applicable Laws, Agent shall have the right to notify any Account Debtor or
36
Servicer (i) that all Receivables of Borrower have been assigned to Agent, (ii) that all Collections shall be endorsed by Servicer or Borrower, as applicable, to Agent and paid directly to Agent promptly upon receipt thereof, and (iii) that all Account Debtors shall be directed to mail or otherwise deliver payments directly to an address determined by Agent or to otherwise deposit such sums in the Collateral Account or any other deposit account established by Agent from time to time.
2.4 Promise to Pay; Manner of Payment.
(a) On each Payment Date so long as no Event of Default is then continuing, payments shall be made by Agent from the Collateral Account in the following order of priority and to the extent of all Available Amounts on deposit in the Collateral Account:
(i) pro rata to the Servicer and Backup Servicer, the Servicing Fee and the Backup Servicing Fee, respectively, each to the extent accrued and unpaid through the last day of the Due Period until such accrued fees are paid in full;
(ii) to the payment of any fees required to be paid with respect to the Collateral Account, to the extent accrued and unpaid through the last day of the Due Period until such accrued fees are paid in full;
(iii) to Agent, for the benefit of Lenders, first an amount equal to the outstanding principal balance of any Protective Advances, together with all interest owed with respect to all Protective Advances and second, any indemnities owed to Agent or any Lender, in each case, to the extent not previously reimbursed or paid;
(iv) to Agent, any accrued and unpaid interest, costs, fees and expenses relating to the Obligations, including any accrued and unpaid wire transfer fees or other banking fees;
(v) to Agent, for the benefit of Lenders, any Required Principal Payment;
(vi) (x) at any time after the occurrence and continuance of a Trigger Event, and (y) during the Amortization Period, after the date upon which the then outstanding principal amount of the Loan is equal to or less than ten percent (10%) of the then applicable Maximum Loan Amount, in each instance, to Agent, for the benefit of Lenders, to apply to the then outstanding Obligations; and
(vii) to Borrower, any remaining Available Amounts.
In the event that amounts distributed under Sections 2.4(a) during any calendar month are insufficient for payment of the amounts set forth in Sections 2.4(a)(i)-(v) for such calendar month, Borrower may, but shall not be obligated to, pay an amount equal to the extent of such insufficiency through a Revolving Advance hereunder on such date of determination. Notwithstanding anything herein to the contrary and for the avoidance of doubt, Borrower shall be required to pay all amounts and Obligations when due and payable in accordance with Section 2.4(c) . Agent shall distribute any such payment
37
received by it for the account of any Lender to the appropriate Lender in accordance with the terms hereof, including Section 2.4(a) .
(b) Notwithstanding anything to the contrary contained in this Section 2.4 , following the occurrence and during the continuance of an Event of Default, Agent shall have the immediate right to direct and to apply all funds in the Collateral Account, the Collection Receipt Accounts (subject to the Intercreditor Agreement), the ACH Sweep Account and any other Scheduled Payments, interest, principal, prepayments and other amounts received of every description payable to Borrower with respect to the Collateral, to the Obligations in such order and in such manner as Agent shall elect in its sole discretion.
(c) Borrower absolutely and unconditionally promises to pay, when due and payable pursuant hereto, principal, interest and all other amounts and Obligations payable, hereunder or under any other Loan Document, including the amounts required to be paid pursuant to Section 2.4(a) on each Payment Date, without any right of rescission and without any deduction whatsoever, including any deduction for set-off, recoupment or counterclaim, notwithstanding any damage to, defects in or destruction of the Collateral or any other event, including obsolescence of any property or improvements. Except as expressly provided for herein, Borrower hereby waives setoff, recoupment, demand, presentment, protest, and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under this Agreement and any other Loan Document, all to the extent permitted by law.
(a) Borrower may not prepay the Obligations, other than with respect to collections of Receivables, prior to the end of the Borrowing Period. Borrower may prepay the Obligations in whole, but not in part, and terminate this Agreement on any Business Day after the termination of the Borrowing Period and prior to the Maturity Date. The applicable Obligations to be prepaid as provided in this Section 2.5(a) , as applicable, shall include (i) all outstanding Advances made prior to such Prepayment Date, plus (ii) accrued and unpaid interest on all such outstanding Advances made prior to such Prepayment Date, plus (iii) the Prepayment Fee, as applicable, plus , (iv) any unpaid fees or expenses required to be paid by Borrower under this Agreement and all other unpaid Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) in relation to such Obligations to be prepaid on the Prepayment Date. Borrower shall give the Agent written notice of the proposed prepayment not less than thirty (30) calendar days in advance of the proposed Prepayment Date. Notwithstanding the above, Borrower shall be permitted to prepay the Obligations at any time (including during the Borrowing Period) without any obligation to pay the Prepayment Fee if Borrower is charged any increased costs or other amounts pursuant to Section 3.3 hereof.
(b) Notwithstanding the provisions of Section 2.5(a) above, provided no Trigger Event, Default or Event of Default has occurred which is continuing, upon thirty (30) days’ prior written notice to Agent, Borrower may (upon the occurrence of a Permitted Securitization and no more than three (3) times in the aggregate during the Borrowing Period) prepay the Obligations in part in accordance with Section 2.5(c) below without the payment of the Prepayment Fee.
38
(c) Immediately upon any Borrower’s or Holdings’ or its Securitization Affiliate’s receipt of any proceeds from any Permitted Securitization, all such proceeds shall be delivered to Agent in their original form for application to the Obligations and, pending delivery to Agent, such Borrower, Holdings or Securitization Affiliate will hold such proceeds as agent for Agent and in trust for Agent. Provided no Trigger Event, Default or Event of Default has occurred which is continuing, Agent shall, upon receipt of such proceeds, deliver to Borrower such releases of Liens prepared by Borrower necessary to permit the transactions contemplated by the Permitted Securitization.
In no event shall the sum of the aggregate outstanding principal balance of the Loan exceed the lesser of (i) the Borrowing Base and (ii) the Maximum Loan Amount. If at any time and for any reason, the outstanding unpaid principal balance of the Loan exceeds the Maximum Loan Amount, Borrower shall promptly, and in any event within five (5) Business Days, without the necessity of any notice or demand, whether or not a Trigger Event, Default or Event of Default has occurred or is continuing, prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the Maximum Loan Amount. If, on any date of measurement, and for any reason, the outstanding unpaid principal balance of the Loan exceeds the Borrowing Base (including due to any Eligible Receivable thereafter failing to meet the eligibility criteria and becoming ineligible), then Borrower shall, without the necessity of any notice or demand, whether or not a Trigger Event, Default or Event of Default has occurred or is continuing, either ( x ) prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the Borrowing Base, ( y ) if during the Borrowing Period, increase the aggregate principal amount of Eligible Receivables pledged to Agent in accordance with this Agreement, or (z) effect some combination of clauses (x) and (y), so that the Borrowing Base is equal to or exceeds the then outstanding principal balance of the Loan; provided , however , if the Loan exceeds the Borrowing Base as a result of the failure of a Receivable to meet the definition of “Eligible Receivable” as a result of a Level Two Regulatory Event, Borrower shall have sixty (60) calendar days after the earlier of its discovery or receipt of notice thereof to comply with this clause solely with respect to such Receivable. The pledge and delivery to Agent of additional Eligible Receivables shall comply with the document delivery requirements set forth in this Agreement, including Section 4.2 , as applicable, and shall be accompanied by a certification from Borrower that demonstrates that after giving effect to the pledge to Agent of such additional Eligible Receivables, the outstanding unpaid principal balance of the Loan is equal to or less than the Borrowing Base.
Notwithstanding any provision of any Loan Document, Agent, in its sole discretion shall have the right, but not any obligation, at any time that Borrower fails to do so and from time to time, without prior notice, to: (i) discharge (at Borrower’s expense) Taxes or Liens affecting any of the Collateral that have not been paid in violation of any Loan Document or that jeopardize the Agent’s Lien priority in the Collateral, including any underlying collateral securing any Receivable; or (ii) during the continuance of an Event of Default, make any other payment (at Borrower’s expense) for the administration, servicing, maintenance, preservation or protection of
39
the Collateral, including any underlying collateral securing any Receivable (each such advance or payment set forth in clauses (i) and (ii), a “ Protective Advance ”). Agent shall be reimbursed for all Protective Advances pursuant to Section 2.4 and any Protective Advances shall bear interest at the Default Rate from the date the Protective Advance is paid by Agent until it is repaid. No Protective Advance by Agent shall be construed as a waiver by Agent, or any Lender of any Default, Event of Default or any of the rights or remedies of Agent or any Lender.
2.8 Grant of Security Interest; Collateral
(a) To secure the payment and performance of the Obligations, subject to Permitted Liens, Borrower hereby grants to Agent, for the benefit of itself and the other Lenders, a valid and continuing first priority Lien upon all of Borrower’s right, title, and interest, whether now owned or existing or hereafter from time to time acquired or coming into existence, in, to, and under all of Borrower’s assets (collectively, the “ Collateral ”), including: (i) all Receivables and all amounts due or to become due under the Receivables, (ii) all Portfolio Documents and all rights, remedies, powers, privileges, and claims under the Portfolio Documents, (iii) subject to the Intercreditor Agreement, all funds and other property credited to the Collection Receipt Accounts, (iv) the ACH Sweep Account and all funds and other property credited to the ACH Sweep Account, (v) each Transfer Agreement, the Purchase and Sale Agreement, Servicing Agreement and the Backup Servicing Agreement and all rights, remedies, powers, privileges, and claims under those contracts, (vi) all Accounts, General Intangibles, Chattel Paper, Instruments, Documents, Goods, money and any rights to the payment of money or other forms of consideration of any kind, Deposit Accounts (as defined in Article 9 of the UCC), Investment Property, letters of credit, Letter-of-Credit Rights, Contract Rights, Contracts (as defined in Article 1 of the UCC), Supporting Obligations, Equipment, Inventory, Fixtures, computer hardware, Software, securities, Permits, intellectual property, and oil, gas and other minerals, (vii) all other personal property and other types of property of Borrower, and (viii) all Proceeds of all of the foregoing and all other types of property of Borrower.
(b) [reserved]
(c) Borrower has full right and power to grant to Agent, for the benefit of itself and the other Lenders, a first priority Lien on the Collateral pursuant to this Agreement, subject to Permitted Liens. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and other documents and the taking of all other necessary action, Agent will have a valid and first priority perfected Lien on the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person other than Permitted Liens. As of the Closing Date, no financing statement naming Borrower as debtor and describing any of the Collateral is on file in any public office except those naming Agent as secured party and those related to the Permitted Liens. As of the Closing Date, Borrower is not party to any agreement, document or instrument that conflicts with this Section 2.8 .
(d) Borrower hereby authorizes Agent to prepare and file financing statements provided for by the UCC and to take such other action as may be required, in Agent’s sole judgment, in order to perfect and to continue the perfection of Agent’s Lien on the Collateral unless prohibited by law and subject to Permitted Liens.
40
(a) All tangible Collateral (except tangible Collateral in the possession of Backup Servicer or Agent) will at all times be kept by Borrower or Servicer at the locations set forth in Section 5.15 of Schedule A attached hereto, and shall not, without thirty (30) calendar days prior written notice to Agent, be moved therefrom other than to another such location, and in any case shall not be moved outside the continental United States. Borrower hereby agrees to deliver to the Backup Servicer, on or prior to the date of each Revolving Advance, the Verification Deliverables for each Receivable that is to be added to the Collateral in connection with such Revolving Advance. All Receivables constituting Collateral, shall, regardless of their location, be deemed to be under Agent’s dominion and control and deemed to be in Agent’s possession. Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude such verification process. In addition to any provision of any Loan Document, Agent shall have the right at all times after the occurrence and during the continuance of an Event of Default (i) to notify Account Debtors and/or Servicer that all Receivables of Borrower including, if to Account Debtors, their Receivables have been assigned to Agent and that all collections from such Receivables shall be paid directly to Agent, for the benefit of itself and the Lenders, and (ii) to charge Borrower for any collection costs and expenses, including reasonable attorney’s fees, incurred by Agent.
(b) As and when determined by Agent in its sole discretion, Agent will perform the searches described in clauses (i) and (ii) below against Borrower, Servicer, and Indemnitor: (i) UCC searches with the Secretary of State and local filing offices of each jurisdiction where any such Person is organized; and (ii) judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction where any such Person maintains their executive offices, a place of business or any assets.
(c) Borrower shall, or shall require Servicer to, keep accurate and complete records of the Collateral and all payments and collections thereon and shall submit to Agent such records on such periodic basis as Agent may request in its reasonable discretion.
(d) Borrower shall, or shall require Servicer to, upon the receipt of written notice from Agent following the occurrence and continuation of an Event of Default, cooperate with Agent, if Agent elects to attach or associate in electronic format a legend, stamp, notation or other identification to all or any portion of the Portfolio Documents to evidence the pledge thereof to Agent, such legend, stamp, notation or other identification shall be in form and substance acceptable to Agent in its sole discretion .
(e) In respect of the portion of the Collateral consisting of any Receivable which is evidenced by an electronic record that is a “transferable record” as defined in Section 16 of the Uniform Electronic Transactions Act (as in effect in any relevant jurisdiction) , Borrower shall, or shall require each Servicer to, deliver to Agent the control of such transferable electronic record in accordance with Applicable Law, including the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction (to ensure, among other things, that Agent has a first priority perfected Lien in such Collateral), which shall be delivered, at Borrower’s expense, to Agent at its address as set forth herein or as otherwise specified by Agent and, except as otherwise expressly provided herein to the contrary, held in Agent’s possession, custody, and control until all of the
41
Obligations have been fully satisfied or Agent expressly agrees to release such documents. Alternatively, Agent, in its sole discretion, may elect for the Servicer, Originator or any other agent to accept delivery of and maintain possession, custody, and control of all such documents and any instruments on behalf of Agent during such period of time. Borrower shall identify (o r shall cause Originators and/or Servicer to identify) on the related electronic record the pledge of such Receivable by Borrower to Agent.
(f) Borrower hereby agrees to, and shall require Enova, Holdings, Originator, any purchaser under a Transfer Agreement and/or Servicer to, take all applicable protective actions to prevent destruction of records pertaining to the Collateral in accordance with each Servicing Agreement. Subject to the limitations set forth in Section 6.7 of this Agreement and the Backup Servicing Agreement, as applicable, Agent at all times shall have the right to access and review any and all Portfolio Documents in Borrower’s, Backup Servicer’s, Originator’s and/or Servicer’s possession and any and all data and other information relating to Portfolio Documents as may from time to time be input to or stored within Borrower’s, Backup Servicer’s, Originator’s or Servicer’s computers and/or computer records including, without limitation, diskettes, tapes and other computer software and computer systems.
Borrower hereby agrees and acknowledges that Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring Agent to act as such) with full power of substitution to do the following: (i) indorse the name of Borrower upon any and all checks, drafts, money orders and other instruments for the payment of money that are payable to Borrower and constitute collections on the Receivables; (ii) execute and/or file in the name of Borrower any financing statements, amendments to financing statements, schedules to financing statements, releases or terminations thereof, assignments, instruments or documents that it is obligated to execute and/or file under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so); (iii) execute and/or file in the name of Borrower assignments, instruments, documents, schedules and statements that it is obligated to give Agent under any of the Loan Documents (to the extent Borrower fails to so execute and/or file any of the foregoing within two (2) Business Days of Agent’s request or the time when Borrower is otherwise obligated to do so) and (iv) do such other and further acts and deeds in the name of Borrower that Agent may deem necessary to make, create, maintain, continue, enforce or perfect Lender’s Lien on or rights in any Collateral. In addition, if Borrower breaches its obligation hereunder to direct Collections to the Collection Receipt Accounts, Agent, as the irrevocably made, constituted and appointed true and lawful attorney for such Person pursuant to this paragraph, may, by the signature or other act of any of Agent’s officers or authorized signatories (without requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary to pay Collections to the Collection Receipt Accounts or another account designated in writing by Agent.
42
(a) Collateral Account . Deposits made into the Collateral Account shall be limited to amounts deposited therein by Borrower, Servicer or any Account Debtor in accordance with this Agreement.
(b) Withdrawals from the Collateral Account . Agent shall have the sole and exclusive right to withdraw or order a transfer of funds from the Collateral Account, in all events in accordance with the terms and provisions of this Agreement. Notwithstanding anything in the foregoing to the contrary, Agent shall comply with any request of Borrower or Servicer to withdraw or order transfers of funds from the Collateral Account, to the extent such funds either (i) have been mistakenly deposited into the Collateral Account or (ii) relate to items subsequently returned for insufficient funds or as a result of stop payments. In the case of any withdrawal or transfer pursuant to the foregoing sentence, Borrower shall, or shall direct Servicer to provide Agent with notice of such request of withdrawal or transfer, together with reasonable supporting details, three (3) Business Days prior to the date on which such requested withdrawal or transfer will occur. Borrower shall require Servicer to deposit all proceeds of the Collateral processed by Servicer to the Collateral Account in accordance with Section 2.3 hereof. On each Business Day, amounts in the Collateral Account shall be applied by the Agent to make the payments and disbursements described in Section 2.4 and this Section 2.11 . Agent shall, subject to customary and standard customer diligence and Agent’s treasury management process and procedures, provide Borrower and Servicer with on-line access to view account related activity such as deposits to and withdrawals from the Collateral Account.
(c) Irrevocable Deposit . Any deposit made into the Collateral Account hereunder shall, except as otherwise provided herein, be irrevocable, and the amount of such deposit and any money, instruments, investment property or other property on deposit in, carried in or credited to the Collateral Account hereunder and all interest thereon shall be held in trust by Agent and applied solely as provided herein.
So long as no Trigger Event, Default or Event of Default shall have occurred and be continuing, Borrower shall have the right from time to time prior to the expiration of the Borrowing Period upon not less than thirty (30) days’ prior written notice to Agent to request that Agent increase the Maximum Loan Amount; provided that (a) any such increase shall be subject at all times to the consent of Agent’s and each Lender consenting to such increase in Agent’s and such Lender’s sole discretion, including satisfactory credit committee and/or investor approval by Agent and each such Lender in their sole discretion, (b) Borrower shall pay to Agent all fees and expenses related to such increase, including an expansion fee in an amount equal to three-quarters of one percent (0.75%) of such incremental increase, (c) Borrower, Agent and Lenders shall enter into an amendment to this Agreement to effect such increase, and (d) any such increase shall be in a minimum aggregate principle amount of $25,000,000 and integral multiples of $5,000,000 in excess thereof, and (e) in no event shall the Maximum Loan Amount be increased to an amount greater than $200,000,000.
43
3.1 Computation of Fees; Lawful Limits
All fees hereunder shall be computed on the basis of a 360-day year and shall be payable for the actual number of days elapsed. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Agent, for the benefit of itself and the other Lenders, for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall have received interest or any other charges of any kind which might be deemed to be interest under Applicable Law in excess of the Maximum Rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrower hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Agent and Lenders shall promptly refund such excess amount to Borrower and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 3.1 shall control to the extent any other provision of any Loan Document is inconsistent herewith.
Upon the occurrence and during the continuation of an Event of Default, the Applicable Rate of interest then in effect at such time with respect to the Obligations shall be increased by three percent (3.0%) per annum (subject to the Maximum Rate) (the “ Default Rate ”). Interest at the Default Rate shall accrue from the initial date of such Event of Default until such Event of Default is waived or ceases to continue, and shall be payable upon demand.
3.3 Increased Costs; Capital Adequacy
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender;
(ii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Advances made by such Lender or participation therein; or
(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
44
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making or maintaining any Loan or of maintaining its obligation to make any such Loan or to reduce the amount of any sum received or receivable by such Lender or such other Recipient hereunder, whether of principal, interest or otherwise, then Borrower will pay to such Lender or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loan below that which such Lender such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy and liquidity), then from time to time Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, and a description of the cause and a calculation of the increased cost of funding to the Lender, shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.
(e) If any Lender requests compensation under this Section 3.3 , or Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 13.8 , then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loan hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to this Section 3.3 or Section 13.8 , as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
On the Closing Date, Borrower shall pay to Agent, for the benefit of the Lenders, a
45
nonrefundable commitment fee (the “ Commitment Fee ”) equal to three-quarters of one percent (0.75%) of the aggregate Revolving Loan Commitments of the Lenders as of the Closing Date, which shall be deemed fully earned and non-refundable on the Closing Date.
Pursuant to Section 2.4 hereof, Borrower shall pay to Agent, for the benefit of Lenders, on each Payment Date, a monthly unused line fee for the Due Period which shall be deemed fully earned and non-refundable on the first day of each month (the “ Unused Line Fee ”) equal to the product of (a) one-half of one percent (0.5%) per annum multiplied by (b) the Unused Portion for the prior calendar month; provided , that, if Borrower fails to comply with Section 7.14(b) at any point during a month, the Unused Line Fee for the following month shall be equal to the product of (a) one percent (1%) per annum multiplied by (b) the Unused Portion for the prior calendar month. The Unused Line Fee shall be waived and not charged during the Amortization Period.
The obligations of Agent and Lenders to consummate the transactions contemplated herein are subject to the satisfaction (or waiver), in the sole judgment of Agent, of the following:
(a) (i) Borrower shall have delivered to Agent the Loan Documents to which it or any Affiliate of Borrower is a party, each duly executed by a Responsible Officer of Borrower and the other parties thereto, and (ii) each other Person shall have delivered to Agent the Loan Documents to which it is a party, each duly executed and delivered by such Person and the other parties thereto;
(b) all in form and substance satisfactory to Agent in its sole discretion, Agent shall have received (i) a report of UCC financing statement, tax and judgment lien searches performed with respect to Borrower, Originators and Indemnitor in each jurisdiction determined by Agent in its sole discretion, and such report shall show no Liens on the Collateral (other than Permitted Liens), (ii) each document (including any UCC financing statement) required by any Loan Document or under law or requested by Agent to be filed, registered or recorded to create, in favor of Agent, for the benefit of itself and the other Lenders, a first priority and perfected security interest upon the Collateral, and (iii) evidence of each such filing, registration or recordation and of the payment by Borrower of any necessary fee, tax or expense relating thereto;
(c) Agent shall have received (i) the Charter and Good Standing Documents of Borrower and Indemnitor, all in form and substance acceptable to Agent in its reasonable discretion, (ii) a certificate of the secretary or assistant secretary of each of Borrower and Indemnitor in his or her capacity as such and not in his or her individual capacity dated the Closing Date, as to the incumbency and signature of the Persons executing the Loan Documents on behalf of such Person in form and substance acceptable to Agent in its sole discretion, and (iii) a certificate executed by an authorized officer of Borrower, which shall constitute a representation and warranty by Borrower as of the Closing Date that the conditions contained in this Agreement have been satisfied;
46
(d) Agent shall have received the written legal opinions of Borrower’s in-house counsel with respect to corporate authority and related matters and Borrower’s outside legal counsel with respect to enforceability, true sale and non-consolidation, all in form and substance satisfactory to Agent and its counsel;
(e) Agent shall have received a certificate of the chief financial officer (or, in the absence of a chief financial officer, the chief executive officer) of Borrower, in his or her capacity as such and not in his or her individual capacity, in form and substance satisfactory to Agent in its sole discretion (each, a “ Solvency Certificate ”), certifying (i) the solvency of Borrower, after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents, and (ii) as to Borrower’s financial resources and anticipated ability to meet its obligations and liabilities as they become due, to the effect that as of the Closing Date, and after giving effect to such transaction and Indebtedness: (A) the assets of Borrower, individually and on a consolidated basis, at a Fair Valuation, exceed the Total Liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of Borrower, and (B) no unreasonably small capital base with which to engage in its anticipated business exists with respect to Borrower;
(f) Agent shall have completed examinations, the results of which shall be satisfactory in form and substance to Agent, of Borrower, including, without limitation, (i) an examination of background checks with respect to the managers, officers and owners of Borrower, Indemnitor and Servicer and (ii) an examination of the Collateral, and Borrower shall have demonstrated to Agent’s satisfaction, in its sole discretion, that (x) the forms of Portfolio Documents used by each Originator comply, in all respects deemed material by Agent, in its sole discretion, with all Applicable Law and (y) no operations of Borrower, Originator or Servicer are the subject of any governmental investigation, evaluation or any remedial action which reasonably could be expected to result in it being unable to perform its obligations in connection with these transactions, and (z) Borrower has no other liabilities or obligations (whether contingent or otherwise) that are deemed material by Agent, in its reasonable discretion;
(g) Agent shall have received (or is satisfied that it will receive simultaneously with the funding of the initial Revolving Advance) all fees, charges and expenses due and payable to Agent and Lenders on or prior to the Closing Date pursuant to the Loan Documents, including the Commitment Fee;
(h) all corporate and other proceedings, documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents (including those relating to corporate and capital structures of Borrower) shall be satisfactory to Agent in its sole discretion;
(i) (i) no default (after any applicable grace or cure period has expired or been cancelled) shall exist pursuant to any obligations of Borrower, if any, under any material contract, and Borrower shall be in compliance with all Applicable Laws, (ii) no Trigger Event or Event of Default shall exist and be continuing under this Agreement or any other Loan Document and (iii) there shall exist no fact, condition or circumstance which, with the passage of time, the giving of notice or both, could reasonably be expected to result in a Material Adverse Effect;
47
(j) none of Borrower, Indemnitor or Servicer, or to the knowledge of Borrower, the Originator, shall have been indicted or be under active investigation for a felony crime that is reasonably likely to result in a Material Adverse Effect;
(k) Agent shall have received a fully executed Accession Agreement with respect to the Intercreditor Agreement, in form and substance reasonably satisfactory to Agent;
(l) Agent shall have received evidence of release and termination of, or Agent’s authority to release and terminate, any and all Liens and/or UCC financing statements in, on, against or with respect to any of the Collateral (other than Permitted Liens);
(m) the Liens in favor of the Agent, for the benefit of itself and the Lenders, shall have been duly perfected and shall constitute first priority Liens, and the Collateral shall be free and clear of all Liens other than Liens in favor of the Agent, for the benefit of itself and the Lenders, in all cases subject to Permitted Liens; and
(n) Agent shall have received such other documents and items as Agent deems necessary, in its reasonable discretion.
4.2 Conditions to Revolving Advances and Funding of Borrowings
(a) The obligations of Lenders to make any Revolving Advances, including, but not limited to, the initial Revolving Advance, during the Borrowing Period are subject to the satisfaction (or waiver), in the sole judgment of Agent, of the following:
(i) Borrower shall have delivered to Agent, not later than 12:59 p.m. (New York City time) on the date that is two (2) Business Days prior to the proposed date for such requested Revolving Advance, an irrevocable request for advance in the form of Exhibit E hereto (a “ Request for Revolving Advance ”), and a Borrowing Base Certificate for such Revolving Advance with necessary supporting documentation executed by a Responsible Officer of Borrower, which shall constitute a representation and warranty by Borrower as of the date of such Advance that the conditions contained in this Section 4.2 , have been satisfied;
(ii) each of the representations and warranties made by Borrower in or pursuant to the Loan Documents shall be accurate in all material respects before and after giving effect to the making of such Revolving Advance (except for those representations and warranties made as of a specific date), Borrower shall be in compliance with all covenants, agreements and obligations under the Loan Documents, and no Level Two Regulatory Event, Trigger Event, Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the requested Revolving Advance on such date;
(iii) immediately after giving effect to the requested Revolving Advance, the aggregate outstanding principal amount of Advances under the Loan shall not exceed the lesser of (i) the Maximum Loan Amount and (ii) the Borrowing Base;
48
(iv) there shall be no liabilities or obligations owing by Borrower of any nature whatsoever in violation of this Agreement;
(v) Agent shall have received all fees, charges and expenses to the extent due and payable to Agent and Lenders on or prior to such date pursuant to the Loan Documents;
(vi) Borrower shall be in compliance with each Excess Concentration Limit;
(vii) there shall not have occurred any Material Adverse Change;
(viii) in respect of the portion of the Collateral consisting of any Receivable which is evidenced by an electronic record that is a “transferable record” as defined in Section 16 of the Uniform Electronic Transactions Act (as in effect in any relevant jurisdiction), Borrower shall, or cause Servicer to, deliver to Agent the control of such transferable electronic record in accordance with Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction;
(ix) Backup Servicer shall have received the Verification Deliverables with respect to each Receivable included in the calculation of the Borrowing Base in relation to such Revolving Advance, and shall have issued and delivered to Agent a Verification Certificate (without any exceptions noted thereon unless otherwise waived by Agent) provided for in the Backup Servicing Agreement, all in form and substance acceptable to Agent, including a certification that each Verification Deliverable evidencing such Receivable is an authoritative copy;
(x) no Receivable proposed to be pledged as Collateral for the first time (i.e. not already included in a Borrowing Base calculation as of the date of the proposed Revolving Advance) shall, at the time of the proposed Revolving Advance, be subject to a Regulatory Event on or after giving effect to the requested Revolving Advance on such date (for the avoidance of doubt, any Receivable that Borrower purchases that is otherwise subject to a Regulatory Event will not violate the condition precedent in this Section 4.2(a)(x) unless such Receivable is included in the calculation of the Borrowing Base); and
(xi) all other documents requested by Agent and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance reasonably satisfactory to Agent.
