Following an extensive review of a range of alternatives led by its board of directors, Oportun, a financial services company, has entered into a credit agreement to refinance its existing corporate financing facility with a new $235 million senior secured term loan. The refinancing will improve Oportun’s operational and balance sheet flexibility with covenants that reflect the performance improvements made by the company to date, including the agreement to sell the company’s credit card portfolio, and reward accretive actions and cash flow generation. The term loan will be provided by two firms, funds managed by Castlelake, a global alternative investment manager specializing in asset-based private credit that led the refinancing, and funds managed by Neuberger Berman, a private employee-owned investment manager. The term loan will carry a 15% fixed rate and mature in November 2028.
“After a thorough and competitive process, where multiple strategic options were considered, the board of directors determined that this transaction, which was the least dilutive financing option available, would best position Oportun for the future by further strengthening the company’s balance sheet and liquidity as well as enhancing the ability for Oportun to generate consistent cash flow and deliver increased stockholder value,” Neil Williams, lead independent director of Oportun’s board of directors, said.
“With this refinancing and the operational and balance sheet flexibility the term loan will provide, we’re even better positioned to build on our progress,” Raul Vazquez, CEO of Oportun, said. “We expect to build on that momentum in 2025 through improving credit performance, identifying high-quality originations, and further enhancing our GAAP and adjusted profitability on a per-share basis.”
“As we continue our longstanding relationship with Oportun, this refinancing illustrates the confidence we have in the company’s ability to execute its long-term strategy, underpinned by focusing on its core products while identifying high-quality loan originations” John Lundquist, partner at Castlelake, said.
“We’re pleased to remain a capital partner to Oportun alongside Castlelake, and the revised structure provides the company with the funding and flexibility to responsibly grow the business and service the needs of its customers,” Peter Sterling, head of specialty finance at Neuberger Berman, said. “This transaction reflects the confidence we have in the quality of Oportun’s underwriting and the sustainability of its business model.”
In connection with providing the term loan, the lenders will receive warrants, at an exercise price of $0.01 per share, equal to 9.8% of the fully-diluted shares outstanding of the company, excluding out-of-the-money options, on a pro-forma basis for the warrants, which as of Sept. 30, 2024 was equal to 4,860,706 warrants, and the lenders are entitled to board observer rights. Even given the dilutionary impact from the newly issued warrants, the company believes it will be able to drive increased profitability on a per share basis through focus on its core products, improving credit performance and maintaining cost discipline.
The new term loan provides a lower interest rate than the existing senior secured term loan being refinanced and Oportun is committed to paying off at least $40 million of the principal by Feb. 1, 2026, with the flexibility to make additional pre-payments of $10 million at any time without penalty, and an additional $10 million without penalty after the one-year anniversary of closing. Management expects the term loan to close during the week of November 11, 2024, following and subject to customary closing conditions, as well as the closing of the credit card portfolio sale transaction, which was previously announced on September 25, 2024.
“We are pleased with our expected quarterly results and are looking forward to an even better 2025,” Jonathan Coblentz, CFO of Oportun, said. “As these results and our future expectations demonstrate, we continue to make significant progress towards driving sustainable, profitable earnings growth, and shareholder value.”
Evercore acted as financial advisor and Orrick, Herrington & Sutcliffe and Wilson Sonsini Goodrich & Rosati served as legal advisors to the company on the transaction.
