Credit Facility

12 Months Ended

Mar. 31, 2024

Line of Credit Facility [Abstract]

Credit Facility

5. Credit Facility

Westlake Credit Facility

On January 18, 2023, NFI and NDS (collectively, the “Borrowers”), two wholly-owned subsidiaries of Nicholas Financial Parent, entered into a Loan and Security Agreement (the "Loan Agreement") for a new senior secured revolving credit facility (the “Credit Facility”) with Westlake Capital Finance, LLC (the “Lender”), who is an affiliate of Westlake, the servicer of substantially all of the Company's receivables, pursuant to which the Lender is providing the Borrowers with a senior secured revolving credit facility in the principal amount of up to $50 million. The Company fully paid the outstanding indebtedness under the Credit Facility as of October 27, 2023.

The availability of funds under the Credit Facility was generally limited to an advance rate of between 70% and 85% of the value of the Borrowers’ eligible receivables. Outstanding advances under the Credit Facility accrued interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. Unused availability under the Credit Facility accrued interest at a rate of 0.25%. The commitment period for advances under the Credit Facility was two years. We refer to the expiration of that time period as the “Maturity Date.”

The Loan Agreement contained customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The Loan Agreement also required the Borrowers to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of less than 8.0%. Pursuant to the Loan Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. If an event of default occurred, the Lender could have increased borrowing costs, restricted the Borrowers’ ability to obtain additional advances under the Credit Facility, accelerated all amounts outstanding under the Credit Facility, enforced their interest against collateral pledged under the Loan Agreement or enforced such other rights and remedies as they had under the loan documents or applicable law as secured lenders.

If the Borrowers prepaid the loan and terminated the Credit Facility prior to the Maturity Date, then the Borrowers would have been obligated to pay the Lender a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the 90-day period immediately preceding such termination. If the Borrowers were to sell their accounts receivable to a third-party prior to the Maturity Date, then the Borrowers would have been obligated to pay the Lender a fee in an amount equal to a specified percentage of the proceeds of such sale.

On January 26, 2024 the Company terminated the Credit Facility. The Company did not incur any termination fees or penalties in connection with the termination of the Credit Facility.

Wells Fargo Credit Facility

On November 5, 2021, NFI and NDS entered into a senior secured credit facility (the “Wells Fargo Credit Facility”) 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 credit facility (the "Ares Credit Facility") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Wells Fargo Credit Facility. As a result, the Company recognized an acceleration of unamortized debt issuance costs (non-cash interest expense) related to the extinguishment of the Ares Credit Facility in the amount of $1.9 million as interest expense for the year ended March 31, 2022.

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 Wells Fargo Credit Facility was generally limited to an advance rate of between 80% and 85% of the value of eligible receivables, and outstanding advances under the Wells Fargo Credit Facility accrued interest at a rate equal to the SOFR plus 2.25%. The commitment period for advances under the Wells Fargo Credit Facility was three years.

Pursuant to the Credit Agreement, the Borrowers granted a security interest in substantially all of the Company's assets as collateral for their obligations under the Wells Fargo Credit Facility. 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 contained 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 occurred, the lenders could have increased borrowing costs, restricted the Borrowers’ ability to obtain additional advances under the Wells Fargo Credit Facility, accelerated all amounts outstanding under the Wells Fargo Credit Facility, enforced their interest against collateral pledged under the Wells Fargo Credit Facility or enforced such other rights and remedies as they had under the loan documents or applicable law as secured lenders.

As previously announced on Form 8-K filed on October 27, 2022, the Company received a letter from the agent of its lenders, notifying the Company that it was in default and instituting the default rate of interest effective as of August 31, 2022. In the letter, the lenders expressly reserved all rights and remedies available under the credit agreement. Among those rights and remedies was the ability of the lenders to accelerate all of the Company’s obligations under the loan. The Company subsequently announced on Form 8-K filed on December 12, 2022 that it entered into an amendment to the Wells Fargo Credit Agreement. Pursuant to the amendment, the lenders waived the event of default and the default rate of interest ceased being applicable as of December 6, 2022.

The amendment furthermore reduced the maximum amount available under the Wells Fargo Credit Facility from $175 million to $60 million, and also reduced the availability of funds under the credit facility from an advance rate of between 80% and 85% of the value of eligible receivables to an advance rate of 50% of the value of eligible receivables, and changed the maturity date of the Wells Fargo Credit Facility from November 5, 2024 to May 31, 2023. The Company incurred overall costs associated with the restructuring in the amount of $0.3 million.

As of March 31, 2024, the Company had no aggregate outstanding indebtedness under the Wells Fargo Credit Facility compared to $29.1 million outstanding amount as of March 31, 2023.