(b) Promptly following receipt of a Request for Revolving Advance in accordance with Section 4.2(a) and all other deliverables described therein, Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Advance to be made as a part of the requested Advance. Each Lender shall make each Advance to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon (New York City time) to the account of Agent most recently designated by it for such purpose by notice to Lenders. Unless Agent shall have received notice from a Lender prior to the proposed date of
49
any Advance that such Lender will not make available to Agent such Lender’s share of such Advance, Agent may assume that such Lender has made such share available on such date in accordance with the previous sentence and may, in reliance upon such assumption, make available to Borrower a corresponding amount. In lieu of the foregoing, Agent may, on behalf of any Lender, make Advances hereunder upon satisfaction of the provisions of Section 4.2(a) . Each Lender shall, upon demand, reimburse Agent for such Lender’s Applicable Percentage of each such Advance. In such event, if a Lender has not in fact made its share of the applicable Advance available to Agent, then the applicable Lender and Borrower severally agree to pay to Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to Borrower to but excluding the date of payment to Agent, at (i) in the case of such Lender, the greater of the Federal Funds Rate and a rate determined by Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of Borrower, the interest rate applicable to the Loan generally. If such Lender pays such amount to Agent, then such amount shall constitute such Lender’s Applicable Percentage of such Advance. No Lender shall be obligated to make an Advance on behalf of another Lender.
(c) Notwithstanding the foregoing, however, the Lenders shall not be required to fund more than two (2) Revolving Advances per calendar week. Agent, Lenders and Borrower hereby agree that upon funding of any Revolving Advance, the Borrowing Base Certificate prepared by Borrower and approved by Agent shall automatically supplement and add the Receivables described therein to any Receivables described in any previously-delivered Borrowing Base Certificate and shall constitute Collateral for purposes of this Agreement.
V. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as of the Closing Date and as of the date of each Revolving Advance as follows:
5.1 Organization and Authority
Borrower is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of organization. Borrower (a) has all requisite power and authority to own its properties and assets (including, without limitation, the Collateral) and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (b) is duly qualified to do business in the jurisdictions set forth in Section 5.1 of Schedule A attached hereto, which are all of the jurisdictions in which failure to so qualify could reasonably be likely to have or result in a Material Adverse Effect. Borrower has all requisite power and authority (i) to execute, deliver and perform the Loan Documents to which it is a party, (ii) to acquire the Receivables and other Collateral under the Purchase and Sale Agreement, (iii) to consummate the transactions contemplated under the Loan Documents to which it is a party, and (iv) to grant the Liens with regard to the Collateral pursuant to the Security Documents to which it is a party. Borrower has no other operations or business other than owning the Receivables. Borrower is not an “investment company” registered or required to be registered under the Investment Company Act nor controlled by such an “investment company.” No transaction contemplated in this Agreement or the other Loan Documents requires compliance with any bulk sales act or similar law.
50
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party, and the consummation by Borrower of the transactions contemplated thereby, (a) have been duly authorized by all requisite action of Borrower and have been duly executed and delivered to Agent by Borrower; (b) do not violate any material provisions of (i) any Applicable Law or, order of any Governmental Authority binding on Borrower or any of its properties, or (ii) the operating agreement (or any other equivalent governing agreement or document) of Borrower, or any agreement between Borrower and its equity owners or among any such equity owners; (c) are not in conflict with, and do not result in a breach or default of or constitute an event of default, or, to the knowledge of Borrower, an event, fact, condition or circumstance which, with notice or passage of time, or both, would constitute or result in a conflict, breach, default or event of default under, any indenture, agreement or other instrument to which Borrower is a party, or by which the properties or assets of Borrower is bound; (d) except as set forth herein or therein, will not result in the creation or imposition of any Lien (other than any Permitted Liens) upon any of the properties or assets of Borrower, and (e) except for filings in connection with the perfection of Agent’s Liens, do not require the consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person that has not been obtained except where the failure to so obtain could not reasonably be expected to result in a Material Adverse Effect. When executed and delivered, each of the Loan Documents will constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity (whether in a proceeding at law or in equity). The Purchase and Sale Agreement is the only agreement pursuant to which Borrower purchases the Receivables and the related Collateral, unless otherwise mutually agreed to in writing by Borrower and Agent. Borrower has furnished to the Agent true, correct and complete copies of the Purchase and Sale Agreement. There is no provision in the Purchase and Sale Agreement that would restrict the ability of Borrower to collaterally assign its rights thereunder to Agent, for the benefit of the Lenders.
5.3 Subsidiaries, Capitalization and Ownership Interests
Borrower has no Subsidiaries as of the Closing Date, and 100% of the outstanding equity interest in Borrower is directly owned (both beneficially and of record) by Holdings. The outstanding ownership or Voting Interests of Borrower have been duly authorized and validly issued. Section 5.3 of Schedule A attached hereto, includes, as of the Closing Date, all administrators, managers or managing members or directors of Borrower, Holdings and Enova, and an organizational chart of Enova and its Subsidiaries. Except as disclosed pursuant to Section 5.16 , Borrower does not (i) own any Investment Property or (ii) own any interest or participate or engage in any joint venture, partnership or similar arrangements with any Person. Except as set forth in Section 5.3 of Schedule A attached hereto, no Person directly owns greater than twenty-five percent (25%) of the outstanding Equity Interests of Enova.
51
Borrower is the lawful owner of, and has good title to, each Receivable, free and clear of any Liens (other than the Lien of this Agreement and any Permitted Liens).
Borrower is not (a) a party to any judgment, order or decree or any agreement, document or instrument, or subject to any restriction, which is reasonably expected to have a Material Adverse Effect on its ability to execute and deliver, or perform under, any Loan Document or to pay the Obligations or (b) in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any agreement, document or instrument to which it is a party or to which any of its properties or assets are subject, which default, if not remedied within any applicable grace or cure period, could reasonably be expected to be, have or result in a Material Adverse Effect, nor is there any event, fact, condition or circumstance which, with notice or passage of time or both, would constitute or result in a conflict, breach, default or event of default under, any of the foregoing which, if not remedied within any applicable grace or cure period could reasonably be expected to be, have or result in a Material Adverse Effect.
Except as set forth in Section 5.6 of Schedule A attached hereto, (a) neither Borrower, Indemnitor, nor, to Borrower’s knowledge, Servicer or any Originator is a party to any material pending or, to Borrower’s knowledge, threatened action, suit, proceeding or investigation related to the business of Borrower, (b) there is no pending or, to the knowledge of Borrower, threatened action, suit, proceeding or investigation involving Borrower or any Collateral, and, to Borrower’s knowledge, there is no pending or threatened action, suit, proceeding or investigation involving Servicer or each Originator or their respective businesses, in any case that could reasonably be expected to prevent or materially delay the consummation by Borrower, each Originator or Servicer of the transactions contemplated herein, (c) Borrower is not a party or subject to any order, writ, injunction, judgment or decree of any Governmental Authority, nor is there any action, suit, proceeding, inquiry or investigation by any Governmental Authority, in either case, that could reasonably be expected to prevent or materially delay the consummation by Borrower or Indemnitor of the transactions contemplated herein, and (d) Borrower has had no existing accrued and/or unpaid penalties, fines or sanctions imposed by and owing to any Governmental Authority or any other governmental payor.
5.7 Financial Statements and Reports
Any financial statements and financial information relating to Borrower or Indemnitor that may hereafter be delivered to Agent by Borrower (a) are consistent with the books of account and records of Borrower or Indemnitor, as applicable, (b) have been prepared in accordance with GAAP, on a consistent basis throughout the indicated periods, except that the unaudited financial statements contain no footnotes or year-end adjustments, and (c) present fairly in all material respects the financial condition, assets and liabilities and results of operations of Borrower or Indemnitor, as applicable, at the dates and for the relevant periods indicated in accordance with GAAP on a basis consistently applied. Borrower does not have any material obligations or
52
liabilities of any kind required to be disclosed therein that are not disclosed in such financial statements, and since the date of the most recent financial statements submitted to Agent pursuant to Section 6.1 , there has not occurred any Material Adverse Change or Material Adverse Effect or, to Borrower’s knowledge, any other event or condition that could reasonably be expected to be, have or result in a Material Adverse Effect.
Except as set forth in Section 5.8 of Schedule A attached hereto, Borrower, Indemnitor, and to Borrower’s knowledge, Servicer and each Originator (in the case of Originators and Servicer, solely with respect to the Receivables, or the sale, purchase or origination thereof, as applicable) (a) are in compliance with all Applicable Laws, and (b) are not in violation of any order of any Governmental Authority, except, in the case of both (a) and (b), where noncompliance or violation could not reasonably be expected to be, have or result in a Material Adverse Effect. Neither Borrower, Indemnitor, nor to Borrower’s knowledge, each Originator or Servicer (in the case of Originators and Servicer, solely with respect to the Receivables or the sale, purchase or origination thereof, as applicable) have received any notice that Borrower, Servicer or each Originator is not in material compliance in any respect with any of the requirements of any of the foregoing. Borrower has not established and does not maintain or contribute to any “benefit plan” that is covered by Title IV of ERISA. Borrower, Indemnitor, and to Borrower’s knowledge, each Originator and Servicer have maintained in all material respects all records required to be maintained by any applicable Governmental Authority. Since its formation, Borrower has not engaged, directly or indirectly, in any business other than the activities set forth herein and in the Purchase and Sale Agreement and the other Loan Documents.
Borrower, Indemnitor, and to Borrower’s knowledge, Servicer and each Originator (in the case of Servicer and each Originator solely with respect to the Receivables or the sale, purchase or origination thereof, as applicable) are in compliance with and have all Permits necessary or required by Applicable Law or any Governmental Authority for the operation of their respective businesses as presently conducted and as proposed to be conducted except where noncompliance, violation or lack thereof is not reasonably expected to have or result in a Material Adverse Effect.
There does not exist any Default or Event of Default. Borrower is and, after giving effect to the transactions and the incurrence of Indebtedness contemplated by the Loan Documents, will be solvent and able to meet its obligations and liabilities as they become due, and the assets of Borrower, at a Fair Valuation, exceed the Total Liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of Borrower, and no unreasonably small capital base exists with respect to Borrower.
No Loan Document nor any other agreement, schedule document, certificate, or written statement furnished to Agent and Lenders and prepared by or on behalf of Borrower in connection with the transactions contemplated by the Loan Documents, nor any representation or warranty
53
made by Borrower in any Loan Document, contains any untrue statement of material fact or omits to state any fact necessary to make the factual statements therein taken as a whole not materially misleading in light of the circumstances under which it was furnished. There is no fact known to Borrower which has not been disclosed to Agent in writing which could reasonably be expected to be, have or result in a Material Adverse Effect.
5.12 Existing Indebtedness; Investments, Guarantees and Certain Contracts
Borrower does not (a) have any outstanding Indebtedness, except Indebtedness under the Loan Documents, or (b) own or hold any equity investments in, or have any outstanding guarantees for, the obligations of any other Person, except as permitted under Section 7.1 .
Except as set forth in Section 5.13 of Schedule A attached hereto, there are no existing or proposed agreements or transactions between Borrower, on the one hand, and Borrower’s members, managers, administrators, trustees, managing members, investors, officers, directors, stockholders, other equity holders, employees, or Affiliates or any members of their respective families, on the other hand.
5.15 Names; Location of Offices, Records and Collateral
Neither Borrower nor any of its predecessors has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown in Section 5.15 of Schedule A attached hereto. Borrower is (or Borrower’s predecessors were) the sole owner(s) of all of its names listed in Section 5.15 of Schedule A attached hereto, and any and all business done in such names are Borrower’s (or any such predecessors’) business. Borrower maintains, and since its inception, its predecessors maintained, respective places of business and chief executive office only at the locations set forth in Section 5.15 of Schedule A attached hereto or, after the Closing Date, as additionally disclosed to Agent in writing, and all copies of the Portfolio Documents and all books and records in connection therewith or in any way relating thereto are located and shall be only, in and at the locations set forth in Section 5.15 of Schedule A attached hereto (other than (i) Deposit Accounts, and (ii) Collateral in the possession or control of Agent, Servicer or Backup Servicer). All of the Portfolio Documents are located only in the continental United States.
5.16 Deposit Accounts and Investment Property
Section 5.16 of Schedule A attached hereto, lists all of Borrower’s Deposit Accounts and Investment Property, as of the Closing Date.
The Obligations are not subordinated in any way to any other obligations of Borrower or to the rights of any other Person.
54
(a) With respect to each Receivable designated as an Eligible Receivable on any Borrowing Base Certificate, Borrower warrants and represents to Agent and Lenders as of the date of delivery of each such Borrowing Base Certificate (or such other date as set forth in the definition of “Eligible Receivables”, as applicable) that: (i) such Receivable constitutes an Eligible Receivable, and (ii) in determining which Receivables are “Eligible Receivables,” Lender may rely upon all statements or representations made by Borrower.
(b) All Receivables selected by Holdings and offered to be sold to Borrower pursuant to the Purchase and Sale Agreement from all other similar Receivables that are included in Enova’s and its Subsidiaries pipeline of loans for acquisition were selected by Holdings at random and with no intention to select receivables that would be more adverse to Borrower, Agent, Lenders or Holdings or its investors than those similar receivables; provided that selection procedures that merely reflect differing eligibility criteria and excess concentration limits between this Facility and other credit facilities shall not be deemed to violate this provision.
Borrower has entered into the Servicing Agreement with Servicer pursuant to which Borrower has engaged Servicer, as servicer and as Borrower’s agent, to monitor, manage, enforce and collect the applicable Receivables and disburse any collections in respect thereof as provided by the Servicing Agreement.
5.20 Legal Investments; Use of Proceeds
Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any “margin stock” or “margin security” (within the meaning of Regulations T, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or margin security or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin security.
5.21 Broker’s or Finder’s Commissions
No broker’s, finder’s or placement fee or commission will be payable to any broker or agent engaged by Borrower or any of its officers, directors or agents with respect to the Loan or the transactions contemplated by this Agreement except for fees payable to Agent and Lenders. Borrower agrees to indemnify Agent and hold each harmless from and against any claim, demand or liability for broker’s, finder’s or placement fees or similar commissions, whether or not payable by Borrower, alleged to have been incurred in connection with such transactions, other than any broker’s or finder’s fees payable to Persons engaged by Agent and/or Lenders without the knowledge of Borrower.
(a) (i) Neither Borrower, nor any Person controlling or controlled by Borrower, nor any Person having a beneficial interest in Borrower, nor any Person for whom Borrower is acting as agent or nominee in connection with this transaction (“ Transaction Persons ”) (1) is a
55
Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (2) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order, or (3) is a Person on the list of Specially Designated Nationals and Blocked Persons or is in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
(b) No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
(c) Borrower acknowledges by executing this Agreement that Lender has notified Borrower that, pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record such information as may be necessary to identify Borrower, or any Person owning twenty-five percent (25.00%) or more of the direct or indirect Equity Interests of Borrower (including the name and address of such Person) in accordance with the Patriot Act.
Borrower has full right and power to grant to Agent, for the benefit of itself and the other Lenders, a first priority security interest and Lien on the Collateral pursuant to this Agreement, subject to the following sentence. Upon the execution and delivery of this Agreement, and upon the filing of the necessary financing statements and/or appropriate filings and/or delivery of the necessary certificates evidencing an equity interest, control and/or possession, as applicable, without any further action, Agent will have a good, valid and first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien and security interest in the Collateral, subject to no transfer or other restrictions or Liens of any kind in favor of any other Person (other than Permitted Liens). As of the Closing Date, no financing statement naming Borrower as “Debtor” and relating to any of the Collateral is on file in any public office except those on behalf of Agent and those related to the Permitted Liens. As of the Closing Date, Borrower is not party to any agreement, document or instrument that conflicts with this Section 5.23 .
Borrower hereby makes the representations and warranties contained herein with the knowledge and intention that Agent and Lenders are relying and will rely thereon. All such representations and warranties will survive the execution and delivery of this Agreement, the Closing and the making of any and all Advances.
Borrower hereby covenants and agrees that, unless otherwise consented to by Agent in writing in its sole discretion, until the full performance and satisfaction, and indefeasible payment
56
in full in cash, of all the Obligations ( other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending ), the termination of the Revolving Loan Commitments and termination of this Agreement:
6.1 Financial Statements, Reports and Other Information
(a) Financial Reports . Borrower shall furnish to Agent each of the following:
(i) as soon as available and, in any event, within forty-five (45) calendar days after the end of each calendar quarter, unaudited quarterly financial statements of Borrower consisting of a balance sheet and statements of income as of the end of the immediately preceding monthly period;
(ii) as soon as available and in any event within one hundred twenty (120) calendar days after the end of each fiscal year, unaudited financial statements of Borrower, including the notes thereto, consisting of a balance sheet at the end of such completed fiscal year and the related statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year;
(iii) as soon as available and in any event within forty-five (45) calendar days after the end of each calendar quarter, Borrower will deliver the unaudited financial statements of Indemnitor consisting of a balance sheet and statements of income as of the end of the immediately preceding period, for such period; provided , however , to the extent such financial statements are publicly filed with the United States Securities and Exchange Commission or otherwise made publicly available within such time period, then the foregoing requirement shall be deemed to be satisfied; and
(iv) as soon as available and in any event within one hundred twenty (120) calendar days after the end of each fiscal year, audited financial statements of Indemnitor, including the notes thereto, consisting of a balance sheet at the end of such completed fiscal year and the related statements of income, retained earnings, cash flows and owners’ equity for such completed fiscal year, which financial statements shall be prepared and certified without any material qualification by an independent certified public accounting firm acceptable to Agent in its reasonable discretion and accompanied by related management letters, if available; provided , however , to the extent such financial statements are publicly filed with the United States Securities and Exchange Commission or otherwise made publicly available within such time period, then the foregoing requirement shall be deemed to be satisfied.
(b) Monthly Collateral and Servicing Report . As soon as available, and in any event not later than twenty (20) calendar days after the end of each calendar month, Borrower shall furnish to Agent and Backup Servicer a report, in computer file form reasonably accessible and usable by Agent and Backup Servicer, with respect to the Receivables pledged as Collateral, which report shall include, as of the end of the immediately preceding calendar month, (i) the information contained in the form of Monthly Collateral and Servicing Report attached hereto as Exhibit C , (ii) a summary of any third party fees and expenses to be paid from the Available
57
Amounts during the current calendar month and (iii) any other information with respect to the Collateral as Agent may reasonably request, all prepared by Borrower and certified as to being true, correct and complete in all material respects by Borrower . For the avoidance of doubt, each such Monthly Collateral and Servicing Report shall include (i) the monthly Servicer report received by Borrower, (ii) a Borrowing Base Certificate dated as of the end of the most recent calendar month, (iii) a data tape with sufficient information for Agent to confirm that the information and calculations in each monthly Servicer Report and Borrowing Base Certificate is true, correct and complete and (iv) a summary of any amendments or modifications with respect to each Receivable to the extent known to Borrower.
(c) Additional Reports . No later than seven (7) Business Day after receipt thereof by Borrower, Borrower shall deliver to Agent any material correspondence, reports, certificate or other document received by Borrower from Servicer, Backup Servicer or any other Person with respect to any Receivable.
(d) Notices . Borrower shall promptly, and in any event within five (5) Business Days after the occurrence thereof, notify Agent in writing of (i) any notices Borrower has received of any claims, offsets or disputes asserted by any Account Debtor with respect to the Receivables, (ii) any pending material legal action, litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative or regulatory proceeding brought, initiated or threatened in writing by or against Borrower or otherwise materially affecting Borrower or any of its or assets, (iii) any Regulatory Event, Trigger Event, Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iv) any other development, event, fact, circumstance or condition that is reasonably expected to have or result in a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (v) any matter(s) in existence that Borrower becomes aware of affecting in any material respect the value, enforceability or collectability of Collateral taken as a whole, (vi) receipt of any material notice or request from any Governmental Authority regarding any liability of Borrower, (vii) receipt of any notice or document by Borrower regarding any lease of real property of Borrower (and such notice shall include a copy of the notice or document), (viii) any lease of real property entered into by Borrower after the Closing Date, (ix) the filing, recording or assessment of any federal, state, local or foreign tax lien against the Collateral or Borrower, (x) any action taken or threatened in writing to be taken by any Governmental Authority (or any notice of any of the foregoing) with respect to Borrower or any Collateral which is reasonably expected to have or result in a Material Adverse Effect, (xi) any change in the corporate name of Borrower, and/or (xii) the loss, termination or expiration of any contract to which Borrower is a party or by which its properties or assets are subject or bound that is reasonably expected to have or result in a Material Adverse Effect.
(e) Account Debtor Bankruptcies . Borrower shall use commercially reasonable efforts, and shall cause Servicer to use commercially reasonable efforts, to ensure that Borrower and Servicer are promptly notified upon any Account Debtor becoming the subject of a proceeding under any Debtor Relief Law.
(f) Quarterly Review Meeting . If requested by Agent, Borrower, Servicer, and Indemnitor shall be available in person or via teleconference as and when requested by Agent
58
for a quarterly review meeting regarding the status of Borrower, the Collateral and performance of the same.
(g) Tax Returns. Borrower shall promptly, but in no event later than ten (10) Business Days of filing, upon request, provide Agent with copies of all state and federal tax returns (together with any schedules and/or extensions in connection therewith) filed with any Governmental Authority in relation to each of Borrower and Indemnitor.
Borrower shall make full and timely indefeasible payment in cash of the principal of and interest on the Loan and all other Obligations when due and payable .
6.3 Conduct of Business and Maintenance of Existence and Assets
Borrower shall (a) collect (or shall require Servicer to collect) all Receivables in the ordinary course of business, (b) maintain and keep in full force and effect its existence and all material Permits and qualifications to do business and remain in good standing in its jurisdiction of formation and each other jurisdiction in which the ownership or lease of property or the nature of its business makes such Permits or qualification necessary and in which failure to maintain such Permits or qualification is reasonably expected to have or result in a Material Adverse Effect and (c) remain in good standing and maintain operations in all jurisdictions in which currently located, except where the failure to remain in good standing or maintain operations could not reasonably be expected to be, have or result in a Material Adverse Effect.
6.4 Compliance with Legal and Other Obligations
Borrower shall (a) comply with all laws, statutes, rules, regulations, ordinances and tariffs of all Governmental Authorities applicable to it or its business, assets or operations, (b) pay all Taxes, assessments, fees, governmental charges, claims for labor, supplies, rent and all other obligations or liabilities of any kind for which it is liable when due and payable, except liabilities being contested in good faith and against which adequate reserves have been established in accordance with GAAP consistently applied, (c) perform in accordance with its terms each contract, agreement or other arrangement to which it is a party or by which it or any of the Collateral is bound, and (d) properly file all reports required to be filed by Borrower with any Governmental Authority, except under clauses (a), (b), (c), and/or (d) where the failure to comply, pay, file or perform could not reasonably be expected to be, have or result in a Material Adverse Effect.
Borrower shall (a) keep true, complete and accurate (in accordance with GAAP, except for the omission of footnotes and year-end adjustments in interim financial statements) books of record and account in accordance with commercially reasonable business practices in which true and correct entries are made of all of its dealings and transactions in all material respects; (b) set up and maintain on its books such reserves as may be required by GAAP with respect to doubtful
59
accounts and all Taxes, assessments, charges, levies and claims and with respect to its business and (c) maintain a revenue recognition method in accordance with GAAP.
6.7 Inspection; Periodic Audits; Quarterly Review
Borrower shall permit the representatives of Agent and each Lender, at the expense of Borrower, up to two times per year during normal business hours upon reasonable notice (provided that (i) Borrower shall not be responsible for the costs associated with such inspections or audits described below in excess of $60,000 during any calendar year prior to the occurrence and continuance of a Trigger Event or Event of Default and (ii) upon the occurrence and during the continuation of a Trigger Event or Event of Default, there shall be no limit on the number of visits per year and Borrower shall be responsible for all costs associated with such visits and inspections), to (a) visit and inspect Borrower’s offices or properties or any other place where Collateral is located to inspect the Collateral and/or to examine and/or audit all of Borrower’s books of account, records, reports and other papers, (b) make copies and extracts therefrom, and (c) discuss Borrower’ s business, operations, prospects, properties, assets, liabilities, condition and/or Receivables with its officers and independent public accountants (and by this provision such officers and accountants are authorized to discuss the foregoing). Borrower shall require Servicer to cooperate with Agent and its representatives in connection with any inspections or audits requested by Agent pursuant to and in accordance with the Servicing Agreement. In addition to the forgoing, Agent shall have the right, at the expense of Borrower but not to exceed $50,000 in any calendar year, to conduct a legal review regarding the compliance of Borrower, Servicer, Holdings, or any Originator, as well as the forms of Portfolio Documents, with all Applicable Laws, and Borrower shall, and shall require Servicer to cooperate with Agent and its internal and/or outside legal counsel in such legal review.
6.8 Further Assurances; Post Closing
At Borrower’s cost and expense, Borrower shall (a) within five (5) Business Days (or such longer period in the case of actions involving third parties as determined by Agent in its sole discretion) after Agent’s reasonable demand, take such further actions, obtain such consents and approvals and shall duly execute and deliver such further agreements, assignments, instructions or documents as Agent may reasonably request in its sole discretion in order to effectuate the purposes, terms and conditions of the Loan Documents and the consummation of the transactions contemplated thereby, whether before, at or after the performance and/or consummation of the transactions contemplated hereby or the occurrence and during the continuation of a Default or Event of Default, (b) without limiting and notwithstanding any other provision of any Loan Document, execute and deliver, or cause to be executed and delivered, such agreements and documents, and take or cause to be taken such actions, and otherwise perform, observe and comply with such obligations, as are set forth in any agreement regarding post-closing matters executed by Agent and Borrower, and (c) upon the exercise by Agent, any Lender or any of its Affiliates of any power, right, privilege or remedy pursuant to any Loan Document or under Applicable Law or at equity which requires any consent, approval, registration, qualification or authorization of such Person (including, without limitation, any Governmental Authority), execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments and other documents that may be so required for such consent, approval, registration, qualification or authorization. Agent may, at any time and from time to time, request a certificate from an officer of Borrower
60
representing that all conditions precedent to the closing of this Agreement and the making of any Revolving Advances have been satisfied.
If Liens other than Permitted Liens exist on the Collateral, as soon as reasonably practicable Borrower shall take all actions, and execute and deliver all documents and instruments necessary to promptly release and terminate such Liens. As soon as reasonably practicable upon discovery of any Lien other than a Permitted Lien, Borrower shall notify Agent.
Borrower shall use the proceeds from each Revolving Advance under the Loan only for the purposes set forth in the recitals to this Agreement.
6.11 Collateral Documents; Security Interest in Collateral
On demand of Agent, Borrower shall make available to Agent copies of any and all documents, instruments, materials and other items that relate to, secure, evidence, give rise to or generate or otherwise involve Collateral, including, without limitation, the Receivables, in each case to the extent Borrower has access to such documents, instruments, materials and other items. Borrower shall (a) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise requested by Agent, in its sole discretion, to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect Borrower’s interest in the Collateral and Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral (and Borrower irrevocably grants Agent the right, at Agent’s option, to file any or all of the foregoing), (b) maintain, or cause to be maintained, at all times, Agent’s perfected first priority (other than with respect to property or assets covered by Permitted Liens) Lien on the Collateral, and (c) defend the Collateral and Agent’s first priority (other than with respect to property or assets covered by Permitted Liens) and perfected Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Agent (other than Permitted Liens), and pay all costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) in connection with such defense, which may, at Agent’s discretion, be added to the Obligations, in any event as necessary pursuant to this Agreement.
6.12 Servicing Agreement; Backup Servicer;
(a) Borrower shall promptly provide (or require the Servicer to promptly provide) Agent with true and complete copies of all material notices, reports, statements and other documents sent or received by Servicer under the Servicing Agreement. Borrower shall require Servicer to service all Receivables in accordance with the terms of the Servicing Agreement. Borrower shall comply with all provisions, terms and conditions set forth in the Servicing Agreement and Borrower shall not modify, amend, or terminate the Servicing Agreement without Agent’s prior written consent. Borrower shall promptly request from the Servicer any information or document requested by Agent, which such information or document Borrower has the right to
61
request from Servicer pursuant to the Servicing Agreement, and Borrower shall promptly deliver to Agent such information or document upon receipt from Servicer.
(b) Borrower shall be required to provide the Monthly Collateral and Servicing Report in such form and in a manner reasonably acceptable to Agent as described in Section 6.1(b) hereof. Borrower agrees not to, and will require Servicer not to, interfere with Backup Servicer’s performance of its duties under any Backup Servicing Agreement or to take any action that would be inconsistent in any way with the terms of such Backup Servicing Agreement. Borrower covenants and agrees to, and will require Servicer to, provide any and all information and data reasonably requested by Agent to be provided promptly to Backup Servicer in the manner and form reasonably requested by Agent. Upon the occurrence and continuance of any Trigger Event (solely with respect to clause (v), (vi), (vii) or (ix) thereof) or Event of Default, Agent shall have the right to immediately substitute Agent, Backup Servicer or another third party servicer acceptable to Agent for Servicer in all of Servicer’s roles and functions as servicer of the Collateral, including as contemplated by the Loan Documents and the Servicing Agreement and upon and after such substitution, Agent or the Backup Servicer as substituted Servicer, or such other third party servicer acceptable to Agent, shall be entitled to receive the applicable Servicing Fee.
