Credit Facility

6 Months Ended

Sep. 30, 2022

Line of Credit Facility [Abstract]

Credit Facility

5. Credit Facility

Wells Fargo Line of Credit

On November 5, 2021, NFI and Nicholas Data Services, Inc., a Florida corporation (“NDS” and collectively with NFI, the “Borrowers”), two wholly-owned subsidiaries of Nicholas Financial, Inc. (the “Company”) entered into a senior secured line of credit (the “Line of Credit”) pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the “Credit Agreement”). The prior line of credit (the "Ares Line of Credit") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, LLC, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Line of Credit.

Pursuant to the Credit Agreement, the lenders agreed to extend to the Borrowers a line of credit of up to $175 million. The availability of funds under the Line of Credit is generally limited to an advance rate of between 80% and 85% of the value of eligible receivables, and outstanding advances under the Line of Credit will accrue interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 2.25%. The commitment period for advances under the Line of Credit is three years (the expiration of that time period, the “Maturity Date”).

Pursuant to the Credit Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Line of Credit. Furthermore, pursuant to a separate collateral pledge agreement, NDS pledged its equity interest in NFI as additional collateral.

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 Borrowers’ ability to obtain additional advances under the Line of Credit, accelerate all amounts outstanding under the Line of Credit, enforce their interest against collateral pledged under the Line of Credit or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

If the lenders terminate the Line of Credit following the occurrence of an event of default under the loan documents, or the Borrowers prepay the loan and terminate the Line of Credit prior to the Maturity Date, then the Borrowers are obligated to pay a termination or prepayment fee in an amount equal to a percentage of $175 million calculated as 2% if the termination or prepayment occurs during year one, 1% if the termination or repayment occurs during year two, and 0.5% if the termination or prepayment occurs thereafter.

As of September 30, 2022, the Company had aggregate outstanding indebtedness under the Line of Credit of $59.5 million, compared to $55.0 million as of March 31, 2022.

Future maturities of debt as of September 30, 2022 were as follows:

(in thousands)
FY2023	$	—
FY2024		—
FY2025		59,500
FY2026		—
	$	59,500

On October 20, 2022, the Company received a letter from the agent of its lenders, notifying the Company that it is instituting the default rate of interest effective as of August 31, 2022 in connection with an event of default that occurred from failure to comply with the EBITDA Ratio covenant, as defined, for the calendar month ending August 31, 2022. The agreement requires an EBITDA

Ratio of not less than 1.50 to 1.0 as of the end of each calendar month. The Company’s EBITDA Ratio declined to 0.33 for the calendar month ending August 31, 2022 and to -0.70 for the calendar month ending September 30, 2022.

In the letter, the lenders expressly reserve all rights and remedies available under agreement. Among those rights and remedies is the ability of the lenders to accelerate all of the Company’s obligations under the loan. The effect of the imposition of the default rate of interest resulted in an additional $130 thousand in interest for the quarter ended September 30, 2022.

The Company is working with the lender to waive the violations and restructure the facility to remove the default status and application of the default rate going forward. The Company is also negotiating a refinancing opportunity with an alternative source.

Note 6. Going Concern Assessment

If the lenders were to accelerate the Company’s obligations under the loan agreement, the Company would be unable to immediately meet the obligations and others without undertaking other financing or a capital raise. The lenders' right to accelerate the debt and the Company's ability to find alternative financing on economically favorable terms or at all, depends in part on factors that are beyond the Company’s control and required consideration in management’s going concern assessment for the interim reporting period. Management evaluated the significance of the lenders' right to accelerate the debt, including the likelihood of acceleration based on current discussions and the management’s understanding of the lenders' intentions to restructure the facility. While the EBITDA Ratio was not met, the Debt to Adjusted Tangible Net Worth Ratio has been maintained at a level of approximately 0.6 to one, which is significantly lower than the maximum of 3 to one permitted by the loan agreement. The Company’s tangible net worth reduces credit risk to lenders and supports management’s belief that the Company will continue having access to the lenders' credit. Importantly, based on current discussions, a restructuring of the agreement is expected to exclude the EBITDA Ratio requirement. The lenders are aware of the previously announced branch closures and reductions of workforce including the related charges. In addition, management has strong indications that another lender would be willing to provide ample financing, based on acceptable economic terms, to settle the obligation in the near term. Management’s assessment, which considers the lenders' understood intentions, is that it is probable the current loan agreement will be successfully restructured. Secondarily, based on current negotiations of terms with another lender, management assessed that the Company could obtain other financing in the near term.