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Item 1.01
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Entry into a Material Definitive Agreement.
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Asset-Backed Revolving Debt Facility
On August 8, 2018, OnDeck Asset Funding II LLC (“
ODAF II
”), a wholly-owned subsidiary of On Deck Capital, Inc. (the “
Company
”), established a new asset-backed revolving debt facility (the “
ODAF II Facility
”). On that date, ODAF II entered into that certain Credit Agreement (the “
Credit Agreement
”)
by and among ODAF II, as Borrower, the Lenders party thereto from time to time, Ares Agent Services, L.P., as Administrative Agent and Collateral Agent, and Wells Fargo Bank, N.A., as Paying Agent. The Company may now obtain funding (subject to customary borrowing conditions) through the ODAF II Facility to finance certain of the Company’s line of credit loans and term loans to its small business customers (collectively, the “
Loans
”).
The following table summarizes certain key aspects of the ODAF II Facility:
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Commitment Amount
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$175.0 million
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Interest Rate
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1 Month LIBOR + 3.0%
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Advance Rate
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87.5%
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Revolving Funding Period
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3 years
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Maturity Date
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August 8, 2022
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Under the ODAF II Facility, the Lenders party thereto make loans to ODAF II, the proceeds of which are used to finance ODAF II’s purchase of Loans from the Company in a transaction structured to be bankruptcy remote. The revolving pool of Loans purchased by ODAF II serves as collateral for the loans made to ODAF II under the ODAF II Facility.
Under the ODAF II Facility, ODAF II can voluntarily repay (subject to certain minimum utilization requirements) and re-borrow principal amounts up to the aggregate commitment amount and subject to satisfaction of certain borrowing conditions, including borrowing base requirements and other requirements which may include:
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Eligibility Criteria
. In order for the Loans to be eligible for purchase by ODAF II under the facility, they must meet all applicable eligibility criteria. Eligibility criteria include, among others, that the applicable Loan is denominated in U.S. dollars, that the customer under such Loan had a certain minimum
OnDeck Score
® at the time of underwriting, that such Loan was originated in accordance with the Company’s underwriting policies and that such Loan is a legal, valid and binding obligation of the obligor under such Loan.
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Concentration Limits
. ODAF II’s collateral pool is subject to certain concentration limits that restrict the collateral pool from being overly concentrated with certain Loans sharing common characteristics and that, if exceeded, may require ODAF II to add or maintain additional collateral. Concentration limitations include, among others, geography, industry, minimum weighted average credit scores, minimum weighted average
OnDeck Score
®, maximum weighted average remaining term, minimum time in business, maximum outstanding principal balance and maximum credit limit.
The Loans and other assets to be transferred by the Company to ODAF II in connection with the ODAF II Facility will be owned by ODAF II, will be pledged to secure the payment of the obligations incurred by ODAF II, will be assets of ODAF II and will not be available to satisfy any of the Company’s obligations. Lenders under the ODAF II Facility do not have direct recourse to the Company.
The Company’s ability to utilize the ODAF II Facility is subject to ODAF II’s compliance with various covenants and other requirements of the Credit Agreement. The failure to comply with such requirements may result in events of default, the accelerated repayment of amounts owed under the ODAF II Facility, often referred to as an early amortization event, an increase in the interest rate payable on the loans and/or the termination of the ODAF II Facility.
Such covenants and other requirements include:
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Financial Covenants
. Financial covenants include, among others, requirements with respect to minimum tangible net worth, maximum leverage ratio, minimum consolidated liquidity and minimum unrestricted cash.
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Portfolio Performance Covenants
. Portfolio performance covenants include, among others, requirements that the collateral pool not exceed a certain maximum three month average delinquency rate and maximum three month average annualized gross default ratio and that the three month average gross excess spread on the collateral pool not be less than a minimum level. Gross excess spread under the ODAF II Facility is generally calculated by determining the amount by which collections received by ODAF II during a
collection period (primarily interest and fees) exceed its fees and expenses during such collection period (including interest expense and servicing fees).
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Other Requirements
. Other requirements may include or relate to, among other things, change of control events, certain insolvency-related events, events constituting a servicer default, an inability to engage a replacement backup servicer following termination of the current backup servicer, acceleration of amounts owed under the Company’s corporate debt facility, the inability or failure of ODAF II to cure a borrowing base deficiency, failure to make required payments or deposits, ERISA-related events, events related to the entry of an order decreeing dissolution that remains undischarged, events related to the entry or filing of material judgments, attachments or certain tax liens that remain undischarged, and certain other events or occurrences that may include breaches of terms, representations, warranties or affirmative and restrictive covenants. Restrictive covenants, among other things, impose limitations or restrictions on ODAF II’s ability to pay dividends, redeem its stock or similar equity interests, make payments in order to retire or obtain the surrender of warrants, options or similar rights, or the ability of ODAF II to incur additional indebtedness, make investments, engage in transactions with affiliates, sell assets, consolidate or merge, make changes in the nature of its business and create liens.
Following an event of default or an early amortization event under the ODAF II Facility, collections on the collateral are applied to repay principal rather than being available on a revolving basis to fund the origination activities of the Company's business. So long as such events are continuing, ODAF II may not make additional borrowings under the ODAF II Facility.
The Company will act as servicer with respect to the small business loans held by ODAF II. The Company could be replaced by a designated backup servicer or another replacement servicer upon certain specified occurrences including, among others, the Company defaulting in its servicing obligations or its failure to meet certain financial or other covenants.
The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2018.