Borrower has not, and shall not:
(a) engage in any business or activity other than the ownership, operation and maintenance of the Receivables and activities incidental thereto;
(b) acquire or own any material assets other than the Receivables (or such similar loan assets as Agent may reasonably approve), and such incidental personal property as may be necessary for the operation of the Receivables;
(c) merge into or consolidate with any Person or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Agent’s consent;
(d) own any Subsidiary or make any equity investment in any Person without the consent of Agent;
(e) commingle its assets with the assets of any of its members, shareholders, Affiliates, principals or of any other Person;
(f) incur any debt for borrowed money, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Obligations;
(g) fail to maintain its records, books of accounts and bank accounts separate and apart from those of the members, partners, shareholders, principals and Affiliates of Borrower or any other Person;
(h) other than any Loan Documents or as otherwise required by the Loan Documents, enter into any contract or agreement with any member, shareholder, principal or
62
Affiliate of Borrower or any member, shareholder, principal or Affiliate of any of the foregoing, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any member, shareholder, principal or Affiliate of Borrower, or any member, shareholder or Affiliate of any of the foregoing;
(i) seek the dissolution or winding up in whole, or in part, of Borrower;
(j) fail to correct any known misunderstandings regarding the separate identity of Borrower, as applicable;
(k) hold itself out to be responsible for the debts of another Person;
(l) other than owning the Receivables, make any loans or advances to any third party, including any member, shareholder, principal or Affiliate of Borrower or Servicer, or any member, shareholder, principal or Affiliate of any of the foregoing;
(m) fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that Borrower is responsible for the debts of any third party (including any member, shareholder, principal or Affiliate of Borrower, Servicer or Originator, or any member, shareholder, principal or Affiliate of any of the foregoing);
(n) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;
(o) except for invoicing for collections and servicing of Receivables, share any common logo with or hold itself out as or be considered as a department or division of (i) any shareholder, principal, member or Affiliate of Borrower, (ii) any Affiliate of a shareholder, principal or member of Borrower, or (iii) any other Person;
(p) without the unanimous consent of all owners of the Equity Interests of Borrower and the independent manager of Borrower, file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors; or
(q) fail at any time to have at least one (1) of its directors or managers being independent directors or managers that is not and has not been for at least three (3) years a director (other than as an independent director), manager, officer, employee, trade creditor, supplier or shareholder (or spouse, parent, sibling or child of the foregoing) of (or a Person who directly or indirectly controls) (i) Borrower, (ii) any general or limited partner, shareholder, principal, member or Affiliate of Borrower, or (iii) any Affiliate of any general or limited partner, shareholder, principal or member of Borrower.
63
Borrower agrees and covenants that it shall:
(a) At all times comply, and require Servicer to comply, with the terms of Section 2.3 hereof; and
(b) Prevent the deposit into any Deposit Account of any funds other than collections from Receivables or other funds to be deposited into such Deposit Accounts under this Agreement, the Intercreditor Agreement or the other Loan Documents ( provided that, this covenant shall not be breached to the extent that funds are inadvertently deposited into any Deposit Account and upon discovery are promptly segregated and removed from such Deposit Account).
6.16 Changes to Underwriting Guidelines
Any material changes or material proposed changes to the Underwriting Guidelines shall be approved by Agent in its reasonable discretion in order for any Receivables originated pursuant to such materially amended Underwriting Guidelines to constitute Eligible Receivables.
6.17 Collateral Performance and Financial Covenants
(a) Net Charge-Off Ratio . As of the end of any calendar month, beginning with the end of the first calendar month in which the first Quarterly Vintage is created, the Net Charge-Off Ratio with respect to any Quarterly Vintage shall be greater than the applicable percentage corresponding to the Weighted Average Seasoning of such Quarterly Vintage increased by one for each month since the creation of the related Quarterly Vintage set forth below:
64
(b) Charged-Off Percentage . As of the end of any calendar month, beginning with the third calendar month after the Closing Date, the three-month rolling average Charged-Off
65
Percentage for the most recently completed three (3) calendar month period (including such calendar month) shall not be greater than five and one-quarter percent (5.25%).
(c) Delinquency Percentage . As of the end of any calendar month, beginning with the third calendar month after the Closing Date, the three-month rolling average Delinquency Percentage for the most recently completed three (3) calendar month period (including such calendar month) shall not be greater than fifteen and one-half percent (15.50%).
(d) Interest Coverage Ratio . As of the end of any calendar month, beginning with the sixth calendar month after the Closing Date, the Interest Coverage Ratio shall not be less than 3.00 to 1.00 for the six month period ending on the last day of such calendar month.
Borrower covenants and agrees that, unless otherwise consented to by Agent in writing in its sole discretion, until full performance and satisfaction, and indefeasible payment in full in cash, of all the Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) and termination of this Agreement:
Borrower shall not create, incur, assume or suffer to exist any Indebtedness, except Indebtedness under the Loan Documents.
Borrower shall not create, incur, assume, or suffer to exist, any Lien upon, in or against, or pledge of, any of the Collateral, whether now owned or hereafter acquired, except the following (collectively, “ Permitted Liens ”): (a) Liens under the Loan Documents or otherwise arising in favor of Agent, for the benefit of itself and the other Lenders, (b) any right of set-off granted in favor of any financial institution in respect of Deposit Accounts opened and maintained in the ordinary course of business or pursuant to the requirements of this Agreement; provided , that with respect to any such Deposit Account, Agent has a perfected Lien thereon and control thereof (subject to the Intercreditor Agreement), in form, scope and substance satisfactory to Agent in its sole discretion and (c) Liens imposed by law for Taxes that are not yet due or are being contested in good faith.
7.3 Investments; Investment Property; New Facilities or Collateral; Subsidiaries
Borrower shall not, directly or indirectly, (a) merge with, purchase, own, hold, invest in or otherwise acquire any Equity Interests of, or any other interest in, all or substantially all of the assets of, any Person or any joint venture, (b) purchase, own, hold, invest in or otherwise acquire any Investment Property (except (i) Investment Property set forth in Section 5.16 of Schedule A attached hereto as of the Closing Date, and (ii) Deposit Accounts with financial institutions and investments in the ordinary course of business or as required by this Agreement; provided , that with respect to any such Deposit Accounts, Agent has a perfected Lien thereon and control thereof (subject to the Intercreditor Agreement), in form, scope and substance satisfactory to Agent in its
66
sole discretion and (iii) the indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business) or (c) make or permit to exist any loan, advances or guarantees to or for the benefit of any Person or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person except as provided in clause (b). Borrower shall not purchase, lease, own, operate, hold, invest in or otherwise acquire any property or asset or any Collateral that is located outside of the continental United States except as provided in clause (b). Borrower shall not have any Subsidiaries.
7.4 Dividends; Redemptions; Equity
Except as otherwise agreed to by Agent in its sole discretion, Borrower shall not (a) declare, pay or make any dividend or distribution on any Equity Interests or other securities or ownership interests, (b) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any Equity Interests or other securities or interests or of any options to purchase or acquire any of the foregoing, (c) otherwise make any payments, dividends or distributions to any member, manager, managing member, stockholder, director or other equity owner in such Person’s capacity as such, (d) make any payment of any management, service or related or similar fee to any Affiliate or holder of Equity Interests of Borrower, (e) issue, sell or create any Equity Interests, or (f) otherwise make any payments under the Purchase and Sale Agreement other than payments of the Purchase Price (as such term is defined in the Purchase and Sale Agreement) of each Receivable purchased by Borrower pursuant to the Purchase and Sale Agreement; provided , that, so long as no Regulatory Event, Trigger Event, Default or Event of Default has occurred or is continuing, or would be caused by such payment or distribution, Borrower may make distributions without the written consent of Agent.
7.5 Transactions with Affiliates
Borrower shall not enter into or consummate any transaction of any kind with any of its Affiliates other than (a) the transactions contemplated hereby and by the other Loan Documents, subject to compliance with the requirements set forth in Section 2.6 hereof, (b) the transactions described on Section 5.13 of Schedule A and (c) to the extent not otherwise prohibited under this Agreement, other transactions upon fair and reasonable terms materially no less favorable to Borrower than would be obtained in a comparable arms-length transaction with a Person not an Affiliate.
7.6 Charter Documents; Fiscal Year; Dissolution; Use of Proceeds; Insurance Policies; Disposition of Collateral; Trade Names
Borrower shall not (a) amend, modify, restate or change its certificate of formation or governance documents in a manner that would be adverse to Agent or Lenders, (b) change its state of organization, its corporate name or its fiscal year without thirty (30) calendar days prior written notice to Agent, (c) amend, alter, suspend, terminate or make provisional in any material way, any Permit, the suspension, amendment, alteration or termination of which could reasonably be expected to be, have or result in a Material Adverse Effect without the prior written consent of Agent, which consent shall not be unreasonably withheld, (d) wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking or that would result
67
in any of the foregoing, (e) use any proceeds of any Loan for “purchasing” or “carrying” “margin stock” as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System for any use not contemplated or permitted by this Agreement, (f) amend, modify, restate or change any insurance policy in a manner adverse to Agent or Lenders in any material respect, (g) engage, directly or indirectly, in any business other than as set forth herein or (h) establish new or additional trade names without providing not less than thirty (30) days advance written notice to Agent.
7.7 Transfer of Collateral; Amendment of Receivables
(a) Except pursuant to a Permitted Securitization, subject to compliance with the requirements set forth in Section 2.6 hereof, Borrower shall not sell, lease, transfer, pledge, encumber, assign or otherwise dispose of any Collateral without the prior consent of Agent.
(b) Borrower shall not extend, amend, waive or otherwise modify the terms of any Receivable or permit the rescission or cancellation of any Receivable, whether for any reason relating to a negative change in the related Account Debtor’s creditworthiness or inability to make any payment under the Receivable or otherwise, except as permitted by the Underwriting Guidelines or the Servicing Policy or as otherwise permitted in the Servicing Agreement.
(c) Except as required by Applicable Law, Borrower shall not terminate or reject any Receivable prior to the end of the term of such Receivable, whether such rejection or early termination is made pursuant to any Applicable Law, unless prior to such termination or rejection, such Receivable and any related Collateral have been released from the Lien created by this Agreement.
7.8 Contingent Obligations and Risks
Except as otherwise expressly permitted by this Agreement, Borrower shall not enter into any Contingent Obligations or assume, guarantee, endorse, contingently agree to purchase or otherwise become liable for or upon or incur any obligation of any Person (other than indemnities to officers and directors of such Person to the extent permitted by Applicable Law); provided , however , that nothing contained in this Section 7.8 shall prohibit Borrower from indorsing checks in the ordinary course of its business.
7.10 Modifications of Agreements
Borrower shall not make, or agree to make, any modification, amendment or waiver of any of the terms or provisions of any Transfer Agreement or the Purchase and Sale Agreement without the prior written consent of Agent.
Borrower shall not (a) be or become a Person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to
68
Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)), (b) engage in any dealings or transactions prohibited by Section 2 of such executive order, or otherwise be associated with any such Person in any manner violative of Section 2 of such executive order, or (c) otherwise become a Person on the list of Specially Designated Nationals and Blocked Persons in violation of the limitations or prohibitions under any other OFAC regulation or executive order.
7.12 Deposit Accounts and Payment Instructions
(a) Borrower shall not open a Deposit Account (other than those listed in Section 5.16 of Schedule A attached hereto as of the Closing Date) without the prior written consent of Agent.
(b) Borrower shall not make any change in the instructions to Servicer with respect to the deposits of collections regarding Receivables to the Collateral Account in accordance with this Agreement, the Intercreditor Agreement and the Servicing Agreement.
(c) Borrower shall not, and shall require Servicer to not, make any change in the instructions to any Account Debtor on any Receivable that is Collateral with respect to any instructions to such Account Debtors regarding payment to be made to the Collateral Account.
Borrower shall not, without the prior written consent of Agent in its sole discretion:
(a) with respect to the Servicing Agreement, terminate, amend or modify the Servicing Agreement in any manner or consent to any request from the Servicer or any other party thereto to do the same;
(b) except in connection with the replacement of the Servicer by the Backup Servicer or third party servicer acceptable to Agent in accordance with Section 6.12(b) , allow Servicer to transfer, assign or delegate any of its duties or functions under the Servicing Agreement, as applicable, to any Person, or otherwise engage any such Person to perform any such duties or functions for or on behalf of Servicer, or Borrower, in each case other than in accordance with the Servicing Agreement; and
(c) except in connection with the replacement of the Servicer by the Backup Servicer or third party servicer acceptable to Agent in accordance with Section 6.12(b) , transfer the duties and functions of Servicer under the Servicing Agreement to any other Persons.
7.14 No Adverse Selection; Minimum Purchase
(a) Borrower covenants and agrees that all Receivables selected to be purchased by Borrower pursuant to the Purchase and Sale Agreement from all other similar receivables originated or owned by Enova and its Subsidiaries shall, at all times, be selected at random and with no intention to select receivables that would be more adverse to Agent or Lenders than those similar receivables; provided further , that selection procedures that merely reflect differing eligibility criteria and excess concentration limits between this Facility and other credit facilities shall not be deemed to violate this provision.
69
(b) Beginning on the last day of the fourth month after the Closing Date and on the last day of each month thereafter during the Borrowing Period, s o long as no Trigger Event or Event of Default has occurred and is continuing, Borrower acknowledges and agrees it shall purchase from Holdings pursuant to the Purchase and Sale Agreement at least thirty-five percent (35 %) of all Receivables that have been originated by an Originator that is a party to the Transfer Agreement and sold by Enova or any of its Subsidiaries to Borrower or any Affiliate of Borrower since the date that is ninety (90) days following the Closing Date, as of the last day of the immediately preceding month that meet the criteria to be Eligible Receivables hereunder (i) until such time as the Loan equals the Maximum Loan Amount and (ii) at all times thereafter that the balance of the Loan is less than ninety-five percent (95%) of the Maximum Loan Amount. Not withstanding the foregoing, Holdings shall not be required to sell Receivables to Borrower under this Section 7.14(b) to the extent that after giving credit to such Receivables, the Financed Portfolio would exceed any Excess Concentration Limit. In addition, and notwithstanding the foregoing, Holdings shall not be required to sell Receivables to Borrower under this Section 7.14(b) if any Lender transfers any portion of its Revolving Loan Commitment pursuant to clause (i) of the proviso in Section 12.2(a) without the consent of Borrower.
The occurrence of any one or more of the following shall constitute an “ Event of Default ”:
(a) Borrower (i) shall fail to pay any amount on the Obligations or provided for in any Loan Document within two (2) Business Days of the date due (in all cases whether on a specific due date, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise) or (ii) shall fail to pay the outstanding principal balance of all of the outstanding Revolving Advances in full on the Maturity Date;
(b) any representation, statement or warranty made or deemed made by Borrower in any Loan Document or in any other certificate, document, report or opinion delivered in conjunction with any Loan Document to which it is a party (other than representations or warranties with respect to whether a Receivable was an Eligible Receivable), shall not be true and correct in all material respects or shall have been false or misleading in any material respect on the date when made or deemed to have been made (except to the extent already qualified by materiality, in which case it shall be true and correct in all respects and shall not be false or misleading in any respect) except those made as of a specific date;
(c) Borrower shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement of it set forth in this Agreement (other than any violation, breach or default in the covenants set forth in Sections 2.11 , 6.17 , or 7 of this Agreement or the misappropriation of any funds to be delivered to the Collateral Account pursuant to Section 2.3 and applied pursuant to Section 2.4 of this Agreement, for which there shall be no cure period) or any other Loan Document and such violation, breach or failure shall continue or not be cured within a period of thirty (30) days after the Borrower first receives notice or obtains knowledge thereof, unless such Loan Document specifies a different cure period; provided , that notwithstanding anything to the contrary herein, the failure of Borrower to comply with Section 7.14(b) shall not constitute an Event of Default;
70
(d) Borrower shall be in violation, breach or default of, or shall fail to perform, observe or comply with any covenant, obligation or agreement set forth in, or any event of default occurs under, any Loan Document other than this Agreement and such violation, breach, default, event of default or failure shall not be cured within the applicable period set forth in the applicable Loan Document or, if no cure period is provided for therein, within a period of thirty (30) days after the Borrower first receives notice or obtains knowledge thereof ;
(e) (i) any of the Loan Documents ceases to be in full force and effect (other than in accordance with its terms), or (ii) any Lien created under any Loan Document ceases to constitute a valid first priority (other than with respect to property or assets covered by Permitted Liens) perfected Lien on the Collateral in accordance with the terms thereof, except with respect to Collateral that is released from the Lien of Agent as permitted under the Loan Documents or the Security Documents;
(f) one or more judgments or decrees is rendered against any of Borrower in an amount in excess of $250,000 individually or $250,000 in the aggregate (excluding judgments to the extent covered by insurance of such Person), which is/are not bonded pending appeal, satisfied, stayed, vacated or discharged of record within thirty (30) calendar days of being rendered;
(g) (i) any default or breach occurs, which is not cured within any applicable grace period or waived, (x) in the payment of any amount with respect to any Indebtedness (other than the Obligations) of Borrower for borrowed money having an aggregate principal amount in excess of $250,000 individually or in the aggregate, or (y) in the performance, observance or fulfillment of any provision contained in any agreement, contract, document or instrument to which Borrower is a party or to which any of their properties or assets are subject or bound (1) under or pursuant to which any Indebtedness having an aggregate principal amount in excess of $250,000 individually or in the aggregate was issued, created, assumed, guaranteed or secured and such default or breach continues for more than any applicable grace period and permits the holder of any such Indebtedness to accelerate the maturity thereof, or (2) that is between Borrower and Agent or any Lender or Affiliate of Agent or any Lender (other than the Loan Documents); or (ii) any Indebtedness of Borrower for borrowed money having an aggregate principal amount in excess of $250,000 individually or in the aggregate is declared to be due and payable or is required to be prepaid (other than by a regularly scheduled payment or a payment due on the voluntary termination of a capital lease) prior to the stated maturity thereof, or any obligation of such Person for the payment of Indebtedness for borrowed money having an aggregate principal amount in excess of $250,000 individually or in the aggregate (other than the Obligations) is not paid when due or within any applicable grace period, or any such obligation becomes or is declared to be due and payable before the expressed maturity thereof, or there occurs any event which would cause any such obligation to become, or allow any such obligation to be declared, due and payable;
(h) any of Borrower or Indemnitor shall (i) be unable to pay its debts generally as they become due, (ii) file a petition under any insolvency statute, (iii) make a general assignment for the benefit of its creditors, (iv) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property or shall otherwise be dissolved or liquidated, or (v) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other Applicable Law;
71
(i) (i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any of Borrower or Indemnitor or the whole or any substantial part of the properties of Borrower or Indemnitor, which shall continue unstayed and in effect for a period of sixty (60) calendar days, (B) approve a petition filed against Borrower or Indemnitor seeking reorganization, liquidation or similar relief under the any Debtor Relief Law or any other Applicable Law, which is not dismissed within sixty (60) calendar days or, (C) under the provisions of any Debtor Relief Law or other Applicable Law, assume custody or control of Borrower or Indemnitor or of the whole or any substantial part of the properties of Borrower or Indemnitor, which is not irrevocably relinquished within sixty (60) calendar days, or (ii) there is commenced against Borrower or Indemnitor any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other Applicable Law or statute, which (A) is not unconditionally dismissed within sixty (60) calendar days after the date of commencement, or (B) is with respect to which Borrower or Indemnitor takes any action to indicate its approval of or consent;
(j) any Change of Control occurs;
(k) the suspension, loss, revocation, or failure to renew or file for renewal of any registration, approval, license, permit, or franchise required for the collection of the Receivables by Borrower which is now held or hereafter acquired by Borrower or the issuance of any stay order, cease and desist order or similar judicial or nonjudicial sanction prohibiting the collection of the Receivables;
(l) if the obligations of any party to the Guaranty is limited or terminated by operation of law or by Indemnitor; or
(m) the occurrence of any Level Two Regulatory Event impacting or affecting twenty percent (20%) or more of the Receivables owned by Borrower.
Upon the occurrence and continuance of an Event of Default, notwithstanding any other provision of any Loan Document, (a) Agent may (and at the request of Requisite Lenders, shall), by notice to Borrower (i) terminate its obligations hereunder and/or the Revolving Loan Commitments of each of the Lenders, whereupon the same shall immediately terminate, (ii) substitute immediately Backup Servicer or any other third party servicer acceptable to Agent, in its sole discretion, for Servicer in all of Servicer’s roles and functions as contemplated by the Loan Documents and the Servicing Agreement and any fees, costs and expenses of, for or payable to Backup Servicer or other third party servicer acceptable to Agent, in its sole discretion, and reasonably acceptable to Borrower shall be at Borrower’s sole cost and expense, (iii) with respect to the Collateral, (1) terminate the Servicing Agreement and service the Collateral, including the right to institute collection, foreclosure and other enforcement actions against the Collateral; (2) enter into modification agreements and make extension agreements with respect to payments and other performances; (3) release Account Debtors and other Persons liable for performance; (4) settle and compromise disputes with respect to payments and performances claimed due, all without notice to Borrower, and all in Agent’s sole discretion and without relieving Borrower from performance of the obligations hereunder or under any other Loan Document; (5) receive, collect, open and read all mail of Borrower for the purpose of obtaining all items pertaining to the Collateral and any collateral described in any Loan Document; (6) collect all interest, principal,
72
prepayments (both voluntary and mandatory), and other amounts of any and every description payable by or on behalf of any Account Debtor pursuant to any Receivable, the related Portfolio Documents, or any other related documents or instruments directly from such Account Debtor; and (7) subject to the Intercreditor Agreement, apply all amounts in or subsequently deposited in any Deposit Account to the payment of the unpaid Obligations or otherwise as Agent in its sole discretion shall determine; and (iv) declare all or any of the Loan and/or Notes, all interest thereon and all other Obligations to be due and payable immediately (except in the case of an Event of Default under Section 8(h) , (i) (other than an Event of Default under Section 8(h) or (i) with respect to Indemnitor)), in which event all of the foregoing shall automatically and without further act by Agent or Lenders be due and payable and Agent or Lenders’ obligations hereunder shall terminate, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower and (b) effective immediately upon receipt of notice from Agent (unless specifically prohibited and provided for in Article VII , in which case effective immediately upon an Event of Default without any action of Agent or any Lender), no action permitted to be taken under Article VII hereof may be taken.
IX. RIGHTS AND REMEDIES AFTER DEFAULT
(a) In addition to the acceleration provisions set forth in Article VIII above, upon the occurrence and during the continuation of an Event of Default, Agent shall have the right to (and at the request of Requisite Lenders, shall) exercise any and all rights, options and remedies provided for in any Loan Document, under the UCC or at law or in equity, including, without limitation, the right to (i) apply any property of Borrower held by Agent to reduce the Obligations, (ii) foreclose the Liens created under the Loan Documents, (iii) realize upon, take possession of and/or sell any Collateral, with or without judicial process, (iv) exercise all rights and powers with respect to the Collateral as Borrower might exercise, (v) collect and send notices regarding the Collateral, with or without judicial process, (vi) by its own means or with judicial assistance, enter any premises at which Collateral is located or dispose of the Collateral on such premises without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action, (vii) at Borrower’s expense, require that all or any part of the Collateral be assembled and made available to Agent at any place designated by Agent in its sole discretion, (viii) reduce or otherwise change the Advance Rate and/or the Maximum Loan Amount and/or any component of the Maximum Loan Amount and/or (ix) relinquish or abandon any Collateral or any Lien thereon. Notwithstanding any provision of any Loan Document, Agent, in its sole discretion, shall have the right, at any time that Borrower fails to do so after an Event of Default, without prior notice, to: (A) obtain insurance covering any of the Collateral to the extent required hereunder; and (B) discharge Taxes, levies and/or Liens on any of the Collateral that are in violation of any Loan Document unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items. Such expenses and advances shall be deemed Advances hereunder and shall be added to the Obligations until reimbursed to Agent, for its own account and for the benefit of the other Lenders, and shall be secured by the Collateral, and such payments by Agent, for its own account and for the benefit of the other Lenders, shall not be construed as a waiver by Agent or Lenders of any Event of Default or any other rights or remedies of Agent or Lenders.
73
(b) Borrower agrees that notice received at least ten (10) calendar days before the time of any intended public sale, private sale or other disposition of Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. At any sale or disposition of Collateral, Agent may (to the extent permitted by Applicable Law) purchase all or any part thereof free from any right of redemption by Borrower, which right is hereby waived and released, to the extent permitted by law. Borrower covenants and agrees not to interfere with or impose any obstacle to Agent’s exercise of its rights and remedies with respect to the Collateral. In dealing with or disposing of the Collateral or any part thereof, Agent shall not be required to give priority or preference to any item of Collateral or otherwise to marshal assets or to take possession or sell any Collateral with judicial process.
Notwithstanding any other provision of this Agreement (including Section 2.4 hereof), in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing, renting, selling, or otherwise disposing of all or any part of the Collateral or any proceeds thereof upon exercise of its remedies hereunder upon the occurrence and continuation of an Event of Default shall be applied in the following order of priority: (a) first , to the payment of all costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrower’s business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Collateral, and to the payment of all sums which Agent or Lenders may be required or may elect to pay, if any, for Taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments that Agent or Lenders may be required or authorized to make under any provision of this Agreement (including, in each such case, in-house and outside documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys’ fees and all expenses, liabilities and advances made or incurred in connection therewith); (b) second , to the payment of all Obligations in such order as determined by Agent in its sole discretion; and (c) third , to the payment of any surplus then remaining to Borrower, unless otherwise provided by law or directed by a court of competent jurisdiction; provided , that Borrower shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) or any of the other items referred to in this Section (other than Section 9.2(c) to the extent the Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been indefeasibly paid in full in cash).
9.3 Right to Appoint Receiver.
Without limiting and in addition to any other rights, options and remedies Agent and Lenders have under the Loan Documents, the UCC, at law or in equity, upon the occurrence and continuation of an Event of Default, Agent shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Agent and/or any Lender to enforce its rights and remedies in order to manage, protect and preserve the Collateral and continue
74
the operation of the business of Borrower and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated
Borrower hereby irrevocably appoints Agent as its attorney-in-fact for the limited purpose of taking any action permitted under the Loan Documents that Agent deems necessary or desirable (in Agent’s sole discretion) upon the occurrence and continuation of an Event of Default to protect and realize upon Agent’s Lien in the Collateral, including the execution and delivery of any and all documents or instruments related to the Collateral in Borrower’s name, and said appointment shall create in Agent a power coupled with an interest.
9.5 Rights and Remedies not Exclusive
Agent shall have the right in its sole discretion to determine which rights, Liens and/or remedies Agent and Lenders may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way modify or affect any of Agent or Lenders’ rights, Liens or remedies under any Loan Document, Applicable Law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Agent and Lenders described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Agent and Lenders otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.
X. WAIVERS AND JUDICIAL PROCEEDINGS
Except as expressly provided for herein, Borrower hereby waives set off, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Agent to obtain an order of court recognizing the assignment of, or Lien of Agent in and to, any Collateral.
10.2 Delay; No Waiver of Defaults
No course of action or delay or omission of the Agent or any Lender to exercise any right or remedy hereunder or under any other Loan Document shall impair any such right or operate as a waiver thereof. No single or partial exercise by the Agent or any Lender of any right or remedy shall preclude any other or further exercise thereof, or preclude any other right or remedy. No waiver by any party to any Loan Document of any one or more defaults by any other party in the performance of any of the provisions of any Loan Document shall operate or be construed as a waiver of any future default, whether of a like or different nature, and each such waiver shall be limited solely to the express terms and provisions of such waiver. Notwithstanding any other provision of any Loan Document, by completing the Closing under this Agreement and/or by
75
making Advances, Lender does not waive any breach of any representation or warranty of under any Loan Document, and all of Agent’s or any Lender’s claims and rights resulting from any such breach or misrepresentation are specifically reserved.
(a) EACH PARTY HEREBY (i) EXPRESSLY, KNOW INGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND (ii) AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
( b ) In the event any such claim or cause of action is brought or filed in any United States federal court sitting in the State of California or in any state court of the State of California, and the waiver of jury trial set forth in Section 10.3(a) is determined or held to be ineffective or unenforceable, the parties agree that all claims and causes of action shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Los Angeles County, California. Such proceeding shall be conducted in Los Angeles County, California, with California rules of evidence and discovery applicable to such proceeding. In the event Claims or causes of action are to be resolved by judicial reference, any party may seek from any court having jurisdiction thereover any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all claims and causes of action are otherwise subject to resolution by judicial reference .
