Regional Management Corp. Debt Disclosure

Note 9. Long-Term Debt

Following is a summary of the Company’s debt as of the periods indicated:

 

In thousands		2015				2014
Senior revolving credit facility		$	338,281			$	341,419
Amortizing loan			72,896				—
Total long-term debt		$	411,177			$	341,419
Unused amount of senior revolving credit facility, subject to borrowing base		$	199,719			$	158,581

On September 18, 2015, the Company amended and restated its senior revolving credit facility, increased availability under the facility from $500 million to $538 million, and extended the maturity of the facility from May 2016 to September 2018. The facility has an accordion provision that allows for the expansion of the facility to $600 million. Excluding the receivables held by the Company’s VIE, the senior revolving credit facility is secured by substantially all of the Company’s finance receivables and equity interests of the majority of its subsidiaries. Borrowings under the facility bear interest, payable monthly, at rates equal to LIBOR of a maturity the Company elects between one and six months, with a LIBOR floor of 1.00%, plus a 3.00% margin. The one-month LIBOR was 0.50% and 0.25% at December 31, 2015 and 2014, respectively. Alternatively, the Company may pay interest at prime rate plus a 2.00% margin. The prime rate was 3.50% and 3.25% at December 31, 2015 and 2014, respectively.

The Company also pays an unused line fee, payable monthly, of 0.50% per annum, which declines to 0.375% at certain usage levels. Advances on the facility are capped at 85% of eligible secured finance receivables plus 70% of eligible unsecured finance receivables. These rates are subject to adjustment at certain credit quality levels (83% secured and 68% unsecured as of December 31, 2015). As of December 31, 2015, the Company had $69.4 million of eligible capacity under the facility. The facility also contains restrictive covenants and monthly and annual reporting requirements to the banks. At December 31, 2015, the Company was in compliance with all debt covenants.

The Company had a $1.5 million line of credit, which was secured by a mortgage on the Company’s headquarters, with a commercial bank to facilitate its cash management program. The interest rate was prime plus 0.25% with a minimum of 5.00%, and interest was payable monthly. The line of credit matured on January 18, 2015 and was replaced by a $3.0 million overdraft provision.

In December 2015, the Company and its wholly-owned subsidiary, Regional Management Receivables, LLC (“RMR”), entered into a credit agreement providing for a $75.7 million amortizing asset-backed loan to RMR. RMR purchased $86.1 million in automobile finance receivables, net of a $2.6 million allowance for credit losses, from the Company’s affiliates using the proceeds of the loan and an equity investment from the Company. RMR deposited $3.7 million of the cash received into a restricted cash reserve account to satisfy provisions of the credit agreement. The reserve amount may be reduced by $2.0 million if the Company modifies certain aspects of its primary bank account. RMR pays interest of 3.00% per annum on the loan balance from the closing date until the date the loan balance has been fully repaid. The amortizing loan terminates in December 2022. The credit agreement allows RMR to prepay the loan when the outstanding balance falls below 20% of the original loan amount.

The amortizing loan is supported by the expected cash flows from the underlying collateralized finance receivables. Collections on these accounts are remitted to a restricted cash collection account, which totaled $3.9 million as of December 31, 2015. Cash inflows from the finance receivables are distributed to the lender and service providers in accordance with a monthly contractual priority of payments (“waterfall”) and, as such, the inflows are directed first to servicing fees. RMR pays a 4% servicing fee to the Company, which is eliminated in consolidation. Next, all cash inflows are directed to the interest, principal, and any adjustments to the reserve account of the amortizing loan and, thereafter, to the residual interest that the Company owns. Distributions from RMR to the Company are allowed under the credit agreement.

RMR is considered a VIE under GAAP and is consolidated into the financial statements of RMR’s primary beneficiary. The Company is considered to be the primary beneficiary of RMR because it has (i) power over the significant activities of RMR through its role as servicer of the finance receivables under the credit agreement and (ii) the obligation to absorb losses or the right to receive returns that could be significant through the Company’s interest in the monthly residual cash flows of RMR after the debt is paid. See Note 1 of these Notes to Consolidated Financial Statements for further information regarding VIE.

The carrying amount of VIE assets and liabilities are as follows:

 

In thousands		2015
Assets
Cash		$	376
Finance receivables			80,309
Allowance for credit losses			(2,588	)
Restricted cash			7,605
Repossessed assets at net realizable value			36
Other assets			1,670
Total assets		$	87,408
Liabilities
Long-term debt		$	72,896
Accounts payable and accrued expenses			50
Total liabilities		$	72,946

 

Following is a summary of principal payments required on outstanding debt during each of the next five years:

 

In thousands		Amount
2016		$	33,561
2017			20,092
2018			349,811
2019			7,713
2020			—
Total		$	411,177