Nicholas Financial, a branch-based subprime automotive lender, entered into a senior secured credit facility pursuant to a loan and security agreement with Wells Fargo Bank as agent and the lenders that are party thereto. Nicolas Financial paid off its prior credit facility pursuant to a credit agreement with Ares Agent Services before entering into this new credit facility.
Pursuant to the credit agreement, the lenders agreed to extend to Nicholas Financial a line of credit of up to $175 million. The availability of funds under the credit facility is generally limited to an advance rate of between 80% and 85% of the value of eligible receivables, and outstanding advances under the credit facility will accrue interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 2.25%. The commitment period for advances under the credit facility is three years. Additionally, in the quarter ending Dec. 31, Nicholas Financial is planning to recognize approximately $1.9 million of expenses associated with the origination of its prior credit facility.
“We are very appreciative of the relationship we have developed with Ares and are grateful for their partnership throughout the NFI turnaround over the last three years,” Doug Marohn, president and CEO of Nicholas Financial, said. “We are equally excited to be partnering once again with Wells Fargo as the lead agent in this new facility. The economics and terms of this deal represent a significant turning point for Nicholas Financial and reinforce the great strides our great company has made since 2018. Under this credit facility, we have solidified our access to capital and certainty of execution at a cost of funds that reflects the quality of our portfolio and soundness of our business model.”
The credit agreement and the other loan documents contain customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments and sales of assets. If an event of default occurs, the lenders could increase borrowing costs, restrict the ability to obtain additional advances under the credit facility, accelerate all amounts outstanding under the credit facility, enforce their interest against collateral pledged under the credit facility or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.
In connection with the refinancing and as required under GAAP, Nicholas Financial expects to recognize a non-cash charge of approximately $1.9 million in the quarter ending Dec. 31, representing the unamortized portion of debt origination costs associated with its prior credit facility.