(a) No amendment or waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by Borrower or Indemnitor therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrower and the Requisite Lenders (or by Agent on their behalf) without taking into account the Loans held by Non-Funding Lenders, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no amendment,
76
waiver or consent shall, without the consent of all Lenders: (i) change the number of Lenders required for the Lenders or any of them to take any action hereunder; (ii) amend any of the provisions of Sections 9.2 , 10.4 or 13.3 ; (iii) amend the sharing of payments by Lenders according to their Pro Rata Shares pursuant to Section 13. 3 or the definitions of “ Pro Rata Share ” or “ Requisite Lenders ” ; (iv) release all or substantially all of the value of guaranties delivered by the Indemnitor or all or substantially all of the Collateral; (v) release Borrower from all of the Obligations other than upon payment in full of the Obligations; (vi) consent to the assignment or other transfer by Borrower or any other party (other than Agent or any Lender) to any Loan Documents of any of their rights and obligations under any Loan Document; or (vii) extend the scheduled due date, or reduce the amount due on any scheduled due date, of any installment of principal, interest (other than a waiver of the incurring of or payment of interest at the Default Rate pursuant to Section 3.2 ), or fees payable with respect to any portion of the Loan, or waive, forgive, extend, defer or postpone the payment thereof; provided , further , that no amendment, waiver or consent shall, without the consent of each Lender di rectly affected thereby: (i) reduce the amount of principal of, or interest on (other than a waiver of the incurring of or payment of interest at the Default Rate pursuant to Section 3.2 ), or the interest rate (other than a waiver of the incurring of or payment of interest at the Default Rate pursuant to Section 3.2 ) applicable to, the Loans or any fees or other amounts payable hereunder; (ii) postpone any date on which any payment of principal of, or interest on (other than a waiver of the incurring of or payment of interest at the Default Rate pursuant to Section 3.2 ), the Loans or any fees or other amounts payable hereunder is required to be made; (iii) increase or extend the Revolving Loan Commitment of any Lender; or (iv) reduce the principal of, rate of interest on (other than a waiver of the incurring of or payment of interest at the Default Rate pursuant to Section 3.2 ) or fees payable with respect to any portion of the Loan.
(b) Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document.
(c) Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.4 shall be binding upon Agent, Lenders and Borrower.
(d) No consent or agreement by Borrower shall be required to amend, modify, change, restate, waive, supplement, discharge, cancel or terminate any provision of Article XII , so long as no additional duties are required to be assumed by Borrower.
XI. EFFECTIVE DATE AND TERMINATION
11.1 Effectiveness and Termination
Subject to Agent’s right to accelerate the Loan and terminate the Revolving Loan Commitments and cease making and funding Advances upon the occurrence and during the continuation of any Event of Default, this Agreement shall continue in full force and effect until the Maturity Date, unless terminated sooner as provided in Sections 2.5 or 2.6 . All of the Obligations shall be immediately due and payable upon the earlier of the Maturity Date, the Prepayment Date or the date upon which Agent declares all or any of the Loan and/or Note, all interest thereon and all other Obligations to be due and payable pursuant to the terms of Article
77
VIII , as applicable (the “ Termination Date ” ). Notwithstanding any other provision of any Loan Document, no termination of this Agreement shall affect Agent ’ s or any Lender ’ s rights or any of the Obligations existing as of the effective date of such termination, and the provisions of the Loan Documents shall continue to be fully operative until the Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been fully performed and indefeasibly paid in cash in full. The Liens granted to Agent, under the Security Documents and the financing statements filed pursuant thereto and the rights and powers of Agent shall continue in full force and effect until all of the Obligations (other than indemnity obligations under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) have been fully performed and indefeasibly paid in full in cash.
All obligations, covenants, agreements, representations, warranties, waivers and indemnities made by Borrower in any Loan Document shall survive the execution and delivery of the Loan Documents, the Closing, the making and funding of the Loan and any termination of this Agreement until all Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) are fully performed and indefeasibly paid in full in cash. The obligations and provisions of Sections 3.1 , 3.3 , 3. 4, 10.1 , 10.3 , 11.1 , 11.2 , 12.1 , 12.3 , 12.4 , 12.7 , 12.9 , 12.10 , 12.11 and 13.18 shall survive termination of the Loan Documents and any payment in full of the Obligations.
12.1 Governing Law; Jurisdiction; Service of Process; Venue
(a) THE LOAN DOCUMENTS ARE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK IN RELIANCE ON NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PROVISIONS THAT WOULD RESULT IN APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS .
(b) BY EXECUTION and delivery of each Loan Document to which it is a party, each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such
78
action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against Borrower or its proper ties in the courts of any jurisdiction .
(c) BORROWER hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section 12.1 . Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court .
(d) EACH of the parties hereto waives personal service of process and irrevocably consents to service of process in the manner provided for notices in Section 12.5 . Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law .
12.2 Successors and Assigns; Assignments and Participations
(a) Subject to Sections 12.2(f) and (h) , and so long as such assignment does not result in there being more than eighty (80) Lenders and Participants in the aggregate, a Lender may at any time, with the consent of the Agent and the Borrower (such consent not to be unreasonably withheld), assign all or a portion of its rights and delegate all or a portion of its Revolving Loan Commitment under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loan) to one or more Persons (a “ Transferee ”); provided, that Borrower consent shall not be required (i) in connection with an assignment of a Lender’s Advances (including the assignment of Revolving Loan Commitments in connection with such funded Advances) hereunder, (ii) in connection with a Lender’s assignment of its Revolving Loan Commitment to an Affiliate of such Lender or (iii) upon the occurrence and continuance of an Event of Default or Trigger Event. Notwithstanding anything to the contrary in this Agreement, prior to the occurrence of an Event of Default, no Lender shall assign, pledge or otherwise transfer any Note or other Obligation to a Borrower Competitor without the prior written consent of Borrower. The Transferee and such Lender shall execute and deliver for acceptance and recording in the Lender Register, a Lender Addition Agreement, which shall be in form and substance reasonably acceptable to Agent in its sole discretion (“ Lender Addition Agreement ”). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Lender Addition Agreement, (i) the Transferee thereunder shall be a party hereto and, to the extent provided in such Lender Addition Agreement, have the same rights, benefits and
79
obligations as it would if it were a Lender hereunder, (ii) the assigning Lender shall be relieved of its obligations hereunder with respect to its Advances or assigned portion thereof, as the case may be, to the extent that such obligations shall have been expressly assumed by the Transferee pursuant to such Lender Addition Agreement (and, in the case of a Lender Addition Agreement covering all or the remaining portion of an assigning Lender ’ s rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto but, with respect to matters occurring before such assignment, shall nevertheless continue to be entitled to the benefits of Sections 12.4 and 12.7 ). Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the Transferee and that the Transferee shall be considered to be a “ Lender ” hereunder. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including Borrower ’ s rights, title, interests, remedies, powers, and duties hereunder or thereunder.
(b) So long as such sale of participations does not result in there being more than eighty (80) Lenders and Participants in the aggregate, a Lender may at any time sell participations in all or any part of its rights and obligations under this Agreement and the other Loan Documents (including all its rights and obligations with respect to the Loan) to one or more Persons (each, a “ Participant ”). In the event of any such sale by a Lender of a participation to a Participant, (i) the Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible for the performance thereof, (iii) the Lender shall remain the holder of the Loan (and any Note evidencing the Loan) for all purposes under this Agreement and the other Loan Documents, (iv) Borrower and Agent shall continue to deal solely and directly with such Lender in connection with its rights and obligations under this Agreement and the other Loan Documents, and (v) all amounts payable pursuant to Section 6.2 by Borrower hereunder shall be determined as if such Lender had not sold such participation. Any agreement pursuant to which a Lender shall sell any such participation shall provide that such Lender shall retain the sole right and responsibility to exercise its rights and enforce Borrower’s obligations hereunder, including the right to consent to any amendment, supplement, modification or waiver of any provision of this Agreement or any of the other Loan Documents; provided , that such participation agreement may provide that such Lender will not agree, without the consent of the Participant, to any amendment, supplement, modification or waiver of: (A) any reduction in the principal amount, interest rate or fees payable with respect to the Loan in which such holder participates; (B) any extension of the termination date of this Agreement or the date fixed for any payment of principal, interest or fees payable with respect to the Loan in which such holder participates; and (C) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement or the Loan Documents). Borrower hereby acknowledges and agrees that the Participant under each participation shall, solely for the purposes of Sections 12.4 and 12.7 of this Agreement be considered to be a “Lender” hereunder. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.3 and 13.8 (subject to the requirements and limitations therein, including the requirements under Section 13.8(f) (it being understood that the documentation required under Section 13.8(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (a) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 3.3(e) as if it were an assignee under paragraph (a) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 3.3 or 13.8 , with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change
80
in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower ’ s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.3(e) with respect to any Participant . Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant ’ s interest in the Loans or other obligations under any Loan Document (the “ Participant Register ” ); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any inform ation relating to a Participant’ s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Treasury Regulation Section 5f.103-1(c). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.
(c) Agent, on behalf of Borrower, shall maintain at its address referred to in Section 12.5 a copy of each Lender Addition Agreement delivered to it and a written or electronic register (the “ Lender Register ”) for the recordation of the names and addresses of the Lenders and the Advances made by, and the principal amount of the Loan owing to, and the Revolving Loan Commitments of, and the Notes evidencing the Loan owned by, each Lender from time to time. Notwithstanding anything in this Agreement to the contrary, the entries in the Lender Register shall be conclusive absent manifest error, and Borrower and the Agent shall treat each Person whose name is recorded in the Lender Register as the owner of the Loan, the Notes, the Revolving Loan Commitments and the Advances recorded therein for all purposes of this Agreement. The Lender Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d) Notwithstanding anything in this Agreement to the contrary, no assignment under Section 12.2(a) of any rights or obligations under or in respect of the Loan or the Notes evidencing the Loan shall be effective unless and until Agent shall have recorded the assignment pursuant to Section 12.2(c) . Upon its receipt of a Lender Addition Agreement executed by an assigning Lender and a Transferee, Agent shall (i) promptly accept such Lender Addition Agreement and (ii) on the effective date determined pursuant thereto record the information contained therein in the Lender Register and give prompt notice of such acceptance and recordation to the Lender and Borrower. On or prior to such effective date, the assigning Lender shall surrender any outstanding Notes held by it, all or a portion of which are being assigned, and Borrower, at its own expense, shall, upon the request of Agent by the assigning Lender or the Transferee, as applicable, execute and deliver to Agent, within five (5) Business Days of any request, new Notes to reflect the interest held by the assigning Lender and its Transferee.
(e) Except as otherwise provided in this Section 12.2 Agent shall not, as between Borrower and Agent, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loan or other Obligations owed to Agent and Lenders. Agent may furnish any information
81
concerning Borrower in the possession of Agent from time to time to assignees and participants (including prospective assignees and participants), subject to confidentiality requirements hereunder.
(f) Notwithstanding any other provision set forth in this Agreement, Agent may at any time create a security interest in all or any portion of its rights under this Agreement, including the Loan owing to it and the Notes held by it and the other Loan Documents and Collateral.
(g) Borrower agrees to use commercially reasonable efforts to assist Agent in assigning or selling participations in all or any part of the Loan made by any Lender to another Person identified by such Lender.
(h) Notwithstanding anything in the Loan Documents to the contrary, (i) Agent and its Affiliates shall not be required to execute and deliver a Lender Addition Agreement in connection with any transaction involving its Affiliates or lenders, (ii) no lender to or funding or financing source of Agent or its Affiliates shall be considered a Transferee, (iii) there shall be no limitation or restriction on Agent’s ability to assign or otherwise transfer any Loan Document to any such Affiliate or lender or funding or financing source, and (iv) there shall be no limitation or restriction on such Affiliates’ or lenders’ or financing or funding sources’ ability to assign or otherwise transfer any Loan Document, Loan, Note or Obligation (or any of its rights thereunder or interest therein) ; provided , however , Agent shall continue to be liable as a “Lender” under the Loan Documents unless such Affiliate or lender or funding or financing source executes a Lender Addition Agreement and thereby becomes a “Lender.”
(i) The Loan Documents shall inure to the benefit of Agent, Lenders, Transferee, Participant (to the extent expressly provided herein only) and all future holders of the Notes, the Obligations and/or any of the Collateral, and each of their respective successors and permitted assigns. Each Loan Document shall be binding upon the Persons other than Agent that are parties thereto and their respective successors and assigns, and no such Person may assign, delegate or transfer any Loan Document or any of its rights or obligations thereunder without the prior written consent of Agent. No rights are intended to be created under any Loan Document for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. Nothing contained in any Loan Document shall be construed as a delegation to Agent of any other Person’s duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT AGENT AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND REISSUE (WITHOUT SUBSTANTIVE CHANGES OTHER THAN THOSE RESULTING FROM SUCH DIVISION) THE NOTES, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS, IN EACH CASE ON THE TERMS AND CONDITIONS PROVIDED HEREIN. Each Transferee and Participant shall have all of the rights, obligations and benefits with respect to the Obligations, Notes, Collateral and/or Loan Documents held by it as fully as if the original holder thereof; provided , that, notwithstanding anything to the contrary in any Loan Document, Borrower shall not be obligated to pay under this Agreement to any Transferee or Participant any sum in excess of the sum which it would have been obligated to pay to Agent had such participation not been effected. Agent may disclose to any Transferee or Participant all information, reports,
82
financial statements, certificates and documents obtained under any provision of any Loan Document; provided , that Transferees and Participants shall be subject to the confidentiality provisions contained herein that are applicable to Agent.
(j) Any Lender may assign or pledge all or any portion of the Loans or Notes held by it to any Federal Reserve Bank or the United States Treasury as collateral security to secure obligations of such Lender, including any assignment or pledge pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided , that any payment in respect of such assigned Loans or Notes made by Borrower to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy Borrower’s obligations hereunder in respect to such assigned Loans or Notes to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder.
To the extent that any payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Except as specifically provided in this Agreement, any payments with respect to the Obligations received shall be credited and applied in such manner and order as Agent shall decide in its sole discretion.
(a) Borrower hereby agrees that it will indemnify, defend and hold harmless (on an after Tax basis) the Agent and the Lenders, and their respective successors and permitted assigns and their respective directors, officers, agents, employees, advisors, shareholders, attorneys and Affiliates (each, an “ Indemnified Person ”) from and against any and all losses, claims, damages, liabilities, deficiencies, obligations, fines, penalties, actions (whether threatened or existing), judgments, suits (whether threatened or existing) or expenses (including, without limitation, reasonable fees and disbursements of counsel, experts, consultants and other professionals) incurred by any of them (collectively, “ Claims ”) (except, in the case of each Indemnified Person, to the extent that any Claim is determined in a final and non-appealable judgment by a court of competent jurisdiction to have directly resulted from such Indemnified Person’s gross negligence, willful misconduct or bad faith) arising out of or by reason of (i) any litigation, investigation, claim or proceeding related to (1) this Agreement, any other Loan Document or the transactions contemplated hereby or thereby, (2) any actual or proposed use by Borrower of the proceeds of the Advance, (3) the Agent’s or any Lender’s entering into this Agreement, or the other Loan Documents (other than consequential damages and loss of anticipated profits or earnings), including, without limitation, amounts paid in settlement, court costs and the reasonable fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding, (ii) any remedial or other action taken or required to
83
be taken by Borrower or Indemnitor in connection with compliance by such party, or any of its properties, with any Applicable Law, (iii) any pending, threatened or actual action, claim, proceeding or suit by any shareholder or director of Borrower or Indemnitor or any actual or purported violation of Borrower’s or Indemnitor’s governing documents or any other agreement or instrument to which Borrower or Indemnitor is a party or by which any of its properties is bound, (iv) any willful misrepresentation with respect to Borrower or the Collateral, (v) any acts of fraud by Borrower or Indemnitor related to the Loan or made in connection with the Loan Agreement or any Loan Document, (vi) any Change of Control not approved in writing by Agent, (vii) any material waste, transfer, sale, encumbrance or other disposal of the Collateral not permitted by the Loan Agreement or the other Loan Document or (viii) any failure to comply with the special purpose entity covenants set forth in Section 6.13 hereof. In addition, Borrower shall, upon demand, pay to the Agent all reasonable costs and expenses incurred by the Agent (including the reasonable fees and disbursements of counsel and other professionals) in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents, and pay to the Agent and each Lender all costs and expenses (including the reasonable fees and disbursements of counsel and other professionals) paid or incurred by the Agent or such Lender in (1) enforcing or defending its rights under or in respect of this Agreement, the other Loan Documents or any other document or instrument now or hereafter executed and delivered in connection herewith, (2) collecting the Obligations or otherwise administering this Agreement and (3) foreclosing or otherwise realizing upon the Collateral or any part thereof. If and to the extent that the obligations of Borrower or Indemnitor hereunder or any other Loan Document are unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations that is permissible under Applicable Law. Without limiting any of the foregoing, Borrower indemnifies the Indemnified Person for all claims for brokerage fees or commissions (other than claims of a broker with whom such Indemnified Person has directly contracted in writing) which may be made in connection with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Loan Document or any agreement, document or transaction contemplated thereby.
(b) Borrower’s obligations under Sections 3.3 and 13.8 and this Section 12.4 shall survive any termination of this Agreement and the other Loan Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any of the other Obligations.
(c) All payments due under this Section 12.4 are payable promptly (and in any event within three (3) Business Days) after written demand therefor.
Any notice or request under any Loan Document shall be given to any party to this Agreement at such party’s address set forth beneath its signature on the signature page to this Agreement, or at such other address as such party may hereafter specify in a notice given in the manner required under this Section 12.5 . Any notice or request hereunder shall be given only by, and shall be deemed to have been received upon (each, a “ Receipt ”): (i) registered or certified mail, return receipt requested, on the date on which such received as indicated in such return receipt, (ii) delivery by a nationally recognized overnight courier, one (1) Business Day after deposit with such courier, or (iii) facsimile or electronic transmission, in each case upon telephone
84
or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable.
12.6 Severability; Captions; Counterparts; Facsimile Signatures
In case any provision in or obligation under this Agreement, the Notes or any other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. The captions in the Loan Documents are intended for convenience and reference only and shall not affect the meaning or interpretation of the Loan Documents. This Agreement and any waiver or amendment hereto may be executed in counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Agreement and each of the other Loan Documents may be executed and delivered by telecopier or other facsimile transmission all with the same force and effect as if the same was a fully executed and delivered original manual counterpart. Delivery of an executed signature page of this Agreement and each of the other Loan Documents by facsimile transmission or Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.
Borrower shall pay, whether or not the Closing occurs, all fees, costs and expenses incurred or earned by Agent, any Lender, and/or its Affiliates, including, without limitation, portfolio management, documentation and diligence fees and expenses, all search, audit, appraisal, recording, professional and filing fees and expenses and all other charges and expenses (including, without limitation, UCC and judgment and tax lien searches and UCC filings and fees for post-Closing UCC and judgment and tax lien searches and wire transfer fees and audit expenses), and reasonable external attorneys’ fees and expenses, (a) in any effort to enforce, protect or collect payment of any Obligation or to enforce any Loan Document or any related agreement, document or instrument, (b) in connection with entering into, negotiating, preparing, reviewing and executing the Loan Documents and/or any related agreements, documents or instruments (subject to an aggregate cap of $125,000 for the legal fees of counsel to the Lenders), (c) arising in any way out of administration of the Obligations or the taking or refraining from taking by Agent of any action requested by Borrower, (d) in connection with instituting, maintaining, preserving, enforcing and/or foreclosing on Agent’s Liens on any of the Collateral under the Loan Documents, whether through judicial proceedings or otherwise, (e) in defending or prosecuting any actions, claims or proceedings arising out of or relating to Agent’s or any Lender’s transactions with Borrower, (f) in seeking, obtaining or receiving any advice with respect to its rights and obligations under any Loan Document and any related agreement, document or instrument, (g) arising out of or relating to any Default or Event of Default or occurring thereafter or as a result thereof, (h) subject to the limitations set forth in Section 6.7 hereof, in connection with all actions, visits, audits and inspections undertaken by Agent or its Affiliates pursuant to the Loan Documents, and/or (i) in connection with any modification, restatement, supplement, amendment, waiver or extension of any Loan Document and/or any related agreement, document or instrument. All of the foregoing shall be charged to Borrower’s account and shall be part of the Obligations. If Agent, Lender or any of their Affiliates uses in-house counsel for any purpose for which Borrower is responsible to
85
pay or indemnify, Borrower expressly agrees that their indemnification obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by such Indemnified Person in its sole discretion for the work performed. Without limiting the foregoing, Borrower shall pay all Taxes (other than Taxes based upon or measured by Agent’s income or revenues or any personal property Tax), if any, in connection with the issuance of any Note and the filing and/or recording of any documents and/or financing statements.
This Agreement and the other Loan Documents to which Borrower is a party constitute the entire agreement between Borrower, Agent and Lenders with respect to the subject matter hereof and thereof, and supersede all prior agreements and understandings (including the term sheet dated on or about May 17, 2018), if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing signed by Borrower, Agent and Requisite Lenders, as appropriate. Except as set forth in and subject to Section 10.4 , no provision of any Loan Document may be changed, modified, amended, restated, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing or in any other manner other than by an agreement in writing signed by Borrower, Agent, Requisite Lenders and the other parties thereto, provided , that no consent or agreement by Borrower shall be required to amend, modify, change, restate, waive, supplement, discharge, cancel or terminate any provision of Article XIII , so long as no additional duties are required to be assumed by Borrower. Each party hereto acknowledges that it has been advised by counsel in connection with the negotiation and execution of this Agreement and is not relying upon oral representations or statements inconsistent with the terms and provisions hereof. The schedules attached hereto may be amended or supplemented by Borrower upon delivery to Agent of such amendments or supplements and, except as expressly provided otherwise in this Agreement, the written approval thereof by Agent. The preparation of this Agreement has been a joint effort of the parties hereto and their counsel. The resulting document shall not as matter of judicial construction be construed more severely against one of the parties or against any particular draftsman.
Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent with respect to any matter that is subject of any Loan Document may be granted or withheld by Agent in its sole and absolute discretion. Except as otherwise required by law, Agent shall have no responsibility for or obligation or duty with respect to any of the Collateral or any matter or proceeding arising out of or relating thereto, including any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights pertaining thereto.
On or after the Closing Date, Agent or Borrower may, at its own expense issue news releases and publish “tombstone” advertisements and other announcements (collectively, “ Trade Announcements ”) relating to this transaction in newspapers, trade journals and other appropriate
86
media (which may include use of logos of Agent and one or more of Borrower). Borrower may not submit any such Trade Announcement for publication without the prior written consent of the Agent (in each case, such consent not to be unreasonably withheld, and shall be deemed provided unless expressly withheld by the Agent, as applicable, within twenty (20) Business Days of request therefor). Borrower may, from time to time after consent from Agent, publish any such Trade Announcements in any media form desired by Borrower until such time that the Agent requests Borrower to cease any such further publication. Notwithstanding the foregoing, Borrower may issue any disclosures required by Applicable Law, legal process or the rules of the Securities and Exchange Commission without the prior approval of Agent.
(a) So long as no Trigger Event, Default or Event of Default has occurred and is continuing, upon request of Borrower, Agent shall release any Lien granted to or held by Agent upon any Collateral being sold or disposed of in compliance with the provisions of the Loan Documents, as determined by Agent in its sole discretion, subject to compliance with Sections 2.5 and 2.6 hereof, as applicable. Upon receipt of the proceeds of such sale or disposition in accordance with this Agreement, Agent shall execute and deliver such documents, at Borrower’s expense, as are necessary to release Agent’s Liens on the applicable Collateral and shall return the applicable Collateral to Borrower; provided , however , that the parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Agent shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts.
(b) Notwithstanding anything in the foregoing Section 12.11(a) to the contrary, in order to give effect to a Permitted Disposition, the relevant Receivable(s) may be sold without the prior consent of Agent or any of the Lenders; provided that Borrower shall, or shall cause the Servicer to, immediately deposit all proceeds from such sale or repurchase into a Collection Receipts Account. Provided that no Trigger Event or Event of Default has occurred and is continuing, if such amounts described in the prior sentence are deposited in a Collection Receipts Account, then, (i) Agent’s Lien on such Charged-Off Receivables that are subject to such Permitted Disposition shall be automatically released without any further action and (ii) Agent shall execute such documents, releases and instruments of transfer or assignment, reasonably requested and prepared by Borrower and take such other actions as shall reasonably be requested by Borrower to effect the release of such Charged-Off Receivables removed pursuant to a Permitted Disposition, in each case at Borrower’s sole cost and expense. Borrower shall deliver, or cause the Servicer to deliver, a schedule of any Receivables released as provided in this Section
87
12.11(b) to Agent in connection with the Monthly Collateral and Servicing Report and shall update all other reports and schedules accordingly.
(c) Subject to Section 12.3 , promptly following full performance and satisfaction and indefeasible payment in full in cash of all Obligations (other than indemnity obligations of Borrower under the Loan Documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) and the termination of this Agreement, the Liens created hereby shall terminate and Agent shall execute and deliver such documents, at Borrower’s expense, as are necessary to release Agent’s Liens on the Collateral and shall return the Collateral to Borrower; provided , however , that the parties agree that, notwithstanding any such termination or release or the execution, delivery or filing of any such documents or the return of any Collateral, if and to the extent that any such payment made or received with respect to the Obligations is subsequently invalidated, determined to be fraudulent or preferential, set aside, defeased or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other Person under any Debtor Relief Law, common law or equitable cause or any other law, then the Obligations intended to be satisfied by such payment shall be revived and shall continue as if such payment had not been received by Agent and the Liens created hereby shall be revived automatically without any action on the part of any party hereto and shall continue as if such payment had not been received by Agent. Agent shall not be deemed to have made any representation or warranty with respect to any Collateral so delivered except that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts.
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
Any ratios required to be maintained by Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
No Advisory or Fiduciary Responsibility
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Agreement provided by the Lenders are arm’s-length commercial transactions between Borrower and its Affiliates, on the one hand, and the Lenders and their Affiliates, on the other hand, (B) Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Lenders and their Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been,
88
is not, and will not be acting as an advisor, agent or fiduciary for Borrower or any of its Affiliates, or any other Person and (B) no Lender or any of its Affiliates has any obligation to Borrower or any of its Affiliates with respect to the transactions contemplated hereby except, in the case of a Lender, those obligations expressly set forth herein and in the other Loan Documents; and (iii) each of the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrower and its Affiliates, and no Lender or any of its Affiliates has any obligation to disclose any of such interests to Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against each of the Lenders and their Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Independent Effect of Covenants
Borrower expressly acknowledges and agrees that each covenant contained in Articles VI or VII hereof shall be given independent effect. Accordingly, Borrower shall not engage in any transaction or other act otherwise permitted under any covenant contained in Articles VI or VII , if, before or after giving effect to such transaction or act, Borrower shall or would be in breach of any other covenant contained in Articles VI or VII .
If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final and in whatever currency denominated) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of Borrower against any of and all of the Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured; provided that, in the event that any Non-Funding Lender shall exercise any such right of setoff, (i) all amounts so set off shall be paid over immediately to Agent for further application in accordance with the provisions of Section 13.3 and, pending such payment, shall be segregated by such Non-Funding Lender from its other funds and deemed held in trust for the benefit of Agent and Lenders, and (ii) the Non-Funding Lender shall provide promptly to Agent a statement describing in reasonable detail the Obligations owing to such Non-Funding Lender as to which it exercised such right of setoff. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Each Lender agrees to notify Borrower and Agent promptly after any such setoff and application by such Lender; provided that, the failure to give such notice shall not affect the validity of such setoff and application.
Each of Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National
89
Association of Insurance Commissioners), (c) to the extent required by Applicable Laws or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies under this Agreement or any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to Borrower and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating Borrower or its Subsidiaries or the credit facilities evidenced by this Agreement or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the credit facilities evidenced by this Agreement, (h) with the consent of Borrower or (i) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than Borrower. For the purposes of this Section, “Information” means all information received from Borrower relating to Borrower or its business, other than any such information that is available to Agent or any Lender on a nonconfidential basis prior to disclosure by Borrower; provided that, in the case of information received from Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information .
Inconsistencies with Other Documents.
In the event there is a conflict or inconsistency between this Agreement and any other Loan Document, the terms of this Agreement shall control; provided that any provision of the Collateral Documents which imposes additional burdens on Borrower or any of its Subsidiaries or further restricts the rights of Borrower or any of its Subsidiaries or gives Agent or Lenders additional rights shall not be deemed to be in conflict or inconsistent with this Agreement and shall be given full force and effect.
XIII. AGENT PROVISIONS; SETTLEMENT
(a) Appointment . Each Lender hereby designates and appoints Pacific Western Bank as the administrative agent, payment agent and collateral agent under this Agreement and the other Loan Documents, and each Lender hereby irrevocably authorizes Pacific Western Bank, as Agent for such Lender, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent agrees to act as such on the conditions contained in this Article XIII . The provisions of this Article XIII are solely for the benefit of Agent and Lenders, and Borrower shall have no rights as
90
a third-party beneficiary of any of the provisions of this Article XIII other than the second sentence of Section 13.1(h)(iii) . Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents, employees or sub-agents.
