Loan Facilities

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

Loan Facilities

Loan Facilities

In April 2019, the Company refinanced borrowings made under its 2017 recapitalization plan with borrowings of $375.0 million from a new five-year secured term loan facility (“Term Loan Facility”) which matures on April 12, 2024. Borrowings under the Term Loan Facility bore interest at either U.S. Prime plus 2.25% or LIBOR plus 3.25% at our option and had weighted average interest rates of 8.1% and 3.7% for the six months ended June 30, 2023 and 2022, respectively.

Effective June 30, 2023, the Company amended its credit agreement to replace the reference rate for LIBOR with the Secured Overnight Financing Rate (“SOFR”). The interest rate for borrowings made subsequent to June 30, 2023 will bear interest at either U.S. Prime plus 2.25% or SOFR plus a Term SOFR Adjustment plus 3.25%. The Term SOFR adjustment is the recommended adjustment spread by the Alternative Reference Rate Committee (“AARC”) and is meant to approximate the economics of the movement of a LIBOR-based rate to a SOFR-based rate.

The Term Loan Facility requires quarterly principal amortization payments of $4.7 million (or $18.8 million annually), from September 30, 2019 through March 31, 2024. As of June 30, 2023, the Company has repaid in advance all required quarterly amortization payments of the Term Loan Facility and no further amortization payments are due prior to maturity. In addition to required amortization payments, the Company may be required to make annual repayments of principal on the Term Loan Facility within ninety days of year-end of up to 50% of its annual excess cash flow as defined in the credit agreement based on a calculation of net leverage. In March 2023, the Company made a required excess cash payment of $1.8 million related to 2022. The Term Loan Facility also permits voluntary principal payments to be made in advance without penalty.

The Term Loan Facility is guaranteed by the Company’s existing and subsequently acquired or organized wholly-owned U.S. restricted subsidiaries (excluding any registered broker-dealers) and secured with a first priority perfected security interest in certain domestic assets and 100% of the capital stock of each U.S. subsidiary and 65% of the capital stock of each non-U.S. subsidiary, subject to certain exclusions. The credit facility contains certain covenants that limit the Company’s ability above certain permitted amounts to incur additional indebtedness, make certain acquisitions, pay dividends and repurchase shares. The Term Loan Facility does not have financial covenants but is subject to certain other non-financial covenants. At June 30, 2023, the Company was compliant with all loan covenants.

As of June 30, 2023, the Term Loan Facility had a principal balance of $270.1 million and its carrying value was $268.7 million. Deferred financing costs of $9.0 million are being amortized into interest expense over the remaining life of the obligation and recorded as a reduction in the carrying value of the Term Loan Facility in the condensed consolidated statement of financial condition. The Company incurred incremental interest expense of $0.4 million related to the amortization of deferred financing costs for each of the three months ended June 30, 2023 and 2022, and incremental interest expense of $0.9 million related to the amortization of such costs for each of the six months ended June 30, 2023 and 2022. At June 30, 2023, the fair value of the Term Loan Facility was approximately 99.8% of its outstanding principal balance. Since the borrowing is not accounted for at fair value, the fair value is not included in the Company’s fair value hierarchy in “Note 4 - Fair Value of Financial Instruments,” however, had the borrowing been included, it would have been classified in Level 2.

Under the terms of the Merger Agreement, Mizuho Americas has agreed to (i) refinance the Term Loan Facility if the Merger has not closed by March 12, 2024 on the terms specified in the Merger Agreement, and (ii) if at the time of closing of the Merger, the Company’s credit agreement is outstanding and the Term Loan Facility has not been refinanced by Mizuho Americas, to repay in full all obligations of the Term Loan Facility on the terms specified in the Merger Agreement.