(b) Nature of Duties . In performing its functions and duties under this Agreement, Agent is acting solely on behalf of Lenders, and its duties are administrative in nature, and does not assume and shall not be deemed to have assumed, any obligation toward or relationship of agency or trust with or for Lenders, other than as expressly set forth herein and in the other Loan Documents, or Borrower. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrower in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of Borrower. Except for information, notices, reports and other documents expressly required to be furnished to Lenders by Agent hereunder or given to Agent for the account of or with copies for Lenders, Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send prior written notice thereof to each Lender. Agent shall promptly notify each Lender in writing any time that the applicable percentage of Lenders have instructed Agent to act or refrain from acting pursuant hereto.
(c) Rights, Exculpation, Etc. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees, attorneys or agents shall be liable to any Lender for any action lawfully taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith; provided that the foregoing shall not prevent Agent from being liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and nonappealable basis. Notwithstanding the foregoing, Agent shall be obligated on the terms set forth herein for performance of its express duties and obligations hereunder. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree promptly to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrower herein or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of Borrower. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions, or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower, or the existence or possible existence of any Trigger Event, Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of
91
this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from taking any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the applicable percentage of Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the applicable percentage of Lenders and, notwithstanding the instructions of Lenders, Agent shall have no obligation to take any action if it, in good faith, believes that such action exposes Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents to any personal liability unless Agent receives an indemnification satisfactory to it from Lenders with respect to such action.
(d) Reliance . Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel, independent accountants and other experts selected by Agent in its sole discretion.
(e) Indemnification . Each Lender, severally and not (i) jointly or (ii) jointly and severally, agrees to reimburse and indemnify and hold harmless Agent and its officers, directors, managers, members, equity owners, employees, attorneys and agents (to the extent not reimbursed by Borrower), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this subsection of the total outstanding Obligations (or, if indemnification is sought after the date upon which the Loans shall have been paid in full, ratably in accordance with their Pro Rata Share immediately prior to such date of the total outstanding Obligations), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any of its officers, directors, managers, members, equity owners, employees, attorneys or agents in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents; provided , however , that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements to the extent resulting from Agent’s gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and non-appealable basis. The obligations of Lenders under this Article XIII shall survive the payment in full of the Obligations and the termination of this Agreement.
(f) Agent in its Individual Capacity . With respect to the Loans made by it, if any, Pacific Western Bank and its successors as the Agent shall have, and may exercise, the same rights and powers under the Loan Documents, and is subject to the same obligations and liabilities, as and to the extent set forth in the Loan Documents, as any other Lender. The terms “Lenders” or “Requisite Lenders” or any similar terms shall include Agent in its individual capacity as a Lender. Agent and its Affiliates may accept deposits from, lend money to, act as the financial
92
advisor or in any other advisory capacity for and generally engage in any kind of lending, banking, trust, financial advisory or other business with, Borrower or any Subsidiary or Affiliate of Borrower as if it were not acting as Agent pursuant hereto.
(i) Resignation . Agent may resign from the performance of all or part of its functions and duties hereunder at any time by giving at least thirty (30) calendar days’ prior written notice to Borrower and Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clause (ii) below or as otherwise provided below.
(ii) Appointment of Successor . Upon any such notice of resignation pursuant to clause (g)(i) of this Section 13.1 , Requisite Lenders shall appoint a successor Agent with the consent of Borrower, which consent shall not be unreasonably withheld, delayed or conditioned (or required if any Trigger Event, Default or Event of Default exists). If a successor Agent shall not have been so appointed within said thirty (30) calendar day period referenced in clause (g)(i) above, the retiring Agent, upon notice to Borrower, may, on behalf of Lenders, appoint a successor Agent with the consent of Borrower, which consent shall not be unreasonably withheld, delayed or conditioned (or required if any Trigger Event, Default or Event of Default exists), who shall serve as Agent until such time as Requisite Lenders appoint a successor Agent as provided above. If no successor Agent has been appointed pursuant to the foregoing within said thirty (30) calendar day period, the resignation shall become effective and Requisite Lenders thereafter shall perform all the duties of Agent hereunder, until such time, if any, as Requisite Lenders appoint a successor Agent as provided above.
(iii) Successor Agent . Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and, upon the earlier of such acceptance or the effective date of the retiring Agent’s resignation, the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, provided that any indemnity rights or other rights in favor of such retiring Agent shall continue after and survive such resignation and succession. After any retiring Agent’s resignation as Agent under the Loan Documents, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents.
(i) Collateral . Each Lender agrees that any action taken by Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater number of Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents relating to the Collateral, and the exercise by Agent or the Requisite Lenders (or, where so required, such greater number of Lenders) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders and Agent. Without limiting the generality
93
of the foregoing, Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection herewith and with the Loan Documents in connection with the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by Borrower ; (iii) act as collateral agent for Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents relating to the Collateral; and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all right and remedies given to such Agent and Lenders with respect to the Collateral under the Loan Documents relating thereto, Applicable Law or otherwise.
(ii) Release of Collateral . Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent, for the benefit the of Lenders, upon any Collateral covered by the Loan Documents (A) upon termination of this Agreement, the termination of the Revolving Loan Commitments and the indefeasible payment and satisfaction in full in cash of all Obligations (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted); (B) constituting Collateral being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of the Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry); or (C) constituting Collateral leased to Borrower under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by Borrower to be, renewed or extended.
(iii) Confirmation of Authority; Execution of Releases . Without in any manner limiting Agent’s authority to act without any specific or further authorization or consent by Lenders (as set forth in Section 13.1(h)(i) and (ii) ), each Lender agrees to confirm in writing, upon request by Borrower, the authority to release any property covered by this Agreement or the Loan Documents conferred upon Agent under Section 13.1(h)(ii) . So long as no Trigger Event, Default or Event of Default exists, upon receipt by Agent of confirmation from the requisite percentage of Lenders of its authority to release any particular item or types of Collateral covered by this Agreement or the other Loan Documents, and upon at least five (5) Business Days’ prior written request by Borrower, Agent shall (and hereby is irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to Agent, for the benefit itself and the Lenders, herein or pursuant hereto upon such Collateral; provided , however , that (A) Agent shall not be required to execute any such document on terms which, in Agent’s opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty (other than that such Collateral is free and clear, on the date of such delivery, of any and all Liens arising from such Person’s own acts), and (B) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of Borrower or any Subsidiary of Borrower in respect of) all interests retained by Borrower or any
94
Sub sidiary of Borrower, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral covered by this Agreement or the Loan Documents.
(iv) Absence of Duty . Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the Collateral covered by this Agreement or the other Loan Documents exists or is owned by Borrower or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent, on behalf of the Lenders, herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected, enforced or maintained or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 13.1(h) or in any of the Loan Documents; it being understood and agreed that in respect of the Collateral covered by this Agreement or the other Loan Documents, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent’s own interest in Collateral covered by this Agreement or the Loan Documents as one of Lenders and Agent shall have no duty or liability whatsoever to any of the other Lenders; provided , that Agent shall exercise the same care which it would in dealing with loans for its own account.
(i) Agency for Perfection . Each Lender hereby appoints Agent as agent for the purpose of perfecting Lenders’ security interest in Collateral which, in accordance with Article 9 of the UCC in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall hold such Collateral for purposes of perfecting a security interest therein for the benefit of the Lenders, notify Agent thereof and, promptly upon Agent’s request therefor, deliver such Collateral to Agent or otherwise act in respect thereof in accordance with Agent’s instructions.
(j) Exercise of Remedies . Except as set forth in Section 13.4 , each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any other Loan Document or to realize upon any Collateral security for the Loans or other Obligations; it being understood and agreed that such rights and remedies may be exercised only by Agent in accordance with the terms of the Loan Documents.
(a) In the event Agent requests the consent of a Lender and does not receive a written denial thereof within five (5) Business Days after such Lender’s receipt of such request, then such Lender will be deemed to have given such consent so long as such request contained a notice stating that such failure to respond within five (5) Business Days would be deemed to be a consent by such Lender.
(b) In the event Agent requests the consent of a Lender in a situation where such Lender’s consent would be required and such consent is denied, then Agent may, at its option, require such Lender to assign its interest in the Loans and Revolving Loan Commitments to Agent for a price equal to the then outstanding principal amount thereof due such Lender plus accrued and unpaid interest and fees due such Lender, which principal, interest and fees will be paid to the Lender when collected from Borrower. In the event that Agent elects to require any Lender to
95
assign its interest to Agent pursuant to this Section 13.2 Agent will so notify such Lender in writing within forty-five (45) days following such Lender ’ s denial, and such Lender will assign its interest to Agent no later than five (5) calendar days following receipt of such notice.
13.3 Set-off and Sharing of Payments
In addition to any rights and remedies now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon the occurrence and during the continuation of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, to the fullest extent permitted by law, with the prior written consent of Agent and without notice to Borrower or any other Person other than Agent (such notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances (general or special, time or demand, provisional or final) held by such Lender at any of its offices for the account of Borrower (regardless of whether such balances are then due to Borrower ), and (b) other Collateral at any time held or owing by such Lender to or for the credit or for the account of Borrower, against and on account of any of the Obligations which are not paid when due; provided , that no Lender or any such holder shall exercise any such right without prior written notice to Agent. Any Lender that has exercised its right to set-off or otherwise has received any payment on account of the Obligations shall, to the extent the amount of any such set off or payment exceeds its Pro Rata Share of payments obtained by all of the Lenders on account of such Obligations, purchase for cash (and the other Lenders or holders of the Loans shall sell) participations in each such other Lender’s or holder’s Pro Rata Share of Obligations as would be necessary to cause such Lender to share such excess with each other Lenders or holders in accordance with their respective Pro Rata Shares; provided , however , that if all or any portion of such excess payment or benefits is thereafter recovered from such purchasing Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery. Borrower agrees, to the fullest extent permitted by law, that (y) any Lender or holder may exercise its right to set-off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such excess to other Lenders and holders, and (z) any Lender so purchasing a participation in the Loans made or other Obligations held by other Lenders may exercise all rights of set-off, bankers’ lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans and other Obligations in the amount of such participation.
Agent may, on behalf of Lenders, disburse funds to Borrower for the Revolving Advances or any other Advance. Each Lender shall reimburse Agent on demand for its Pro Rata Share of all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender shall remit to Agent its Pro Rata Share of any Advance before Agent disburses such Advance to or on account of Borrower. If Agent so elects to require that funds be made available prior to disbursement to Borrower, Agent shall advise each Lender by telephone, telex or telecopy of the amount of such Lender’s Pro Rata Share of such Advance no later than one (1) Business Day prior to the funding date applicable thereto, and each such Lender shall pay Agent such Lender’s Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent’s account not later than 2:00 p.m. (New York City time). If Agent shall have disbursed funds to Borrower on behalf of any Lender and such Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly notify Borrower, and Borrower shall as promptly as reasonably
96
possible, but in no event less than two (2) Business Days after such notice, repay such amount to Agent. Any repayment by Borrower required pursuant to this Section 13.4 shall be without any premium or penalty. Nothing in this Section 13.4 or elsewhere in this Agreement or the o ther Loan Documents, including the provisions of Section 13.5 , shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
13.5 Settlements; Payments; and Information
(a) Advances; Payments; Interest and Fee Payments .
(i) The amount of the outstanding Loan may fluctuate from day to day through Agent’s disbursement of funds to or on account of, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender, notwithstanding terms to the contrary set forth in Section 13.4 , Advances and repayments thereof may be settled according to the procedures described in Sections 13.5(a)(ii) and 13.5(a)(iii) . Notwithstanding these procedures, each Lender’s obligation to fund its Pro Rata Share of any Advances made by Agent to or on account of Borrower will commence on the date such Advances are made by Agent. Nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Trigger Event, Default or Event of Default exists. All such payments will be made by such Lender without set-off, counterclaim or deduction of any kind.
(ii) Once each week, or more frequently (including daily), if Agent so elects (each such day being a “ Settlement Date ”), Agent will advise each Lender by 1:00 p.m. (New York City time) on a Business Day by telephone, telex or telecopy of the amount of each such Lender’s Pro Rata Share of the outstanding Advances. In the event payments are necessary to adjust the amount of such Lender’s share of the Advances to such Lender’s Pro Rata Share of the Advances, the party from which such payment is due will pay the other party, in same day funds, by wire transfer to the other’s account not later than 2:00 p.m. (New York City time) on the Business Day following the Settlement Date.
(iii) On the twentieth (20 th ) Business Day of each month (“ Interest Settlement Date ”), Agent will advise each Lender by telephone or facsimile of the amount of interest and fees charged to and collected from Borrower for the preceding month in respect of the Loans. Provided that such Lender has made all payments required to be made by it under this Agreement and provided that Lender has not received its Pro Rata Share of interest and fees directly from Borrower, Agent will pay to such Lender, by wire transfer to such Lender’s account (as specified by such Lender on Schedule 13.5(a) of this Agreement as amended by such Lender from time to time after the date hereof pursuant to the notice provisions contained herein or in the applicable Lender Addition Agreement) not later than 2:00 p.m. (New York City time) on the next Business Day following the Interest Settlement Date, such Lender’s share of such interest and fees.
(b) Availability of Lenders’ Pro Rata Share .
97
(i) Unless Agent has been notified by a Lender prior to any proposed funding date of such Lender ’ s intention not to fund its Pro Rata Share of an Advance, Agent may assume that such Lender will make such amount available to Agent on the proposed funding date or the Business Day following the next Settlement Date, as applicable; provided , however , nothing contained in this Agreement shall obligate a Lender to make an Advance at any time any Trigger Event, Default or Event of Default exists. If such amount is not, in fact, made available to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind.
(ii) Nothing contained in this Section 13.5(b) will be deemed to relieve a Lender of its obligation to fulfill its commitments or to prejudice any rights Agent or Borrower may have against such Lender as a result of any default by such Lender under this Agreement.
(i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any Debtor Relief Law or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind.
13.6 Dissemination of Information
Upon request by a Lender, Agent will distribute promptly to such Lender, unless previously provided by Borrower to such Lender, copies of all notices, schedules, reports, projections, financial statements, agreements and other material and information, including financial and reporting information received from Borrower or generated by a third party (and excluding only internal information generated by Pacific Western Bank for its own use as a Lender or as Agent and any attorney-client privileged communications or work product), as provided for in this Agreement and the other Loan Documents as received by Agent. Agent shall not be liable to any of the Lenders for any failure to comply with its obligations under this Section 13.6 , except to the extent that such failure is attributed to Agent’s gross negligence or willful misconduct and results in demonstrable damages to such Lender as determined, in each case, by a court of competent jurisdiction on a final and non-appealable basis.
98
The failure of any Lender to make any Advance (the “ Non-Funding Lender ”) on the date specified therefor shall not relieve any other Lender (each such other Lender, an “ Other Lender ”) of its obligations to make such Advance, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” for any voting or consent rights under or with respect to any Loan Document. At Borrower’s request, Agent or a Person acceptable to Agent shall have the right with Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender agrees that it shall, at Agent’s request, sell and assign to Agent or such Person, all of the rights of that Non-Funding Lender to make Advances hereunder for an amount equal to the principal balance of all Loans held by such Non-Funding Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Lender Addition Agreement.
(a) Any and all payments by or on account of any obligations of Borrower to each Lender or Agent under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (including penalties, interest and additions to tax), imposed by any Governmental Authority ( “ Taxes ” ), except as required by Applicable Law.
(b) In addition, Borrower shall pay to the relevant Governmental Authority any present or future stamp, court or documentary, intangible, recording, filing or similar Taxes which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as “ Other Taxes ”).
(c) Subject to Section 13.8(g) , Borrower shall indemnify and hold harmless each Lender and Agent for the full amount of any and all Indemnified Taxes or Other Taxes (including any Indemnified Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 13.8 ) paid or payable by such Lender or Agent and any liability (other than any penalties, interest, additions, and expenses that accrue after the 180th day after the receipt by Agent or such Lender of written notice of the assertion of such Indemnified Taxes or Other Taxes and before the date that Agent or such Lender provides Borrower with a certificate relating thereto pursuant to Section 13.8(l) ) arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. Payments under this indemnification shall be made within 10 days from the date any Lender or Agent makes written demand therefor.
99
(d) If Borrower shall be required by Applicable Law to deduct or withhold any Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then, subject to Section 13.8(g) :
(i) if such Tax is an Indemnified Tax, the sum payable shall be increased to the extent necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 13.8 ), such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made;
(ii) Borrower shall make such deductions; and
(iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with Applicable Law.
(e) Within ten (10) days after the date of any payment by Borrower of Taxes to a Governmental Authority, Borrower shall furnish to Agent (and the applicable Lender) a receipt evidencing payment thereof, or other evidence of payment satisfactory to Agent (and the applicable Lender).
(f) Each Lender that is not a U.S. Person (a “ Non-U.S. Lender ”) shall deliver to Borrower and Agent (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2 , solely to the assigning Lender and Agent and not to Borrower) two (2) copies of each applicable U.S. Internal Revenue Service Form W-8BEN, Form W‑8BEN‑E, Form W-8IMY or Form W-8ECI, or any subsequent versions thereof, successors thereto or such other forms or documents as may be reasonably required under Applicable Law, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from United States federal withholding Tax on all payments by Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement. In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. In addition to properly completing and duly executing Forms W-8BEN or W‑8BEN‑E (or any subsequent versions thereof or successor thereto), if such Non-U.S. Lender is claiming an exemption from withholding of United States federal income Tax under Section 871(h) or 881(c) of the Code, such Lender hereby represents and warrants that (A) it is not a “bank” within the meaning of Section 881(c) of the Code, (B) it is not subject to regulatory or other legal requirements as a bank in any jurisdiction, (C) it has not been treated as a bank for purposes of any Tax, securities law or other filing or submission made to any governmental securities law or other legal requirements, (D) it is not a “10 percent shareholder” of Borrower within the meaning of Section 871(h)(3)(B) of the Code, (E) it is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (F) none of the interest arising from this Agreement constitutes contingent interest within the meaning of Section 871(h)(4) or Section 881(c)(4) of the Code and such Non-U.S. Lender agrees that it shall provide Agent, and Agent shall provide to Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2 , solely to the assigning Lender and Agent and not to Borrower), with prompt notice at any time after becoming a Lender hereunder that it can no longer make the
100
foregoing representations and warranties. Each Non-U.S. Lender shall promptly notify Borrower (or, in the case of an assignment that is not disclosed to Borrower in accordance with the provisions of Section 12.2 , solely to the assigning Lender and Agent and not to Borrower) at any time it determines that it is no longer in a position to provide any previously delivered form or certificate (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this section, a Non-U.S. Lender shall not be required to deliver any form pursuant to this subsection that such Non-U.S. Lender is not legally able to deliver. Each Lender who makes an assignment pursuant to Section 12.2 where the assignment and assumption agreement is not delivered to Borrower shall indemnify and agree to hold Agent, Borrower and the other Lenders harmless from and against any United States federal withholding T ax, interest and penalties that would not have been imposed but for (i) the failure of the Transferee that received such assignment under Section 12.2 to comply with this Section 13.8(f) or (ii) the failure of such Lender to withhold and pay such T ax at the proper rate in the event such Transferee does not comply with this Section 13.8(f) (or complies with Section 13.8(f) but delivers forms indicating it is enti tled to a reduced rate of such T ax). A ny Lender that is a U.S. Person shall deliver to Borrower and Agent (i) a properly prepared and duly executed U.S. Internal Revenue Service Form W-9, or any subsequent versions thereof or successors thereto, certifying that such Lender is entitled to receive any and all payments under this Agreement and each other Loan Document free and clear from withholding of United States federal backup withholding T axes or (ii) such other reasonable documentation as will enable Borrower and/or Agent to determine whether or not such Lender is subject to United States federal backup withholding or information reporting requirements. Each Person that shall become a Participant pursuant to Section 12.2 shall, on or before the date of the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section 13.8(f) , and shall make the representations and warranties set forth in clauses (A) – (F) above, provided that the obligations of such Participant, pursuant to this Section 13.8(f) shall be determined as if such Participant were a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased.
(g) Borrower will not be required to pay any additional amounts in respect of United States federal income Tax pursuant to Section 13.8(d) to any Lender or Agent or to indemnify any Lender or Agent pursuant to Section 13.8(c) to the extent that the Internal Revenue Service has determined (which determination shall be final and non-appealable) that such Lender or Agent is treated as a “conduit entity” within the meaning of Treasury Regulation Section 1.881‑3 or any successor provision; provided, however , nothing contained in this Section shall preclude the payment of additional amounts or indemnity payments by Borrower to the person for whom the “conduit entity” is acting.
(h) If Borrower is required to pay additional amounts to or for the account of any Lender or Agent pursuant to this Section 13.8 , then such Lender or Agent shall use its reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by Borrower so as to eliminate or reduce any such additional payments by Borrower which may accrue in the future if such filing or changes in the reasonable judgment of such Lender or Agent, would not require such Lender to disclose information such Lender deems confidential and is not otherwise disadvantageous to such Lender or Agent.
101
(i) If Agent or a Lender, in its reasonable judgment, receives a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 13.8 , it shall promptly pay to Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower under this Section 13.8 with respect to the Taxes giving rise to such refund) and any interest paid by the relevant Governmental Authority with respect to such refund, provided , that Borrower, upon the request of Agent or such Lender, shall repay the amount paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent or such Lender in the event Agent or such Lender is required to repay the applicable refund to such Governmental Authority.
(j) Notwithstanding anything herein to the contrary, if Agent is required by Applicable Law to deduct or withhold any Taxes from or in respect of any sum payable to any Lender by Borrower or Agent, the Agent shall not be required to make any gross-up payment to or in respect of such Lender, except to the extent that a corresponding gross-up payment is actually received by Agent from Borrower.
(k) Any Lender claiming reimbursement or compensation pursuant to this Section 13.8 shall deliver to Borrower (with a copy to Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on Borrower in the absence of manifest error.
(l) The agreements and obligations of Borrower in this Section 13.8 shall survive the payment of all other Obligations.
Each Lender that is subject to the requirements of the Patriot Act and Agent (for itself and not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Agent and each Lender to identify Borrower in accordance with the Patriot Act. Borrower shall, promptly following a request by Agent or any Lender, provide all documentation and other information that Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” an anti-money laundering rules and regulations, including the Patriot Act.
[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGES FOLLOW]
102
IN WITNESS WHEREOF, each of the parties has duly executed this Loan and Security Agreement as of the date first written above.
a Delaware limited liability company
By:
/s/ David Fisher
Name:
David Fisher
Title:
President
Address:
175 West Jackson Boulevard
Suite 1000
Chicago, IL 60606
Attn: _________________
Facsimile: _____________
with a copy to:
Chapman and Cutler LLP
1270 Avenue of the Americans, 30th Floor
New York, NY 10020
Attn: Kenneth P. Marin
Facsimile: (212) 655-2511
LEAD ARRANGER, BOOKRUNNER, AGENT AND
LENDER:
PACIFIC WESTERN BANK
By: /s/ Robert Dailey
Name: Robert Dailey
Title: SVP, Managing Director
Address:
5404 Wisconsin Avenue, 2 nd Floor
Chevy Chase, MD 20815
Attention: SFG Portfolio Manager
Facsimile: (301) 841-2380
With a copy to:
Holland & Knight LLP
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Matthew Fontane, Esq.
Facsimile: (214) 964-9501
Exhibit 10.2
Receivables Purchase Agreement
dated as of July 23, 2018
between
EFR 2018-1, LLC,
as Purchaser,
and
NETCREDIT FUNDING, LLC,
as Seller
Section |
Heading |
Page |
|
|
|
Article I |
Definitions |
1 |
Section 1.1. |
Definitions |
1 |
|
|
|
Article II |
Conveyance of Receivables |
2 |
Section 2.1. |
Conveyance of Receivables |
2 |
Section 2.2. |
Payment of Purchase Price |
4 |
Section 2.3. |
Transfers Intended as Sales |
4 |
|
|
|
Article III |
The Receivables |
4 |
Section 3.1. |
Representations and Warranties of the Seller as to the Receivables |
4 |
Section 3.2. |
Repurchase upon Breach |
6 |
|
|
|
Article IV |
The Purchaser |
6 |
Section 4.1. |
Representations of Purchaser |
6 |
|
|
|
Article V |
The Seller |
8 |
Section 5.1. |
Representations of Seller |
8 |
Section 5.2. |
Additional Covenants |
9 |
Section 5.4. |
Liability of the Seller; Indemnities |
10 |
|
|
|
Article VI |
Miscellaneous |
11 |
Section 6.1. |
Notices |
11 |
Section 6.2. |
Prior Agreements Superseded |
11 |
Section 6.3. |
Amendment |
11 |
Section 6.4. |
Parties Bound |
11 |
Section 6.5. |
Execution in Counterparts |
11 |
Section 6.6. |
Assignment |
12 |
Section 6.7. |
Severability of Provisions |
12 |
Section 6.8. |
Further Instruments |
12 |
Section 6.9. |
Governing Law |
12 |
Section 6.10. |
Consent to Jurisdiction |
12 |
Section 6.11. |
Waiver of Jury Trial |
13 |
Section 6.12. |
Third-Party Beneficiaries |
13 |
Section 6.13. |
Termination of Agreement |
13 |
-i -
Appendix A — Enova Credit Policies
Exhibit
Exhibit A — Form of Assignment
-i -
This Receivables Purchase Agreement , is entered into as of July 23 , 2018 (as it may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, this “Agreement” ), by and between EFR 2018-1 , LLC, a Delaware limited liability company (the “Purchaser” ), and NetCredit Funding, LLC , a Delaware limited liability company , as the Seller (the “Seller” ).
Recitals:
Whereas , the Purchaser desires to purchase from the Seller, from time to time, certain Receivables arising in connection with certain consumer loan contracts made to an Account Debtor and originated by an Originator;
Whereas , the Seller is willing to sell such Receivables and Other Conveyed Property to the Purchaser, from time to time;
Whereas , the Purchaser may wish to sell or otherwise transfer on the date hereof and the date of any Assignment such Receivables and Other Conveyed Property to the Purchaser; and
Whereas , the Purchaser desires to enter into that certain Loan and Security Agreement, dated as of July 23, 2018 (the “ Loan and Security Agreement ”), among the Purchaser, as borrower, the Lenders party thereto, and Pacific Western Bank, as administrative agent and payment agent (the “ Agent ”) to finance its acquisition of such Receivables and Other Conveyed Property by borrowing revolving advances from the Lenders thereunder.
Now, Therefore , in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:
Article I
Definitions
Section 1.1. Definitions . Whenever used in this Agreement and unless the context requires a different meaning, capitalized terms used herein and not otherwise expressly defined herein shall have the meanings assigned to such terms in Section 1.1 of the Loan and Security Agreement, which is incorporated by reference herein and made a part hereof. The rules of construction set forth in Part Section 1.1 of the Loan and Security Agreement shall apply to this Agreement and be incorporated by reference herein and made a part hereof.
“Cutoff Date” shall mean with respect to any Receivables, the date specified as the “Cutoff Date” of such Receivables in the applicable Assignment.
“Other Conveyed Property” shall mean all property conveyed by the Seller to the Purchaser pursuant to Sections 2.1(a)(ii) through (iv) hereof and each related Assignment.
“Purchase Date” shall mean each Business Day on which the Purchaser acquires Receivables from the Seller pursuant to the terms hereof.
“Purchase Price” shall mean, with respect to each Receivable and related Other Conveyed Property transferred to the Purchaser by the Seller pursuant to this Agreement on any Purchase Date, an amount equal to the Receivable Balance of such Receivable as of such Purchase Date.
“Receivable File” shall mean, with respect to each Receivable, the file to be (a) delivered to the Servicer hereunder, containing the Portfolio Documents and (b) maintained by the Custodian pursuant to Article IX of the Servicing Agreement.
“Related Receivables” shall mean, with respect to a Purchase Date, the Receivables set forth in the .csv file delivered in connection with the applicable Assignment executed and delivered by the Seller with respect to such Purchase Date.
“Receivable Repurchase Price” shall mean, with respect to any Receivable, the Receivable Balance, plus any interest accrued on such Receivable through the date of repurchase.
Article II
Conveyance of Receivables
Section 2.1. Conveyance of Receivables . (a) In consideration of the Purchaser’s delivery to, or as may be directed by, the Seller on any Purchase Date of the Purchase Price therefor, the Seller agrees to sell, transfer, assign, set over and otherwise convey to the Purchaser, without recourse (except as otherwise provided herein) all right, title and interest of the Seller, whether now existing or hereafter arising, in, to and under:
(i) the Related Receivables and all monies received with respect to such Related Receivables on and after the related Cutoff Date;
(ii) the Receivable File related to each Related Receivable and any and all other Instruments, including Promissory Notes (each as defined in the UCC), if any, and other documents relating to the Related Receivables and the related Account Debtors acquired by the Seller pursuant to the Transfer Agreement;
(iii) all present and future claims, demands, causes and choses in action in respect of any of the foregoing, including the right for the Purchaser or its assignee to bring any such claim, demand, cause or chose in action in the name of the Seller and the right, title and interest of the Seller in, to and under the Transfer Agreement; and
(iv) all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all cash and non ‑cash proceeds, and other property consisting of, arising from or relating to all or any part of any of the foregoing.
-2 -
(b) The Purchaser shall purchase and the Seller shall transfer to the Purchaser the Related Receivables and Other Conveyed Property described in paragraph (a) above only upon the satisfaction of each of the conditions set forth below on or prior to the related Purchase Date:
(i) the Seller shall have provided the Purchaser, the Backup Servicer and the Servicer with either access to an FTP website or a copy of a data tape or other electronic file that, in either case, contains information regarding the Related Receivables and shall have provided any information reasonably requested by any of the foregoing with respect to the Seller, the Servicer or the Related Receivables, as applicable;
(ii) the Seller shall have deposited into the Collateral Account all Collections received (if any) on and after the Cutoff Date in respect of the Related Receivables to be purchased on such Purchase Date;
(iii) as of each Purchase Date, (A ) the Seller shall be Solvent and shall not fail to be Solvent as a result of the transfer of the Related Receivables on such Purchase Date, (B) the Seller shall not intend to incur or believe that it shall incur debts that would be beyond its ability to pay as such debts mature, (C) such transfers shall not have been made with actual intent to hinder, delay or defraud any Person, and (D) the assets of the Seller shall not constitute unreasonably small capital to carry out its business as then conducted and all businesses and transactions in which it is about to engage;
(iv) no Event of Default shall have occurred and be continuing;
|
(v)the Borrowing Period shall not have expired; |
(vi) each of the representations and warranties made by the Seller pursuant to Section 3.1 with respect to the Related Receivables to be purchased on such Purchase Date shall be true and correct as of the related Purchase Date and the Seller shall have performed all obligations required to be performed by it hereunder or in any Assignment on or prior to such Purchase Date;
(vii) the Seller shall have taken all actions required to convey and maintain the ownership interest of the Purchaser in the Related Receivables and Other Conveyed Property;
(viii) no selection procedures adverse to the interests of the Purchaser or the Agent shall have been utilized in selecting the Related Receivables to be sold on such Purchase Date; provided that selection procedures that merely reflect differing eligibility criteria and excess concentration limits between this transaction and other credit facilities shall not be deemed to violate this provision;
(ix) no Servicer Default shall have occurred and be continuing;
(x) the Seller shall have delivered each related Receivable File to the Servicer no later than two (2) Business Days prior to the requested Purchase Date; and
-3 -
(xi) the Seller shall have executed and delivered to the Purchaser a n Assignment in the form of Exhibit A with respect to the Related Receivables and Other Conveyed Property related thereto to be purchased on such Purchase Date.
Section 2.2. Payment of Purchase Pric e . (a) In consideration for the sale of the Related Receivables and Other Conveyed Property described in Section 2.1(a) or the related Assignment, the Purchaser shall, on each Purchase Date on which Related Receivables are transferred hereunder, pay to or upon the order of the Seller the applicable Purchase Price. The Purchaser and the Seller agree that the Purchase Price paid with respect to any Related Receivables shall represent fair and reasonably equivalent value for the Receivables then sold and purchased. A portion of the Purchase Price shall be paid to the Seller in immediately available funds and the balance of such purchase shall be paid through a deemed distribution from the Seller of the applicable amount to the equity of the Purchaser. The amount of the deemed capital contribution shall be duly recorded by the Seller and the Purchaser.
(b) Immediately upon the conveyance to the Purchaser by the Seller of the Related Receivables and Other Conveyed Property pursuant to Section 2.1 and the related Assignment, all right, title and interest of the Seller in and to such Related Receivables and Other Conveyed Property shall terminate, and all such right, title and interest shall vest in the Purchaser.
Section 2.3. Transfers Intended as Sales . It is the intention of the Seller and the Purchaser that each transfer and assignment contemplated by this Agreement and each Assignment shall constitute an absolute and irrevocable sale of the Related Receivables and Other Conveyed Property from the Seller to the Purchaser (and not a loan or secured borrowing) free and clear of all liens and rights of others and it is intended that the beneficial interest in and title to the Related Receivables and Other Conveyed Property shall not be part of the Seller’s estate in the event of the filing of a petition by or against the Seller under any bankruptcy or insolvency law. In the event that, notwithstanding the intent of the Seller and the Purchaser, the transfers and assignments contemplated hereby or by any Assignment is held not to be a sale, this Agreement and each Assignment shall constitute a security agreement under applicable law and the Seller hereby grants to the Purchaser a security interest in the Related Receivables and Other Conveyed Property, which security interest has been ultimately assigned to the Agent pursuant to the Loan and Security Agreement.
Article III
The Receivables
Section 3.1. Representations and Warranties of the Seller as to the Receivables . As of the date hereof and as of each Purchase Date, Seller makes the following representations and warranties to the Purchaser as to the Related Receivables conveyed to the Purchaser pursuant to Section 2.1(a) above. All such representations and warranties shall survive the sale, transfer and assignment of the Related Receivables to the Purchaser and the pledge thereof to the Agent pursuant to the Loan and Security Agreement.
-4 -
(a) Characteristics of Receivables . Each Related Receivable is an Eligible Receivable and no selection procedures adverse to any party hereto have been utilized in selecting the Related Receivables to be sold hereunder (provided that selection procedures that merely reflect differing eligibility criteria and excess concentration limits between this transaction and other credit facilities shall not be deemed to violate this provision );
(b) Schedule of Receivables . The information with respect to the Related Receivables set forth in the .csv file delivered in connection with the related Assignment is true and correct in all material respects as of the close of business on the related Cutoff Date.
(c) Title . Immediately prior to each transfer and assignment herein contemplated, the Seller had good and marketable title to each Related Receivable and the related Other Conveyed Property and the Seller was the sole owner thereof, free and clear of all liens, claims, encumbrances, security interests, and rights of others, and, immediately upon the transfer thereof to the Purchaser, the Purchaser shall have good and marketable title to the Receivables and the Other Conveyed Property and shall be the sole owner thereof, free and clear of all Liens.
(d) Receivable File . The Seller (i) has caused the Servicer to be in possession of the Receivable File related to each Related Receivable and such Receivable File shall be complete in all material respects as of the related Purchase Date and (ii) has, prior to the related Purchase Date, delivered (or caused to be delivered) to the Verification Agent by electronic means, the Verification Deliverables. Each Receivable File shall be in electronic form and there shall be no physical Receivable Files to be delivered.
(e) Servicing . At all times prior to the Purchase Date of a Related Receivable, the servicing of such Related Receivable and the collection practices relating thereto have been lawful and in accordance with the Servicing Policy; and other than the Servicer and the Backup Servicer pursuant to the Loan Documents, no other person has the right to service such Related Receivable.
(f) Creation of Security Interest . This Agreement creates a valid and continuing security interest (as defined in the UCC) in the Related Receivables and the Other Conveyed Property in favor of the Purchaser, which security interest is prior to all other Liens (other than Permitted Liens) and is enforceable as such against creditors of and purchasers from the Seller.
(g) Perfection of Security Interest in Receivables and Other Conveyed Property . The Seller has caused the filing of all appropriate financing statements and amendments thereto in the proper filing office in the appropriate jurisdictions under applicable law, in order to perfect the first priority security interest in the Related Receivables and the Other Conveyed Property granted to the Purchaser hereunder pursuant to Section 2.3 and the related Assignment.
(h) No Other Security Interests by Seller . Other than the security interest granted to the Purchaser pursuant to Section 2.3 and the related Assignment, the Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed, any of the Related Receivables or Other Conveyed Property, other than such security interests as are released at or before the conveyance thereof. The Seller has not authorized the filing of, nor is the Seller aware
-5-
of, any financing statements filed against the Seller that include a description of collateral covering any portion of the Related Receivables or the Other Conveyed Property, other than any financing statement relating to the security interest granted to the Purchaser hereunder, or that has been terminated or released as to the Related Receivables or the Other Conveyed Property. As of the close of business on the related Cutoff Date, the Seller is not aware of any material judgment or tax lien filings against the Seller.
(i) Records . On or prior to each Purchase Date, the Seller will have caused its records (including electronic ledgers) relating to each Related Receivable to be conveyed by it on such Purchase Date to be clearly and unambiguously marked to reflect that such Related Receivable was conveyed by it to the Purchaser.
(j) Computer Information . The electronic information made available by the Seller to the Purchaser and the Verification Agent with respect to each Purchase Date is, as of the related Cutoff Date, complete and accurate and includes a description of the same Receivables described in the .csv file delivered in connection to the related Assignment.
Section 3.2. Repurchase upon Breach . The Seller shall inform the Purchaser and the Agent promptly upon the discovery of (or upon receiving notice from the Agent of) any breach of the representations and warranties made by the Seller pursuant to Section 3.1 with respect to any Related Receivables conveyed to the Purchaser pursuant to Section 2.1(a). Unless the breach shall have been cured within ten (10) Business Days following notice to the Purchaser and the Agent, the Seller shall within five (5) Business Days of the end of such ten (10) Business Day period, repurchase the applicable Related Receivable on the date and for the amount specified in the Sale Agreement, without further notice to the Purchaser hereunder. In consideration of the repurchase of any Related Receivable, the Seller shall remit the Receivable Repurchase Price to the Collateral Account on the date of such repurchase. Upon the deposit of the Receivable Repurchase Price in respect of any such Receivable into the Collateral Account, the Purchaser shall cause the Servicer to release the related Receivable File and the Purchaser shall execute and deliver all reasonable instruments of transfer or assignment, without recourse, as are prepared by the Seller and delivered to the Purchaser and necessary to vest in the Seller or its designee title to such Receivable. The sole remedies of the Purchaser under this Agreement with respect to any Receivables as to which a breach of representations and warranties pursuant to Section 3.1 has occurred shall be to enforce the Seller’s obligation to repurchase such Receivables pursuant to this Section 3.2. The purchase obligations of the Seller under this Section 3.2 shall be continuing and shall survive the termination of the Servicing Agreement and any termination of the Servicer.
Article IV
The Purchaser
Section 4.1. Representations of Purchaser . The Purchaser, as of each Purchase Date, hereby represents and warrants that:
-6 -
(a) The Purchaser is an entity duly formed, validly existing and in good standing under the laws of the State of its organization, is duly qualified to do business and is in good standing in all states where such qualification is required, except in those states where the failure to be so qualified has not had and could not be reasonably expected to have, a Material Adverse Effect, has all necessary limited liability company power and authority to enter into this Agreement and each of the other Loan Document s to which it is a party and to perform all of its obligations hereunder and thereunder.
(b) The Purchaser has all requisite right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each other Loan Document to which it is a party and this Agreement and each other Loan Document to which the Purchaser is a party are the legal, valid and binding obligations of the Purchaser and are enforceable against the Purchaser in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors’ rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity).
(c) The execution, delivery and performance by the Purchaser of this Agreement and each of the Loan Documents to which it is a party does not and shall not (i) violate any provision of any applicable law, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Purchaser, (ii) violate any provision of its formation documents or limited liability company agreement, or (iii) result in a breach of or constitute a default under the terms of any indenture, loan, credit agreement or any other agreement, lease or instrument to which the Purchaser is a party or by which it or any of its assets or properties may be bound or affected; and the Purchaser is not in default of any such law, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument.
(d) No consent, approval, license, exemption of or filing or registration with, giving of notice to, or other authorization of or by, any court, administrative agency or other Governmental Authority is or shall be required in connection with the execution, delivery or performance by the Purchaser of this Agreement and each other Loan Document for the valid consummation of the transactions contemplated hereby or thereby, other than the filing of financing statements.
(e) There is no action, suit, proceeding or investigation pending or threatened in writing against or affecting the Purchaser before or by any court, administrative agency or other Governmental Authority that brings into question the validity of the transactions contemplated hereby, or that might result in any Material Adverse Effect.
-7 -
The Seller
Section 5.1. Representations of Seller . The Seller, as of each Purchase Date, hereby represents and warrants that:
(a) The Seller is a limited liability company, duly formed, validly existing and in good standing under the laws of the State of its organization, is duly qualified to do business and is in good standing as a foreign limited liability company in all states where such qualification is required, except in those states where the failure to be so qualified has not had and could not be reasonably expected to have, a Material Adverse Effect, has all necessary limited liability company power and authority to enter into this Agreement and each other Loan Document to which it is a party and to perform all of its obligations hereunder and thereunder, and the Seller has obtained all necessary licenses, permits, consents or approvals in each jurisdiction in which failure to so qualify or to obtain such licenses, permits, consents and approvals would have a Material Adverse Effect on this Agreement or the transactions contemplated hereby or on the ability of the Seller to perform its obligations under this Agreement.
(b) The Seller has all requisite right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each other Loan Document to which it is a party and this Agreement and each other Loan Document to which the Seller is a party are the legal, valid and binding obligations of the Seller, and are enforceable against the Seller in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors’ rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity).
(c) The execution, delivery and performance by the Seller of this Agreement and each other Loan Document to which it is a party does not and shall not (i) violate any provision of any law, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Seller, (ii) violate any provision of its charter documents, or (iii) result in a breach of or constitute a default under any indenture, loan, credit agreement or any other agreement, lease or instrument to which the Seller is a party or by which it or any of its assets or properties may be bound or affected; and the Seller is not in default of any such law, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument.
(d) All authorizations, consents, orders, filings, notices, or approvals of or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the Seller in connection with the execution and delivery by the Seller of this Agreement and the performance by the Seller of the Transactions contemplated by this Agreement have been duly obtained, effected or given and are in full force and effect, other than the filing of financing statements.
-8 -
(e) No event has occurred and is continuing which constitutes an Event of Default or Regulatory Trigger Event . There is no action, suit, proceeding or investigation pending or threatened in writing against or affecting the Seller before or by any court, administrative agency or other governmental authority that brings into question the validity of the transactions contemplated hereby or by the other Loan Document s, or that might result in any Material Adverse Effect.
(f) The Seller is Solvent . The Seller shall not fail to be Solvent by the execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby, and the capital remaining in the Seller is not now and shall not become unreasonably small to permit the Seller to carry on its business and transactions and all businesses and transactions in which it is about to engage. The Seller does not intend to, nor does it reasonably believe it shall, incur debts beyond its ability to repay the same as they mature.
Section 5.2. Additional Covenants .
(a) Sale . The Seller agrees to treat the conveyances hereunder as sales for all purposes (including legal and bankruptcy purposes) on all relevant books, records, tax returns, financial statements and other applicable documents, and from and after the Purchase Date relating to any Related Receivables, the Seller shall not take any action inconsistent with the Purchaser’s absolute ownership of the Related Receivables and shall not claim any ownership interest in the Related Receivables; provided, that the financial statements of the Purchaser may be consolidated with those of the Seller in accordance with GAAP. The Seller will not make any transfer of Receivables hereunder if the Seller or the Purchaser is then insolvent or would be rendered insolvent thereby.
(b) Non‑Petition . The Seller covenants and agrees that, to the fullest extent permitted by applicable law, it will not take any action to pursue any remedy against the Purchaser that it may have hereunder, in law, in equity or otherwise, until one (1) year and one (1) day have passed since the date on which all Obligations under the Loan and Security Agreement have been paid in full. The Purchaser and the Seller agree that damages will not be an adequate remedy for breach of this covenant and that this covenant may be specifically enforced by the Purchaser.
(c) Cooperation . If an Event of Default shall have occurred and be continuing, the Seller and the Purchaser shall cooperate with and provide all information and access reasonably requested by the Agent in connection with any actions taken in connection therewith pursuant to the Loan Documents.
(d) Accounts . The Seller covenants and agrees it shall not, nor direct any Person to, deposit any Collections with respect to the Related Receivables in any account other than the Collateral Account, the Collection Receipt Accounts or, with respect to Collections in the form of checks, the Wells Fargo Account.
-9 -
Section 5.3. Liability of the Seller; Indemnities . (a) The Seller shall defend, indemnify and hold harmless the Purchaser, the Agent and their respective Affiliates and their respective officers, directors, agents and employees for any liability as a result of the failure of a Receivable conveyed to the Purchaser pursuant to Section 2.1(a) above to be originated in compliance with all requirements of law (including any Applicable Law s) and for any breach of any of its representations, warranties, covenants or other agreements contained herein, including:
(i) any taxes that may at any time be asserted against any such Person with respect to the transactions contemplated in this Agreement and any of the Loan Documents, including any sales, gross receipts, general corporation, tangible personal property, privilege or license taxes (but, in the case of the Purchaser, not including any taxes asserted with respect to federal or other income taxes arising out of payments on the Notes) and costs and expenses in defending against the same;
(ii) any loss, liability or expense incurred by reason of the Seller ’s willful misfeasance, bad faith or negligence in the performance of its duties under this Agreement, or by reason of reckless disregard of its obligations and duties under this Agreement;
(iii) any and all reasonable and documented out-of-pocket costs, expenses, losses, claims, damages and liabilities arising out of, or incurred in connection with the acceptance or performance of the trusts and duties set forth herein and in the Loan Documents, except to the extent that such cost, expense, loss, claim, damage or liability shall be due to the willful misfeasance, bad faith or negligence (except for errors in judgment) of such indemnified party;
(iv) any and all reasonable and documented out-of-pocket costs, expenses, losses, claims, damages and liabilities arising out of or relating to the Seller’s representations and warranties, covenants or other agreements contained herein or in any other Loan Document to which the Seller is a party; or
(v) any and all reasonable and documented out-of-pocket costs, expenses, awards, penalties, fines, damages, levies, reasonable and documented out-of-pocket attorney’s fees, or monetary costs of any kind arising out of or relating to any (a) administrative actions, subpoenas, lawsuits, variances, civil investigative demands, investigations or inquiries pertaining to the Receivables, or (b) any claim, lawsuit, or arbitration of any kind asserted by a non‑governmental party related to the Receivables.
(b) Indemnification under this Section 5.3 shall survive the termination of this Agreement and the other Loan Documents and shall include reasonable and documented out-of-pocket fees and expenses of counsel and other expenses of litigation. These indemnity obligations shall be in addition to any obligation that the Seller may otherwise have under applicable law, hereunder or under any other Loan Document.
Notwithstanding any provision of this Section 5.3 or any other provision of this Agreement, nothing in this Agreement shall be construed as to require the Seller to provide any
-10-
indemnification hereunder or under any other Loan Document for any costs, expenses, losses, claims, damages or liabilities arising out of, or incurred in connection with, credit losses on or the diminution in value of the Receivables or Other Conveyed Property.
Article VI
Miscellaneous
Section 6.1. Notices . Except when telephonic notice is expressly authorized by this Agreement, any notice, request, demand, direction, consent, waiver, authorization or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier, electronic mail or United States mail (postage prepaid) addressed to such party at the address specified in the Loan and Security Agreement.
Section 6.2. Prior Agreements Superseded . This Agreement, together with the other Loan Documents, constitutes the sole and only agreement of the parties hereto and supersedes any prior understandings or written or oral agreements between the parties respecting the subject matter of this Agreement and the other Loan Documents.
Section 6.3. Amendment . The parties hereto may not amend, modify or waive any provision hereof without the prior consent of the Agent; except that, following the delivery by the Purchaser and Seller to the Agent of an Officer’s Certificate to the effect that the Purchaser and Seller reasonably believes that such amendment will not have a Material Adverse Effect and is not reasonably expected to have a Material Adverse Effect at any time in the future, the Purchaser and the Seller may amend this Agreement, for any of the following purposes:
(a) to add to the covenants of the Purchaser or Seller, or to surrender any right or power herein conferred upon the Purchaser or Seller, for the benefit of the Agent and the Lenders;
(b) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein; or
(c) to qualify for sale treatment of the transactions contemplated by this Agreement under generally accepted accounting principles.
Section 6.4. Parties Bound . This Agreement shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of such parties hereto and their respective successors and permitted assigns.
Section 6.5. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, and all of which taken together shall constitute but one and the same instrument. The parties agree that the delivery of this Agreement
-11-
may be effected by means of an exchange of facsimile or other electronic means (including PDF signatures).
Section 6.6. Assignment . Neither party hereto may assign or delegate its rights, duties or obligations hereunder or interest herein, (i) to any entity which is not a Subsidiary of Enova without (x) the prior consent of the Agent and (y) the assignee executing an agreement of assumption to perform every obligation of the assignor under this Agreement and the other Loan Documents, and (ii) to a Subsidiary of Enova without (y) the assignor delivering an Officer’s Certificate to the Agent certifying that such assignment or delegation will not have a Material Adverse Effect on the Agent or the Lenders and (x) the assignee executing an agreement of assumption to perform every obligation of the assignor under this Agreement and the other Loan Documents. Any assignment or other transfer in violation of this provision shall be void.
Section 6.7. Severability of Provisions . Any provision which is determined to be unconscionable, against public policy or any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 6.8. Further Instruments . Each party hereto shall from time to time authorize, execute or deliver, and shall cause each of its subsidiaries to authorize, execute or deliver, all such amendments, supplements and other modifications hereto and to the other Loan Documents and all such financing statements or continuation statements, instruments of further assurance and any other instruments, and shall take such other actions, as the Agent reasonably requests and deems necessary or advisable in furtherance of the agreements contained herein.
Section 6.9. Governing Law . This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles (other than Sections 5‑1401 and 5‑1402 of the New York General Obligations Law) thereof.
Section 6.10. Consent to Jurisdiction . (a) All judicial proceedings brought against any party hereto arising out of or relating hereto or any other Loan Document, or any of the Notes, may be brought in any state or federal court of competent jurisdiction in the state, county and City of New York. By executing and delivering this Agreement, each party hereto, for itself and in connection with its properties, irrevocably ( i ) accepts generally and unconditionally the nonexclusive jurisdiction and venue of such courts, ( ii ) waives any defense of forum non conveniens, ( iii ) agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to the applicable party hereto at its address provided in accordance with the Loan and Security Agreement and to any process agent selected by such party is sufficient to confer personal jurisdiction over each party hereto in any such proceeding in any such court, and otherwise constitutes effective and binding service in every respect, and ( iv ) agrees that the
-12-
Agent retain s the right to serve process in any other manner permitted by law or to bring proceedings against any party hereto in the courts of any other jurisdiction.
(b) Each of the Purchaser and the Seller hereby agrees that process may be served on it by certified mail, return receipt requested, to the address pertaining to it as specified in Section 6.1. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any of the Seller or the Purchaser if given by registered or certified mail, return receipt requested, or by any other means or mail which requires a signed receipt, postage prepaid, mailed as provided above .
Section 6.11. Waiver of Jury Trial . Each party hereto hereby agrees to waive its respective rights to a jury trial of any claim or cause of action based upon or arising hereunder or under any of the other Loan Documents or any dealings between it relating to the subject matter of this Agreement. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that it has already relied on this waiver in entering into this Agreement, and that it will continue to rely on this waiver in its related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. This waiver is irrevocable, meaning that it may not be modified either orally or in writing (other than by a mutual waiver specifically referring to this Section 6.11 and executed by each of the parties hereto), and this waiver shall apply to any subsequent amendments, renewals, supplements or modifications hereto or any of the other Loan Documents. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.
Section 6.12. Third-Party Beneficiary . The Seller acknowledges that the Purchaser has pledged all of its rights, title and interest in and to this Agreement to the Agent, and that the Agent may enforce this Agreement as if it were a party hereto.
Section 6.13. Termination of Agreement . This Agreement shall terminate and be of no further force or effect upon the termination of the Loan and Security Agreement.
-13 -
In Witness Whereof , the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the day and the year first above written.
EFR 2018-1 , LLC, as Purchaser
|
By: |
/s/ David Fisher |
|
|
Name:David Fisher |
|
|
Title:President |
NetCredit Funding, LLC , as Seller
|
By: |
/s/David Fisher |
|
|
Name:David Fisher |
|
|
Title:President |
[Signature Page to Receivables Purchase Agreement]
Appendix A
to Receivables Purchase A
greement
Credit Policies
[Form of] Assignment
For value received, in accordance with the Receivables Purchase Agreement, dated as of July 23, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Purchase Agreement” ) between EFR 2018-1, LLC, as Purchaser (the “Purchaser” ) and NetCredit Funding, LLC, as Seller (the “Seller” ), the Seller does hereby sell, transfer, assign, set over and otherwise convey to the Purchaser, without recourse (subject to the obligations set forth herein and in the Purchase Agreement) all right, title and interest of the Seller in and to the following:
(a) the Related Receivables set forth in the .csv file delivered in connection with this Assignment and all monies received with respect to such Related Receivables on and after the related Cutoff Date;
(b) the Receivable File related to each Related Receivable and any and all other Instruments, including Promissory Notes (each as defined in the UCC) and other documents that the Seller (or its designee) kept on file in accordance with its customary procedures relating to the Related Receivables and the related Account Debtors;
(c) all present and future claims, demands, causes and choses in action in respect of any of the foregoing, including the right for the Purchaser or its assignee to bring any such claim, demand, cause or chose in action in the name of the Seller and the right, title and interest of the Seller in, to and under the Transfer Agreement; and
(d) all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all cash and non ‑cash proceeds, and other property consisting of, arising from or relating to all or any part of any of the foregoing.
1. Definitions . All terms defined in the Purchase Agreement (whether directly or by reference to other documents) and used herein shall have such defined meanings when used herein, unless otherwise defined herein.
“Cutoff Date” means, with respect to the Receivables and the related Other Conveyed Property being conveyed hereby, ______________, 20__.
2. Transfer and Assignment Sale of Receivables . The Seller hereby certifies that the Related Receivables and Other Conveyed Property assigned to the Purchaser hereunder are free and clear of all Liens (other than Permitted Liens and those provided for in the Purchase Agreement) and that the beneficial interest in and title to such Related Receivables and Other Conveyed Property shall not be part of the Seller ’s estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. In the event that, notwithstanding the intent of the Seller, the transfer and assignment contemplated hereby and under the Purchase Agreement is held not to be a sale, the transfer and assignment of such
Related Receivables and Other Conveyed Property hereunder shall constitute a grant of a security interest by the Seller to the Purchaser in the property referred to in Section 2 above, which security interest has been assigned to the Agent, and this Assignment and the Purchase Agreement shall each constitute a security agreement under applicable law.
4. Further Encumbrance of Receivables and Other Conveyed Property . (a) Immediately upon the conveyance to the Purchaser by the Seller of the Related Receivables and any item of related Other Conveyed Property hereto, all right, title and interest of the Seller in and to such Related Receivables and Other Conveyed Property shall terminate and all such right, title and interest shall vest in the Purchaser.
(b) Immediately upon the vesting of such Related Receivables and Other Conveyed Property in the Purchaser, the Purchaser shall have assumed the sole right to pledge or otherwise encumber such Related Receivables and related Other Conveyed Property.
5. Governing Law . This Assignment shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions (other than Section 5‑1401 and Section 5‑1402 of the General Obligations Law), and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws .
-2 -
In Witness Whereof , the undersigned has caused this Assignment to be duly executed and delivered by a duly authorized officer on the day and year first above written.
NetCredit Funding, LLC , as the Seller |
By: |
Name: |
Title: |
-3 -
Exhibit 10.3
$375,000,000
ENOVA INTERNATIONAL, INC.
8.500% Senior Notes due 2025
PURCHASE AGREEMENT
September 14, 2018
Credit Suisse Securities (USA) LLC
JEFFERIES LLC
As Representatives of the
Initial Purchasers listed in Schedule I hereto
c/o Credit Suisse Securities (USA) LLC
Eleven Madison Avenue
New York, New York 10010
c/o Jefferies LLC
520 Madison Avenue
New York, NY 10022
Ladies and Gentlemen:
Enova International, Inc., a Delaware corporation (the “ Company ”), and each of the Guarantors (as hereinafter defined) hereby agree with you as follows:
1. Issuance of Notes . Subject to the terms and conditions herein contained, the Company proposes to issue and sell to Credit Suisse Securities (USA) LLC (“Credit Suisse”), Jefferies LLC (“Jefferies”) and the other initial purchasers listed in Schedule I hereto (collectively, the “ Initial Purchasers ”), for whom Credit Suisse and Jefferies are acting as representatives (in such capacity, the “ Representatives ”), $375,000,000 in aggregate principal amount of 8.500% Senior Notes due 2025 (each a “ Note ” and, collectively, the “ Notes ”). The Notes will be issued pursuant to an indenture (the “ Indenture ”), to be dated as of September 19, 2018, by and among the Company, the Guarantors party thereto and Computershare Trust Company, N.A., as trustee (the “ Trustee ”). Capitalized terms used, but not defined herein, shall have the meanings set forth in the “Description of Notes” section of the Final Offering Memorandum (as hereinafter defined).
The Securities (as hereinafter defined) will be offered and sold to the Initial Purchasers pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission (the “ SEC ”) thereunder (collectively, the “ Securities Act ”). Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act,
the Securities shall bear the legends set forth in the final offering memorandum, dated the date hereof (the “ Final Offering Memorandum ”). The Company has prepared a preliminary offering memorandum, dated September 10, 2018 (the “ Preliminary Offering Memorandum ”), (ii) a pricing term sheet, dated the date hereof, attached hereto as Schedule II , which includes pricing terms and other information with respect to the Securities (the “ Pricing Supplement ”), and (iii) the Final Offering Memorandum, in each case, relating to the offer and sale of the Securities (the “ Offering ”). All references in this Agreement to the Preliminary Offering Memorandum, the Time of Sale Document (as defined herein) or the Final Offering Memorandum include, unless expressly stated otherwise, (i) all amendments or supplements thereto, (ii) all documents, financial statements and schedules and other information contained, incorporated by reference or deemed incorporated by reference therein (and references in this Agreement to such information being “contained,” “included” or “stated” (and other references of like import) in the Preliminary Offering Memorandum, the Time of Sale Document or the Final Offering Memorandum shall be deemed to mean all such information contained, incorporated by reference or deemed incorporated by reference therein) and (iii) any offering memorandum “wrapper” to be used in connection with offers to sell, solicitations of offers to buy or sales of the Securities in non-U.S. jurisdictions . The Preliminary Offering Memorandum and the Pricing Supplement are collectively referred to herein as the “ Time of Sale Document .”
2. Terms of Offering . The Initial Purchasers have advised the Company, and the Company understands, that the Initial Purchasers will make offers to sell (the “ Exempt Resales ”) some or all of the Securities purchased by the Initial Purchasers hereunder on the terms set forth in the Time of Sale Document to persons (the “ Subsequent Purchasers ”) (the first time when sales of the Securities are made is referred to as the “ Time of Sale ”) whom the Initial Purchasers reasonably believe (i) are “qualified institutional buyers” (“ QIBs ”) (as defined in Rule 144A under the Securities Act), or (ii) are not “U.S. persons” (as defined in Regulation S under the Securities Act) and in compliance with the laws applicable to such persons in jurisdictions outside of the United States.
Pursuant to the Indenture, each Domestic Subsidiary of the Company shall fully and unconditionally guarantee, on a senior unsecured basis, to each holder of the Notes and the Trustee, the payment and performance of the Company’s obligations under the Indenture and the Notes (each such subsidiary being referred to herein as a “ Guarantor ” and each such guarantee being referred to herein as a “ Guarantee ” and, together with the Notes, the “ Securities ”).
This Agreement, the Indenture, the Notes and the Guarantees are collectively referred to herein as the “ Documents ,” and the transactions contemplated hereby and thereby are collectively referred to herein as the “ Transactions .”
3. Purchase, Sale and Delivery . On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company and each of the Guarantors agree to issue and sell to the Initial Purchasers, and the Initial Purchasers, severally and not jointly, agree to purchase from the Company and each of the Guarantors, the respective aggregate principal amount of Securities set forth opposite such Initial Purchaser’s name in Schedule I hereto at a purchase price of 98.681% of the aggregate principal amount thereof. Delivery to the Initial Purchasers of and payment for the Securities shall be made at a closing to be held at 10:00 a.m., New York time, on September 19,
2
2018 (the “ Closing Date ”) at the New York offices of Davis Polk & Wardwell LLP (or such other place as shall be reasonably acceptable to the Representatives).
The Company shall deliver to the Initial Purchasers one or more certificates representing the Securities in definitive form, registered in such names and denominations as the Initial Purchasers may request, against payment by the Initial Purchasers of the purchase price therefor by immediately available federal funds bank wire transfer to such bank account or accounts as the Company shall designate to the Initial Purchasers at least two business days prior to the Closing Date. The certificates representing the Securities in definitive form shall be made available to the Initial Purchasers for inspection at the New York offices of Davis Polk & Wardwell LLP (or such other place as shall be reasonably acceptable to the Representatives) not later than 10:00 a.m. New York time one business day immediately preceding the Closing Date. Securities to be represented by one or more definitive global securities in book-entry form will be deposited on the Closing Date, by or on behalf of the Company, with The Depository Trust Company (“ DTC ”) or its designated custodian, and registered in the name of Cede & Co.
4. Representations and Warranties of the Company and the Guarantors . The Company and the Guarantors jointly and severally represent and warrant to, and agree with, each Initial Purchaser that:
(a) |
Limitation on Offering Materials . The Company has not prepared, made, used, authorized, approved or distributed and will not, and will not cause or allow its agents or representatives to, prepare, make, use, authorize, approve or distribute any written communication that constitutes an offer to sell or a solicitation of an offer to buy the Securities, or otherwise is prepared to market the Securities, other than (i) the Time of Sale Document, (ii) the Final Offering Memorandum and (iii) any marketing materials (including any roadshow or investor presentation materials) or other written communications, in each case used in accordance with Section 5(c) hereof (each such communication by the Company or its agents or representatives described in this clause (iii), a “ Company Additional Written Communication ”). |
3
registration requirements of the Act or (ii) would prevent or suspend the issuance or sale of any of the Securities or the use of the Time of Sale Document, the Final Offering Memorandum or any amendment or supplement thereto, in any jurisdiction. No statement of material fact included in the Final Offering Memorandum has been omitted from the Time of Sale Document and no statement of material fact included in the Time of Sale Document that is required to be included in the Final Offering Memorandum has been omitted therefrom. The Company has not distributed, and will not distribute, prior to the later of the Closing Date and the completion of the Initial Purchasers’ distribution of the Securities, any offering material in connection with the offering and sale of the Securities other than the Time of Sale Document and the Final Offering Memorandum. |
(c) |
Documents Incorporated by Reference . The documents incorporated or deemed to be incorporated by reference in the Time of Sale Document or the Final Offering Memorandum, at the time they were or hereafter are filed with the SEC, complied and will comply, in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder (collectively, the “ Exchange Act ”) and did not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. There are no contracts or other documents required to be described in such incorporated documents or to be filed as exhibits to such incorporated documents which have not been described or filed as required. |
(d) |
Reporting Compliance . The Company is subject to, and is in full compliance with, the reporting requirements of Section 13 and Section 15(d), as applicable, of the Exchange Act. |
(e) |
Preparation of the Financial Statements . The audited consolidated financial statements and related notes of the Company and its consolidated subsidiaries included or incorporated by reference in the Time of Sale Document and the Final Offering Memorandum (the “ Financial Statements ”) present fairly the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries, as of the respective dates and for the respective periods to which they apply and have been prepared in accordance with GAAP. The historical financial data set forth under “Summary Historical Condensed Consolidated Financial Data” and “Selected Historical Financial and Other Data” included in the Time of Sale Document and the Final Offering Memorandum has been prepared on a basis consistent with that of the Financial Statements and presents fairly the financial position and results of operations of the Company and its consolidated subsidiaries as of the respective dates and for the respective periods indicated. All other financial, statistical, and market and industry-related data included in the Time of Sale Document and the Final Offering Memorandum are fairly and accurately presented and are based on or derived from sources that the Company believes to be reliable and accurate. |
4
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. The Company and the Subsidiaries have carried out evaluations of the effectiveness of their disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act. The statements relating to disclosure controls and procedures made by the principal executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company in the certifications required by the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith are complete and correct. The interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Time of Sale Document and the Final Offering Memorandum fairly presents the information called for in all material respects and is prepared in accordance with the SEC’s rules and guidelines applicable thereto. |
(g) |
Independent Accountants . PricewaterhouseCoopers LLP, who has audited certain of the Financial Statements included or incorporated by reference in the Time of Sale Document and the Final Offering Memorandum, is an independent registered public accounting firm with respect to the Company and its Subsidiaries within the applicable rules and regulations adopted by the SEC and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act. |
(h) |
No Material Adverse Change . Subsequent to the respective dates as of which information is given in the Time of Sale Document and the Final Offering Memorandum, except as disclosed in the Time of Sale Document and the Final Offering Memorandum, (i) neither the Company nor any of the Subsidiaries has incurred any liabilities, direct or contingent, that are material, individually or in the aggregate, to the Company and the Subsidiaries, taken as a whole, or has entered into any material transactions not in the ordinary course of business, (ii) there has not been any material decrease in the number of authorized or outstanding shares of capital stock or any material increase in any short-term or long-term indebtedness of the Company or the Subsidiaries, or any payment of or declaration to pay any dividends or any other distribution with respect to the Company, and (iii) there has not been any material adverse change in the properties, business, prospects, operations, earnings, assets, liabilities or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole (each of clauses (i), (ii) and (iii), a “ Material Adverse Change ”). Except as disclosed in the Time of Sale Document and the Final Offering Memorandum, to the knowledge of the Company after reasonable inquiry, there is no event that is reasonably likely to occur, which if it were to occur, would, individually or in the aggregate, have a Material Adverse Effect (as defined below). |
5
(including, without limitation, the placing of any of the foregoing ratings on credit watch with negative or developing implications or under review with an uncertain direction) or (B) any negative change in the outlook for any rating of the Company or any of the Subsidiaries or any securities of the Company or any of the Subsidiaries. |
(j) |
Subsidiaries . Each corporation, partnership or other entity in which the Company, directly or indirectly through any of its subsidiaries, owns more than fifty percent (50%) of any class of equity securities or interests and is a “significant subsidiary” (as defined in Regulation S-X of the Act) of the Company is listed on Schedule III attached hereto (the “ Subsidiaries ”). |
(k) |
Incorporation and Good Standing of the Company and its Subsidiaries. The Company and each of the Subsidiaries (i) has been duly organized or formed, as the case may be, is validly existing and is in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to carry on its business and to own, lease and operate its properties and assets as described in the Time of Sale Document and in the Final Offering Memorandum and (iii) is duly qualified or licensed to do business and is in good standing as a foreign corporation, partnership or other entity as the case may be, authorized to do business in each jurisdiction in which the nature of such businesses or the ownership or leasing of such properties requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on (A) the properties, business, prospects, operations, earnings, assets, liabilities or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, (B) the ability of the Company or any Guarantor to perform its obligations in all material respects under any Document, (C) the validity or enforceability of any of the Documents, or (D) the consummation of any of the Transactions (each, a “ Material Adverse Effect ”). |
(l) |
Capitalization and Other Capital Stock Matters . All of the issued and outstanding shares of capital stock of the Company and each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of, and are not subject to, any preemptive or similar rights. The table under the caption “Capitalization” in the Time of Sale Document and the Final Offering Memorandum (including the footnotes thereto) sets forth, as of its date, the capitalization of the Company. All of the outstanding shares of capital stock or other equity interests of each of the Subsidiaries are owned, directly or indirectly, by the Company, free and clear of all liens, security interests, mortgages, pledges, charges, equities, claims or restrictions on transferability or encumbrances of any kind (collectively, “ Liens ), other than Permitted Liens and those imposed by the Securities Act and the securities or “Blue Sky” laws of certain U.S. states or (in the case of subsidiaries organized under the laws of non-U.S. jurisdictions) non-U.S. jurisdictions. There are no outstanding (A) options, warrants or other rights to purchase from the Company or any of the Subsidiaries, (B) agreements, contracts, arrangements or other obligations of the Company or any of the Subsidiaries to issue or (C) other rights to convert any obligation into or exchange any securities for, in the case of each of clauses (A) through (C), shares of capital stock of or other ownership or equity interests in the Company or any of the Subsidiaries. |
6
(n) |
This Agreement and the Indenture . This Agreement has been duly and validly authorized, executed and delivered by the Company and each of the Guarantors. The Indenture has been duly and validly authorized by the Company and each of the Guarantors and, at the Closing Date, will have been duly executed and delivered by the Company and each of the Guarantors and will constitute a legal, valid and binding obligation of each of the Company and Guarantors, enforceable against each of the Company and the Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors’ rights generally, (ii) general principles of equity (whether applied by a court of law or equity) and the discretion of the court before which any proceeding therefor may be brought. When executed and delivered, this Agreement and the Indenture will conform in all material respects to the descriptions thereof in the Time of Sale Document and the Final Offering Memorandum. |
(o) |
Notes. The Notes have each been duly and validly authorized by the Company and, when issued and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement and the Indenture, will have been duly executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the Company, entitled to the benefit of the Indenture, and enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors’ rights generally and (ii) general principles of equity (whether applied by a court of law or equity) and the discretion of the court before which any proceeding therefor may be brought. When executed and delivered, the Notes will conform in all material respects to the descriptions thereof in the Time of Sale Document and the Final Offering Memorandum and will be in the form contemplated by the Indenture. |
(p) |
Guarantees. The Guarantees have been duly and validly authorized by the Guarantors and, when issued and executed by the Guarantors, will have been duly executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the Guarantors, entitled to the benefit of the Indenture, and enforceable against the Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors’ rights generally and (ii) general principles of equity (whether applied by a court of law or equity) and the discretion of the court before which any proceeding therefor may be brought. When executed and delivered, the Guarantees will conform in all material respects to the descriptions thereof in the Time of Sale Document and the Final Offering Memorandum. |
7
(r) |
No Conflicts. Neither the execution, delivery or performance of the Documents nor the consummation of any of the Transactions as described in the Time of Sale Document and the Final Offering Memorandum will conflict with, violate, constitute a breach of or a default (with the passage of time or otherwise) under, require the consent of any person (other than consents already obtained and in full force and effect) under, result in the imposition of a Lien on any assets of the Company or of any of its Subsidiaries, or result in an acceleration of indebtedness under or pursuant to (i) the Charter Documents, (ii) any Applicable Agreement, (iii) any Applicable Law or (iv) any order, writ, judgment, injunction, decree, determination or award binding upon or affecting the Company and the Guarantors. |
(s) |
No Consents. No consent, approval, authorization or order of any Governmental Authority is required (i) for the issuance and sale by the Company of the Securities to the Initial Purchasers, or (ii) the consummation by the Company of the other transactions contemplated hereby, except such as have been obtained and such as may be required under state securities or “Blue Sky” laws in connection with the purchase and resale of the Securities by the Initial Purchasers. |
8
of, or otherwise challenge any of the Documents or the Transactions or (ii) would, individually or in the aggregate, have a Material Adverse Effect. Except for matters disclosed in the Time of Sale Document and the Final Offering Memorandum, the Company is not subject to any judgment, order, decree, rule or regulation of any Governmental Authority that would, individually or in the aggregate have a Material Adverse Effect. |
(u) |
All Necessary Permits . Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all Governmental Authorities, presently required or necessary to own or lease, as the case may be, and to operate its properties and to carry on its businesses as now or proposed to be conducted as set forth in the Time of Sale Document and the Offering Memorandum (“ Permits ”), and each Permit is in full force and effect, except in each case as would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and each of its Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits, except as disclosed in the Time of Sale Document and the Final Offering Memorandum, no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder of any Permit except in each case as described in the Time of Sale Document and the Final Offering Memorandum or as would not, individually or in the aggregate, have a Material Adverse Effect; no Permit contains a materially burdensome restriction not adequately disclosed in the Time of Sale Document and the Final Offering Memorandum; and none of the Company or any of its Subsidiaries has received any notice of any proceeding that would cause the termination, suspension, cancellation, nonrenewal or modification of any such Permit, or the imposition of any penalty or fine, except in each case as described in the Time of Sale Document and the Final Offering Memorandum or as would not, individually or in the aggregate, have a Material Adverse Effect. |
(v) |
Title to Properties . Each of the Company and the Subsidiaries has good and indefeasible or marketable title to all real property described in the Time of Sale Document and Final Offering Memorandum as being owned by it, if any, and good title to all personal property described in the Time of Sale Document and Final Offering Memorandum as being owned by it and good and indefeasible title to all leasehold estates in real and personal property described in the Time of Sale Document and Final Offering Memorandum as being leased by it and, as of the Time of Sale, as of the date hereof and as of the Closing Date, was, is and will be free and clear of all Liens, except as described in the Time of Sale Document and the Final Offering Memorandum. All Applicable Agreements to which the Company or any of its Subsidiaries is a party are valid and enforceable against each of the Company or such Subsidiary, as applicable, and assuming such Applicable Agreements are valid and enforceable against the other party or parties thereto, are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. |
9
(x) |
Intellectual Property Rights . Each of the Company and the Subsidiaries owns or has the right or license to use, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, “ Intellectual Property ”) necessary for the conduct of its businesses. To the Company’s knowledge, no claims or notices of any potential claim have been asserted by any person challenging the use of any such Intellectual Property by the Company or any of the Subsidiaries or questioning the validity or effectiveness of the Intellectual Property or any license or agreement related thereto (other than any claims that, if successful, would not, individually or in the aggregate, have a Material Adverse Effect). To the Company’s knowledge, the use of such Intellectual Property by the Company or any of the Subsidiaries will not infringe on the Intellectual Property rights of any other person. |
(y) |
ERISA Matters . Each of the Company, the Subsidiaries, and each ERISA Affiliate (as hereinafter defined) has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) with respect to each “pension plan” (as defined in Section 3(2) of ERISA), subject to Section 302 of ERISA which the Company, the Subsidiaries, or any ERISA Affiliate sponsors or maintains, or with respect to which it has (or within the last three years had) any obligation to make contributions, and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the “ Code ”). Neither the Company, the Subsidiaries, nor any ERISA Affiliate has incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA. “ ERISA Affiliate ” means a corporation, trade or business that is, along with the Company or any Subsidiary, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414 of the Code or Section 4001 of ERISA. |
10
(aa) |
Compliance with Environmental Laws . Each of the Company and the Subsidiaries is (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of the environment or hazardous or toxic substances of wastes, pollutants or contaminants (“ Environmental Laws ”), (ii) has received and is in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its business and (iii) has not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, in each case except where such non-compliance with Environmental Laws, failure to receive and comply with required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business. Neither the Company nor any of the Subsidiaries has been notified that it has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. |
(bb) |
Insurance . Each of the Company and the Subsidiaries is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged. All policies of insurance insuring the Company or any of the Subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect. The Company and the Subsidiaries are in compliance with the terms of such policies and instruments in all material respects, and there are no claims by the Company or any of the Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause except as would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not, individually or in the aggregate, have a Material Adverse Effect. |
(cc) |
Accounting System . The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) material transactions are executed in accordance with management’s general or specific authorization, (ii) material transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences. |
11
(ee) |
No Price Stabilization or Manipulation. Neither the Company nor any of its affiliates (as defined in Rule 405 of the Securities Act) has and, to the Company’s knowledge, after due inquiry, no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company, whether to facilitate the sale or resale of any of the Securities or otherwise, (ii) sold, bid for, purchased, or, except as contemplated by this Agreement, paid anyone any compensation for soliciting purchases of, any of the Securities, or (iii) except as disclosed in the Time of Sale Document and the Final Offering Memorandum, paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company. |
12
solicitation in connection with the sale of the Securities to the Initial Purchasers and in the Exempt Resales. |
(gg) |
No Integration. The Securities will be, upon issuance, eligible for resale pursuant to Rule 144A under the Securities Act and no other securities of the Company are of the same class (within the meaning of Rule 144A under the Securities Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. No securities of the Company of the same class as the Securities have been offered, issued or sold by the Company or any of its affiliates within the six-month period immediately prior to the date hereof; and the Company does not have any intention of making an offer or sale of such securities of the Company of the same class as the Securities, for a period of six months after the date of this Agreement, except for the offering of the Securities as contemplated by this Agreement. As used in this paragraph, the terms “offer” and “sale” have the meanings specified in Section 2(a)(3) of the Securities Act. |
(hh) |
No Directed Selling Efforts . None of the Company, any of its affiliates or other person acting on behalf of the Company has, with respect to Securities sold outside the United States, offered the Securities to buyers qualifying as “U.S. persons” (as defined in Rule 902 under the Securities Act) or engaged in any directed selling efforts within the meaning of Rule 902 under the Securities Act; the Company, any affiliate of the Company and any person acting on behalf of the Company have complied with and will implement the “offering restrictions” within the meaning of such Rule 902; and neither the Company nor any of its affiliates has entered or will enter into any arrangement or agreement with respect to the distribution of the Securities, except for this Agreement; provided that no representation is made in this paragraph with respect to the actions of the Initial Purchasers. |
(ii) |
No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities of the Company or any “Affiliate” registered for sale under a registration statement, except as have been duly waived. |
(jj) |
Margin Requirements . None of the Transactions or the application of the proceeds of the Securities will violate or result in a violation of Section 7 of the Exchange Act (including, without limitation, Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System). |
(kk) |
Investment Company Act . Each of the Company and the Guarantors is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder (collectively, the “ Investment Company Act ”); and each of the Company and the Guarantors, after giving effect to the Offering and sale of the Securities and the application of the proceeds thereof as described in the Time of Sale Document and the Final Offering Memorandum, individually or on a consolidated basis, will not be an “investment company” as defined in the Investment Company Act. |
13
(mm) |
No Restrictions on Payments of Dividends . Except as otherwise disclosed in the Time of Sale Document and the Final Offering Memorandum, as of the Closing Date, there will be no encumbrance or restriction on the ability of any wholly-owned Subsidiary of the Company (x) to pay dividends or make other distributions on such Subsidiary’s capital stock or to pay any indebtedness to the Company or any other wholly-owned Subsidiary of the Company, (y) to make loans or advances or pay any indebtedness to, or investments in, the Company or any other wholly-owned Subsidiary of the Company or (z) to transfer any of its property or assets to the Company or any other wholly-owned Subsidiary of the Company. |
(nn) |
Sarbanes Oxley . There is and has been no failure on the part of the Company and the Subsidiaries or any of the officers and directors of the Company or any of the Subsidiaries, in their capacities as such, to comply with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith. |
(oo) |
Foreign Corrupt Practices Act . Neither the Company nor any of the Subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of the Subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment, except in the case of each of (i), (ii), (iii) and (iv) as would not, individually or in the aggregate, have a Material Adverse Effect. |
(pp) |
Money Laundering. The operations of the Company and the Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the “ Money Laundering Laws ”), except as would not, individually or in the aggregate, have a Material Adverse Effect, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of the Subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened. |
14
(rr) |
Stamp Taxes. There are no stamp or other issuance or transfer taxes or duties or other similar fees or charges required to be paid in connection with the execution and delivery of this Agreement or the issuance or sale of the Securities. |
(ss) |
Certificates . Each certificate signed by any officer of the Company or any of the Subsidiaries, delivered to the Initial Purchasers shall be deemed a representation and warranty by the Company or any such Subsidiary (and not individually by such officer) to the Initial Purchasers with respect to the matters covered thereby. |
5. Covenants of the Company and the Guarantors . Each of the Company and the Guarantors jointly and severally agrees:
(a) |
Securities Law Compliance . To (i) advise the Initial Purchasers promptly after obtaining knowledge (and, if requested by the Initial Purchasers, confirm such advice in writing) of (A) the issuance by any U.S. or non-U.S. federal or state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Securities for offer or sale in any jurisdiction, or the initiation of any proceeding for such purpose by any U.S. or non-U.S. federal or state securities commission or other regulatory authority, or (B) the happening of any event that makes any statement of a material fact made in the Time of Sale Document, any Company Additional Written Communication or the Final Offering Memorandum, untrue or that requires the making of any additions to or changes in the Time of Sale Document, any Company Additional Written Communication, or the Final Offering Memorandum, to make the statements therein, in the light of the circumstances under which they were made, not misleading, (ii) use its reasonable best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption from qualification of any of the Securities under any securities or “Blue Sky” laws of U.S. state or non-U.S. jurisdictions and (iii) if, at any time, any U.S. or non-U.S. federal or state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of any of the Securities under any such laws, use its reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. |
15
connection with Exempt Resales (and the Company and the Guarantors hereby consent to the use of the Time of Sale Document and the Final Offering Memorandum, and any amendments and supplements thereto, by the Initial Purchasers in connection with Exempt Resales). |
(c) |
Consent to Amendments and Supplements . Not to amend or supplement the Time of Sale Document or the Final Offering Memorandum prior to the Closing Date, or at any time prior to the completion of the resale by the Initial Purchasers of all the Securities purchased by the Initial Purchasers, unless the Initial Purchasers shall previously have been advised thereof and shall have provided their written consent thereto. Before making, preparing, using, authorizing, approving or referring to any Company Additional Written Communications, the Company will furnish to the Representatives and counsel for the Initial Purchasers a copy of such written communication for review and will not, unless required by Applicable Law, make, prepare, use, authorize, approve or refer to any such written communication to which the Representatives reasonably object. The Company and the Guarantors consent to the use by the Initial Purchasers of a Company Additional Written Communication that contains (A) information describing the preliminary terms of the Securities or their offering or (B) information that describes the final terms of the Securities or their offering and that is included in or is subsequently included in the Final Offering Memorandum, including by means of the Pricing Supplement. The Company has given the Initial Purchasers notice of any filings made pursuant to the Exchange Act within 48 hours prior to the date hereof. The Company will give the Initial Purchasers notice of its intention to make any such filing from and after the date hereof through the Closing Date (or, if later, through the completion of the distribution of the Securities by the Initial Purchasers to Subsequent Purchasers) and will furnish the Initial Purchasers with copies of any such documents a reasonable amount of time prior to such proposed filing as the case may be, and will not file or use any such document to which the Initial Purchasers or its counsel shall reasonably object. |
16
the Company it becomes necessary or advisable to amend or supplement the Time of Sale Document or the Final Offering Memorandum so that the Time of Sale Document and the Final Offering Memorandum will contain all of the information specified in, and meet the requirements of, Rule 144A(d)(4) of the Securities Act, to prepare an appropriate amendment or supplement to the Time of Sale Document or the Final Offering Memorandum (in form and substance reasonably satisfactory to the Representatives) so that the Time of Sale Document or the Final Offering Memorandum, as so amended or supplemented, will contain the information specified in, and meet the requirements of, such Rule. |
(e) |
“Blue Sky” Law Compliance . To cooperate with the Initial Purchasers and the Initial Purchasers’ counsel in connection with the qualification of the Securities under the securities or “Blue Sky” laws of U.S. state or non-U.S. jurisdictions as the Initial Purchasers may request and continue such qualification in effect so long as reasonably required for Exempt Resales. |
(f) |
Payment of Expenses . Whether or not any of the Offering or the Transactions are consummated or this Agreement is terminated, to pay (i) all costs, expenses, fees and taxes incident to and in connection with: (A) the preparation, printing and distribution of the Time of Sale Document and the Final Offering Memorandum and any Canadian “wrapper” and all amendments and supplements thereto (including, without limitation, financial statements and exhibits), and all other agreements, memoranda, correspondence and other documents prepared and delivered in connection herewith, (B) the negotiation, printing, processing and distribution (including, without limitation, word processing and duplication costs) and delivery of, each of the Documents, (C) the preparation, issuance and delivery of the Securities, (D) the qualification of the Securities for offer and sale under the securities or “Blue Sky” laws of U.S. state or non-U.S. jurisdictions (including, without limitation, the fees and disbursements of the Initial Purchasers’ counsel relating to such registration or qualification), and (E) furnishing such copies of the Time of Sale Document and the Final Offering Memorandum, and all amendments and supplements thereto, as may reasonably be requested for use by the Initial Purchasers, (ii) all fees and expenses of the counsel, accountants and any other experts or advisors retained by the Company or the Guarantors, (iii) all fees and expenses (including fees and expenses of counsel) of the Company or the Guarantors in connection with approval of the Securities by DTC for “book-entry” transfer, (iv) all fees charged by rating agencies, if any, in connection with the rating of the Securities, (v) all fees and expenses (including reasonable fees and expenses of counsel) of the Trustee, (vi) all expenses incurred by the Company in connection with any “road show” presentation to potential investors and fifty percent (50%) of the cost of private aircraft chartered in connection with such “road show” presentation (it being understood that the other fifty percent (50%) of the cost of such aircraft chartered in connection with the “road show” presentation shall be paid by the Initial Purchasers) and (vii) all other out-of-pocket expenses (including fees and expenses of their legal counsel) incurred by the Initial Purchasers and their designated affiliates in connection with their services to be provided hereunder. |
17
(g) |
Use of Proceeds . To use the proceeds of the Offering in the manner described in the Time of Sale Document and the Final Offering Memorandum under the caption “Use of Proceeds.” |
(h) |
Transaction Documents . To perform all covenants and agreements required to be performed by the Company and the Guarantors under the Documents prior to and after the Closing Date. |
(i) |
Integration . Not to, and to ensure that no affiliate of the Company will, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any “security” (as defined in the Securities Act) that would be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the sale to the Initial Purchasers or to the Subsequent Purchasers of the Securities. |
(j) |
Stabilization or Manipulation . Until the Initial Purchasers shall have notified the Company of the completion of the resales of the Securities, not to, and not to permit any of their affiliated purchasers (as such term is defined in Regulation M under the Exchange Act) to, either alone or with one or more other persons, bid for or purchase for any account in which they or any of their affiliated purchasers has a beneficial interest in any Securities in violation of Regulation M; and none of the Company or any of its affiliated purchasers will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Securities. |
(k) |
DTC . To comply with the representation letter of the Company to DTC relating to the approval of the Securities by DTC for “book entry” transfer. |
(l) |
Rule 144(A) Information . For so long as any of the Securities remain outstanding, during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request, to any owner of the Securities in connection with any sale thereof and any prospective Subsequent Purchasers of such Securities from such owner, the information required by Rule 144A(d)(4) under the Securities Act. |
(m) |
Furnish Trustee and Noteholder Reports . For so long as any of the Securities remain outstanding, unless such reports, communications, financial statements or other materials are otherwise publicly available, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Securities and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the SEC or any national securities exchange on which any class of securities of the Company may be listed. |
18
form of general solicitation or general advertising (including, without limitation, as such terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act, or (iii) engage in any directed selling efforts with respect to the Securities within the meaning of Regulation S, and all such persons will comply with the offering restrictions requirement of Regulation S. |
(o) |
Sale of Restricted Securities . During the one year period after the Closing Date (or such shorter period as may be provided for in Rule 144 under the Securities Act, as the same may be in effect from time to time), to not, and to not permit any current or future Subsidiaries of either the Company or any other affiliates controlled by the Company to, resell any of the Securities which constitute “restricted securities” under Rule 144 that have been reacquired by the Company, any current or future Subsidiaries or any other affiliates controlled by the Company, except pursuant to an effective registration statement under the Securities Act. |
(p) |
Stamp Taxes . To pay all stamp, documentary and transfer taxes and other duties, if any, which may be imposed by the United States or any political subdivision thereof or taxing authority thereof or therein with respect to the issuance of the Securities or the sale thereof to the Initial Purchasers. |
(q) |
Investment Company. The Company and the Guarantors will conduct their businesses in a manner so as to not be required to register under the Investment Company Act. |
(r) |
Lock –up. During the period beginning from the date hereof and continuing until the date that is 90 days after the date of the Final Offering Memorandum, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Securities without the prior written consent of Credit Suisse and Jefferies. |
6. Representations and Warranties of the Initial Purchasers . Each of the Initial Purchasers, severally and not jointly, represents and warrants (as to itself only) that:
(a) |
Initial Purchaser Status, Resale Terms . It is a “QIB” (as defined in Rule 144A under the Securities Act) and it will offer the Securities for resale only upon the terms and conditions set forth in this Agreement and in the Time of Sale Document and the Final Offering Memorandum. |
(b) |
Sale of Restricted Exchange Securities . It will solicit offers to buy the Securities only from, and will offer and sell the Securities only to, persons reasonably believed by the Initial Purchasers (A) to be QIBs or (B) to not be “U.S. persons” (as defined under Regulation S under the Securities Act) and in compliance with laws applicable to such persons in jurisdictions outside of the United States; provided , however , that in purchasing such Securities, such persons are deemed to have represented and agreed as provided under the caption “Notice to Investors” contained in the Time of Sale Document and the Final Offering Memorandum. |
19
(d) |
Delivery of Offering Memorandum . It will deliver to each Subsequent Purchaser of the Securities, in connection with such Initial Purchaser’s original distribution of the Offered Securities, a copy of the Final Offering Memorandum, as amended and supplemented at the date of such delivery, provided that the Company complies with Section 5(b) hereof. |
7. Conditions . The obligations of the Initial Purchasers to purchase and pay for the Securities as provided for under this Agreement on the Closing Date are subject to the performance by the Company of its covenants and obligations hereunder and the satisfaction of each of the following conditions:
(a) |
Representations and Warranties . All the representations and warranties of the Company contained in this Agreement and in each of the Documents shall be true and correct in all material respects (other than those representations and warranties which are already qualified by materiality, in which case, such representations and warranties shall be true and correct) as of the date hereof and at the Closing Date as though then made. On or prior to the Closing Date, the Company and each other party to the Documents (other than the Initial Purchasers) shall have performed or complied in all material respects (other than those agreements and conditions which are already qualified by materiality, in which case, such parties shall have performed or complied) with all of the agreements and satisfied all conditions on their respective parts to be performed, complied with or satisfied pursuant to the Documents, including, without limitation, all of the conditions set forth below. |
(b) |
No Conflicts . No injunction, restraining order or order of any nature by a Governmental Authority shall have been issued as of the Closing Date that would prevent or materially interfere with the consummation of the Offering or any of the Transactions; and no stop order suspending the qualification or exemption from qualification of any of the Securities in any jurisdiction shall have been issued and no Proceeding for that purpose shall have been commenced or, to the knowledge of the Company after due inquiry, be pending or contemplated as of the Closing Date. |
20
proposed amendment or supplement at least two business days prior to the proposed use, and shall not have reasonably objected to such amendment or supplement. |
(d) |
No Material Adverse Change . Subsequent to the respective dates as of which information is given in the Time of Sale Document (exclusive of any amendment or supplement thereto), there shall not have been any Material Adverse Change. |
(e) |
DTC . All agreements set forth in the representation of the Company to DTC relating to the approval of the Securities by DTC for “book entry” transfer shall have been complied with. |
(f) Rating Agencies . On or after the date hereof, (i) there shall not have occurred any downgrading, suspension or withdrawal of, nor shall any notice have been given of any potential or intended downgrading, suspension or withdrawal of, or of any review (or of any potential or intended review) for a possible change that does not indicate the direction of the possible change in, any rating of the Company or any securities of the Company (including, without limitation, the placing of any of the foregoing ratings on credit watch with negative or developing implications or under review with an uncertain direction) by any “nationally recognized statistical rating organization” (as that term is defined in Section 3(a)(62) of the Exchange Act), (ii) there shall not have occurred any change, nor shall any notice have been given of any potential or intended change, in the outlook for any rating of the Company or any securities of the Company by any such rating organization and (iii) no such rating organization shall have given notice that it has assigned (or is considering assigning) a lower rating to the Securities than that on which the Securities were marketed.
(g) |
Closing Deliverables. The Initial Purchasers shall have received on the Closing Date: |
21
|
Offering Memorandum or contemplated hereby, neither the Company, the Guarantors nor any other Subsidiary of the Company has incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business, that are material to the Company and the Subsidiaries, taken as a whole, or entered into any transactions not in the ordinary course of business that are material to the business, condition (financial or otherwise) or results of operations or prospects of the Company and the Subsidiaries, taken as a whole, and there has not been any change in the capital stock or long-term indebtedness of the Company, the Guarantors or any other Subsidiary of the Company that is material to the business, condition (financial or otherwise) or results of operations or prospects of the Company and the Subsidiaries, taken as a whole, and (e) the sale of the Securities has not been enjoined (temporarily or permanently). |
|
(ii) |
Secretary’s Certificate. A certificate, dated the Closing Date, executed by the Secretary of the Company and each Guarantor, certifying such matters as the Representatives may reasonably request. |
|
(iii) |
Good Standing Certificates. A certificate evidencing qualification by such entity as a foreign corporation in good standing issued by the Secretaries of State (or comparable office) of each of the jurisdictions in which each of the Company and the Guarantors operates as of a recent date prior to the Closing Date. |
|
(iv) |
Certificate of the Principal Accounting Officer. A certificate of the principal accounting officer of the Company, delivered the date hereof and on the Closing Date, in the form of Exhibit A attached hereto. |
|
(v) |
Company Counsel Opinion. The opinions of Lisa Young, Vice President, General Counsel and Secretary of the Company, Kirkland & Ellis LLP, counsel to the Company, Baker & McKenzie LLP, United Kingdom special regulatory counsel to the Company in a form reasonably satisfactory to the Initial Purchasers. |
|
(vi) |
Local Counsel Opinion. Each of the local counsel to the Company listed on Schedule IV hereto shall have furnished to the Initial Purchaser, at the request of the Company, its written opinion, dated the Closing Date and addressed to the Initial Purchaser in a form reasonably satisfactory to the Initial Purchasers. |
|
(vii) |
Initial Purchaser Counsel Opinion. An opinion, dated the Closing Date, of Davis Polk & Wardwell LLP, counsel to the Initial Purchasers, in form satisfactory to the Initial Purchasers covering such matters as are customarily covered in such opinions. |
22
|
certain financial information contained in the Time of Sale Document and the Final Offering Memorandum, and (B) a customary “bring-down” comfort letter, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives and their counsel, to the effect that PricewaterhouseCoopers LLP which includes, among other things, a reaffirmation of the statements made in its initial letter furnished pursuant to clause (A) with respect to such financial statements and financial information contained in the Time of Sale Document and the Final Offering Memorandum. |
(h) |
Executed Documents. Each of the Documents shall have been executed and delivered by all parties thereto (other than the Representatives), and the Representatives shall have received an original of each Document executed by the Company and the Guarantors. |
(i) |
Additional Documents . On or prior to the Closing Date, the Company and the Guarantors shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request. |
The terms of each Document shall conform in all material respects to the description thereof in the Time of Sale Document and the Final Offering Memorandum.
8. Indemnification and Contribution.
(a) |
Indemnification by the Company and the Guarantors. The Company and each of the Guarantors jointly and severally agree to indemnify and hold harmless the Initial Purchasers, its affiliates, directors, officers, employees and agents, and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities of any kind to which any Initial Purchaser, affiliate, director, officer, employee, agent or such controlling person may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: |
|
(i) |
any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, the Time of Sale Document, any Company Additional Written Communication or the Final Offering Memorandum, or any amendment or supplement thereto; or |
|
(ii) |
the omission or alleged omission to state, in the Preliminary Offering Memorandum, the Time of Sale Document, any Company Additional Written Communication or the Final Offering Memorandum, or any amendment or supplement thereto, a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; |
and, subject to the provisions hereof, will reimburse, as incurred, any Initial Purchaser and its affiliates, directors, officers, employees, agents and each such controlling persons for any legal or other reasonable expenses incurred by such person in connection with
23
investigating, defending against, settling, compromising, paying or appearing as a third-party witness in connection with any such loss, claim, damage, liability, expense or action in respect thereof; provided , however , the Company and the Guarantors will not be liable in any such case to the extent (but only to the extent) that a court of competent jurisdiction shall have determined by a final, unappealable judgment that such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Offering Memorandum, the Time of Sale Document, any Company Additional Written Communication or the Final Offering Memorandum or any amendment or supplement thereto in reliance upon and in conformity with written information concerning the Initial Purchaser furnished to the Company by any Initial Purchaser specifically for use therein, it being understood and agreed that the only such information furnished by any Initial Purchaser to the Company consists of the information set forth in Section 13. The indemnity agreement set forth in this Section shall be in addition to any liability that the Company and the Guarantors may otherwise have to the indemnified parties.
(b) |
Indemnification by the Initial Purchasers . The Initial Purchasers, severally and not jointly, agree to indemnify and hold harmless each of the Company, each of the Guarantors and their respective directors, officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, damages, liabilities or expenses to which the Company, such Guarantors or any such director, officer, employee, agent or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as a court of competent jurisdiction shall have determined by a final, unappealable judgment that such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Preliminary Offering Memorandum, the Time of Sale Document or the Final Offering Memorandum or any amendment or supplement thereto or (ii) the omission or the alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case to the extent (but only to the extent) that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company by the Representatives specifically for use therein as set forth in Section 13; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other reasonable expenses incurred by the Company, each of the Guarantors or any such director, officer or controlling person in connection with any such loss, claim, damage, liability, expense or action in respect thereof. The indemnity agreement set forth in this Section shall be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. |
24
indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve such indemnifying party from any liability under Section 8(a) or (b) above unless and only to the extent it is materially prejudiced as a result thereof and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in Section 8(a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may elect , jointly with any other indemnifying party similarly notified by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided , however , that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party, and the indemnified party shall have concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties at the expense of the indemnifying party. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the fees and expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Representatives in the case of Section 8(a) or the Company in the case of Section 8(b), representing the indemnified parties under such Section 8(a) or (b), as the case may be, who are parties to such action or actions), (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party or (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party and shall be paid as they are incurred . After such notice from the indemnifying party to such indemnified party, the |
25
indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnifying party waived in writing its rights under this Section, in which case the indemnified party may effect such a settlement without such consent. |
(d) |
Settlements . No indemnifying party shall be liable under this Section for any settlement of any claim or action (or threatened claim or action) effected without its written consent, which shall not be unreasonably withheld, but if a claim or action settled with its written consent, or if there be a final judgment for the plaintiff with respect to any such claim or action, each indemnifying party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each indemnified party from and against any and all losses, claims, damages or liabilities (and legal and other expenses as set forth above) incurred by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement or compromise of any pending or threatened proceeding in respect of which the indemnified party is or could have been a party, or indemnity could have been sought hereunder by the indemnified party, unless such settlement (A) includes an unconditional written release of the indemnified party, in form and substance satisfactory to the indemnified party, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of the indemnified party. Notwithstanding the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for legal or other expenses as contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall be liable for any settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim effected without its written consent if (i) such settlement is entered into more than 90 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement or compromise of, or consent to the entry of such judgment. |
26
hand, and the Initial Purchasers, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the Offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Initial Purchasers pursuant to Section 8(b) above, on the other hand, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omissions, and any other equitable considerations appropriate in the circumstances. |
(f) |
Equitable Consideration. The Company, the Guarantors and the Initial Purchasers agree that it would not be equitable if the amount of such contribution determined pursuant to Section 8(e) were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in Section 8(e). Notwithstanding any other provision of this Section, the Initial Purchasers shall not be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each Initial Purchaser’s obligation to contribute hereunder shall be several in proportion to their respective purchase obligations hereunder and not joint. For purposes of Section 8(e), each director, officer, employee and affiliate of any Initial Purchaser, and each person, if any, who controls the Initial Purchasers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall have the same rights to contribution as any Initial Purchaser, and each director, officer, and employee of the Company and the Guarantors, and each person, if any, who controls the Company or any of the Guarantors within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company and the Guarantors. |
9. Termination . The Representatives may terminate this Agreement (i) at any time prior to the Closing Date by written notice to the Company if any of the events described in Section 7(d) (No Material Adverse Change) shall have occurred or if the Initial Purchasers shall decline to purchase the Securities for any reason permitted by this Agreement or (ii) on the Closing Date if any condition described in Section 7 is not fulfilled or waived in writing by the Initial Purchasers on or prior to the Closing Date. Any termination pursuant to this Section shall be without liability on the part of (a) the Company or the Guarantors to the Initial Purchasers hereunder, except that the Company and the Guarantors shall be obligated to reimburse the Initial Purchasers for out-of-pocket expenses (including fees and expenses of their legal counsel) incurred by the Initial Purchasers and their designated affiliates in connection with their services provided hereunder or (b) the Initial Purchasers to the Company or the Guarantors, except, in the case of each of clauses (a) and (b), that the provisions of Sections 9 and 10 hereof shall at all times be effective and shall survive such termination.
27
10. Survival . The representations and warranties, covenants (other than such covenants to be performed on the Closing Date, which shall not survive the Closing Date), indemnities and contribution and expense reimbursement provisions and other agreements of the Company and the Guarantors set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers, (ii) the acceptance of the Securities, and payment for them hereunder, and (iii) any termination of this Agreement.
11. Defaulting Initial Purchaser . If, on the Closing Date, any one of the Initial Purchasers shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Initial Purchaser agreed but failed or refused to purchase is not more than one tenth of the aggregate principal amount of Securities to be purchased on such date, the other Initial Purchasers shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all such non defaulting Initial Purchasers to purchase the Securities which such defaulting Initial Purchaser agreed but failed or refused to purchase on such date. If, on the Closing Date any Initial Purchaser shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of Securities with respect to which such default occurs is more than one tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to the non-defaulting Initial Purchasers and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers or of the Company or any Guarantor. Any action taken under this Section shall not relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement.
12. No Fiduciary Relationship. The Company and the Guarantors hereby acknowledge that each Initial Purchaser is acting solely as initial purchaser in connection with the purchase and sale of the Securities. The Company and the Guarantors further acknowledge that each Initial Purchaser is acting pursuant to a contractual relationship created solely by this Agreement entered into on an arm’s length basis, and in no event do the parties intend that the Initial Purchasers act or be responsible as a fiduciary to either the Company, the Guarantors or their respective management, stockholders or creditors or any other person in connection with any activity that the Initial Purchasers may undertake or have undertaken in furtherance of the purchase and sale of the Securities, either before or after the date hereof. The Initial Purchasers hereby expressly disclaim any fiduciary or similar obligations to either the Company or the Guarantors, either in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions, and the Company and the Guarantors hereby confirm their understanding and agreement to that effect. The Company, the Guarantors and the Initial Purchasers agree that they are each responsible for making their own independent judgments with respect to any such transactions and that any opinions or views expressed by the Initial Purchasers to the Company and the Guarantors regarding such transactions, including, but not limited to, any opinions or views with respect to the price or market for the Securities, do not constitute advice or recommendations to the Company and the Guarantors. The Company and the Guarantors hereby waive and release, to the fullest extent permitted by law, any claims that
28
either of the Company or the Guarantors may have against the Initial Purchasers with respect to any breach or alleged breach of any fiduciary or similar duty to the Company or the Guarantors in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions.
13. Information Supplied by Representatives. Each of the Company and the Guarantors hereby acknowledges that, for purposes of Section 4(b) and Section 8, the only information that the Representatives have furnished to the Company specifically for use in the Preliminary Offering Memorandum or the Final Offering Memorandum are the statements set forth in (a) the first sentence of the fourth paragraph, (b) the first and second sentences of the fifth paragraph, (c) the fifth sentence of the seventh paragraph, (d) the ninth paragraph, and (e) the first sentence of the eleventh paragraph, and (f) the thirteenth paragraph, under the caption “Plan of Distribution” in the Preliminary Offering Memorandum and the Final Offering Memorandum.
14. Miscellaneous.
(a) |
Notices . Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to: Enova International, Inc., 175 W. Jackson Blvd., Suite 1000, Chicago, Illinois 60604, Attention: General Counsel, with a copy to: Kirkland & Ellis LLP, 300 N. LaSalle Street, Chicago, IL 60654, Attention: Wayne Williams, and (ii) if to the Initial Purchasers, to: Credit Suisse, Eleven Madison Avenue, New York, NY 10010, Attention: General Counsel, and Jefferies LLC, 520 Madison Avenue, New York, NY 10022, Attention: General Counsel, with a copy to: Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, NY 10017, Attention: John Meade (or in any case to such other address as the person to be notified may have requested in writing). |
(b) |
Beneficiaries. This Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantors, the Initial Purchasers and to the extent provided in Section 8 hereof, the controlling persons, affiliates, officers, directors, partners, employees, representatives and agents referred to in Section 8 hereof and their respective heirs, executors, administrators, successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term “successors and assigns” shall not include a purchaser of any of the Securities from the Initial Purchasers merely because of such purchase. |
29
litigation brought in any such court referred to above and any claim that any such litigation has been brought in an inconvenient forum. |
(d) |
Entire Agreement; Counterparts . This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. |
(e) |
Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. |
(f) |
Separability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. |
(g) |
Amendment . This Agreement may be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may be given, provided that the same are in writing and signed by all of the signatories hereto. |
(h) |
USA Patriot Act. The parties acknowledge that in accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2011)), the Initial Purchasers are required to obtain, verify and record information that identifies its clients, including the Company, which information may include the name and address of its clients, as well as other information that will allow the Initial Purchasers to properly identify their clients. |
[ Signature Pages Follow ]
30
Please confirm that the foregoing correctly sets forth the agreement between the Company, the Guarantors and the Initial Purchasers.
|
Very truly yours,
|
GUARANTORS: |
CNU ONLINE HOLDINGS, LLC OHIO CONSUMER FINANCIAL SOLUTIONS, LLC CASHNETUSA CO, LLC CASHNETUSA OR, LLC THE CHECK GIANT NM, LLC BILLERS ACCEPTANCE GROUP, LLC NC FINANCIAL SOLUTIONS, LLC NETCREDIT FINANCE, LLC CNU DOLLARSDIRECT INC. CNU DOLLARSDIRECT LENDING INC. DEBIT PLUS, LLC DP LABOR HOLDINGS, LLC ENOVA BUSINESS, LLC ENOVA DECISIONS, LLC ENOVA FINANCE 2, LLC ENOVA FINANCE 3, LLC ENOVA FINANCE 4, LLC ENOVA FINANCIAL HOLDINGS, LLC ENOVA ONLINE SERVICES, INC. ENOVACO, LLC HEADWAY CAPITAL, LLC MOBILE LEASING GROUP, INC. NETCREDIT LOAN SERVICES, LLC CASHEURONET UK, LLC
By:
/s/ David Fisher
AEL NET MARKETING, LLC AEL NET OF MISSOURI, LLC CASHNETUSA OF FLORIDA, LLC |
[Signature Page to the Purchase Agreement]
|
CNU OF ALASKA, LLC CNU OF ARIZONA, LLC CNU OF CALIFORNIA, LLC CNU OF COLORADO, LLC CNU OF DELAWARE, LLC CNU OF FLORIDA, LLC CNU OF HAWAII, LLC CNU OF ILLINOIS, LLC CNU OF INDIANA, LLC CNU OF IOWA, LLC CNU OF LOUISIANA, LLC CNU OF MAINE, LLC CNU OF MICHIGAN, LLC CNU OF MINNESOTA, LLC CNU OF MISSISSIPPI, LLC CNU OF MISSOURI, LLC CNU OF MONTANA, LLC CNU OF NEVADA, LLC CNU OF NEW HAMPSHIRE, LLC
By:CNU Online Holdings, LLC Its:Member
By:
/s/ David Fisher
|
[Signature Page to the Purchase Agreement]
|
CNU OF NEW MEXICO, LLC CNU OF NORTH DAKOTA, LLC CNU OF OHIO, LLC CNU OF OKLAHOMA, LLC CNU OF OREGON, LLC CNU OF RHODE ISLAND, LLC CNU OF SOUTH CAROLINA, LLC CNU OF TENNESSEE, LLC CNU OF TEXAS, LLC CNU OF VIRGINIA, LLC CNU OF WASHINGTON, LLC CNU OF WISCONSIN, LLC CNU OF WYOMING, LLC CNU TECHNOLOGIES OF IOWA, LLC DOLLARSDIRECT, LLC ENOVA BRAZIL, LLC ENOVA INTERNATIONAL GEC, LLC EURONETCASH, LLC THE BUSINESS BACKER, LLC
By:CNU Online Holdings, LLC Its:Member
By:
/s/ David Fisher
|
[Signature Page to the Purchase Agreement]
|
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC NC FINANCIAL SOLUTIONS OF ARIZONA, LLC NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC NC FINANCIAL SOLUTIONS OF DELAWARE, LLC NC FINANCIAL SOLUTIONS OF GEORGIA, LLC NC FINANCIAL SOLUTIONS OF IDAHO, LLC NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC NC FINANCIAL SOLUTIONS OF INDIANA, LLC NC FINANCIAL SOLUTIONS OF KANSAS, LLC NC FINANCIAL SOLUTIONS OF LOUISIANA, LLC NC FINANCIAL SOLUTIONS OF MARYLAND, LLC NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC NC FINANCIAL SOLUTIONS OF MISSOURI, LLC NC FINANCIAL SOLUTIONS OF MONTANA, LLC NC FINANCIAL SOLUTIONS OF NEVADA, LLC NC FINANCIAL SOLUTIONS OF NEW HAMPSHIRE, LLC NC FINANCIAL SOLUTIONS OF NEW JERSEY, LLC NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC NC FINANCIAL SOLUTIONS OF OHIO, LLC NC FINANCIAL SOLUTIONS OF OREGON, LLC NC FINANCIAL SOLUTIONS OF RHODE ISLAND, LLC NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC NC FINANCIAL SOLUTIONS OF TEXAS, LLC NC FINANCIAL SOLUTIONS OF UTAH, LLC NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC CREDITME, LLC
By:NC Financial Solutions, LLC Its:Member
By:
/s/ David Fisher
|
[Signature Page to the Purchase Agreement]
|
DEBIT PLUS TECHNOLOGIES, LLC DEBIT PLUS SERVICES, LLC DEBIT PLUS PAYMENT SOLUTIONS, LLC
By:Debit Plus, LLC Its:Member
By:
/s/ David Fisher
CASHNET CSO OF MARYLAND, LLC CNU OF ALABAMA, LLC CNU OF IDAHO, LLC CNU OF KANSAS, LLC CNU OF SOUTH DAKOTA, LLC CNU OF UTAH, LLC TENNESSEE CNU, LLC
By:Headway Capital, LLC Its:Member
By:
/s/ David Fisher
|
[Signature Page to the Purchase Agreement]
Credit Suisse Securities (USA) LLC
By:
/s/ Ali R. Mehdi
Name: Ali R. Mehdi
Title: Managing Director
[Signature Page to the Purchase Agreement]
JEFFERIES LLC
By:
/s/ Brenton Greer
Name: Brenton Greer
Title: Managing Director
[Signature Page to the Purchase Agreement]
INITIAL PURCHASERS
Initial Purchasers |
Principal Amount |
|
Credit Suisse Securities (USA) LLC |
$243,770,000 |
|
Jefferies LLC |
$110,916,000 |
|
JMP Securities LLC |
$12,188,000 |
|
William Blair & Company, L.L.C. |
$8,126,000 |
|
Total |
$375,000,000 |
PRICING SUPPLEMENT
[To come]
LIST OF SUBSIDIARIES
Entity Name |
Jurisdiction of Formation |
Enova Online Services, Inc. |
Delaware |
CNU Online Holdings, LLC |
Delaware |
CashEuroNet UK, LLC |
Delaware |
CNU of California, LLC |
Delaware |
CNU of Missouri, LLC |
Delaware |
CNU of Nevada, LLC |
Delaware |
CNU of South Carolina, LLC |
Delaware |
CNU of Texas, LLC |
Delaware |
CNU of Wisconsin, LLC |
Delaware |
Enova Finance 5, LLC |
Delaware |
EFR 2016-1 |
Delaware |
Headway Capital, LLC |
Delaware |
CashNet CSO of Maryland, LLC |
Delaware |
CNU of Alabama, LLC |
Delaware |
CNU of Kansas, LLC |
Delaware |
Tennessee CNU, LLC |
Delaware |
NC Financial Solutions, LLC |
Delaware |
NC Financial Solutions of California, LLC |
Delaware |
NC Financial Solutions of Virginia, LLC |
Utah |
Ohio Consumer Financial Solutions, LLC |
Delaware |
LOCAL COUNSEL
Parr Brown Gee & Loveless
FORM OF CERTIFICATE OF THE
PRINCIPAL ACCOUNTING OFFICER
[•], 2018
This certificate is being delivered in connection with the Purchase Agreement dated as of the date hereof, among Enova International, Inc., a Delaware corporation (the “ Company ”), each of the Guarantors named therein and the several initial purchasers (collectively, the “ Initial Purchasers ”) named therein (the “ Purchase Agreement ”).
Pursuant to Section 7((g)(iv)) of the Purchase Agreement, I, Steven E. Cunningham, Chief Financial Officer, Executive Vice President, Principal Accounting Officer and Treasurer of the Company, have been asked to deliver this certificate to the Initial Purchasers and, based on my examination of the Company’s financial and accounting records and schedules undertaken by myself and members of my staff who are responsible for the Company’s financial and accounting matters and my participation in the financial and accounting affairs of the Company, I hereby certify to my knowledge and on behalf of the Company (and not in my individual capacity) that:
|
1. |
I or members of my staff who are responsible for the Company’s financial and accounting matters have carried out procedures designed to provide reasonable assurance as to the accuracy of the circled information contained in Exhibit A hereto from the [Preliminary][Final] Offering Memorandum dated [•], 2018 for the Company’s Senior Notes due 2025 (the “[Preliminary][Final] Offering Memorandum”). |
|
2. |
I have supervised the preparation of the numbers identified on the pages attached hereto as Exhibit A included in the [Preliminary][Final] Offering Memorandum and hereby confirm that such amounts were derived from the accounting records of the Company and its subsidiaries, and that such information is accurate and correct in all material respects and there is no reason to believe any modification should be made to such information. |
This certificate is to assist the Initial Purchasers in conducting and documenting their investigation of the affairs of the Company in connection with the offering of the securities pursuant to the Purchase Agreement. This certificate may be relied upon by the Initial Purchasers for this purpose. Without the written consent of the Company: (i) no person other than the Initial Purchasers may rely on this certificate for any purpose; (ii) this certificate may not be cited or quoted in any financial statement, prospectus, private placement memorandum or other similar document; (iii) this certificate may not be cited or quoted in any other document or communication which might encourage reliance upon this certificate by any person for any purpose excluded by the restrictions in this paragraph; and (iv) copies of this certificate may not be furnished to anyone for purposes of encouraging such reliance.
[ signature page follows ]
F-1
IN WITNESS WHEREOF, I have hereunto signed my name on this certificate as of the date first written above.
By:
|
|
Name:Steven E. Cunningham Title:Chief Financial Officer, Executive Vice President, Principal Accounting Officer and Treasurer |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Fisher, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Enova International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 31, 2018
/s/ David A. Fisher |
David A. Fisher |
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven E. Cunningham, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Enova International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 31, 2018
/s/ Steven E. Cunningham |
Steven E. Cunningham |
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Enova International, Inc. (the “Company”) for the quarterly period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Fisher, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Enova International, Inc. and will be retained by Enova International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ David A. Fisher |
David A. Fisher |
Chief Executive Officer |
Date: October 31, 2018
The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Enova International, Inc. (the “Company”) for the quarterly period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven E. Cunningham, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Enova International, Inc. and will be retained by Enova International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ Steven E. Cunningham |
Steven E. Cunningham |
Chief Financial Officer |
Date: October 31, 2018
The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.