Secured Debt Facilities

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Secured Debt Facilities

Secured Debt Facilities

On August 31, 2023, the Company entered into a secured promissory note (“Promissory Note”) with Mizuho Bank Ltd., a Japanese banking corporation (“Mizuho Bank”), and used the proceeds to repay in full the outstanding principal balance and accrued interest payable under the Company’s term loan facility (“Term Loan Facility”), which was entered into in October 2017 pursuant to the credit agreement, dated October 12, 2017, by and among the Company, the lenders party thereto and Goldman Sachs USA, as administrative agent (as amended on April 12, 2019 and June 30, 2023, the “Credit Agreement”). Prior to repayment in full, the Term Loan Facility had an outstanding principal balance of approximately $270.1 million. Mizuho Bank is an affiliate of Mizuho Americas, which entered into the Merger Agreement with the Company. See Note 1 – Organization – Merger Agreement.

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 required quarterly principal amortization payments of $4.7 million (or $18.8 million annually), from September 30, 2019 through March 31, 2024. As of August 31, 2023, the Company had repaid in advance all required quarterly amortization payments of the Term Loan Facility and no further amortization payments were due until maturity in April 2024. In addition to required amortization payments, the Company was 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 permitted voluntary principal payments to be made in advance without penalty.

Deferred financing costs of $9.0 million related to the Term Loan Facility were 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 $0.3 million and $0.4 million related to the amortization of deferred financing costs for the three months ended September 30, 2023 and 2022, respectively, and incremental interest expense of $1.2 million and $1.3 million related to the amortization of such costs for the nine months ended September 30, 2023 and 2022, respectively. In conjunction with the repayment of the Term Loan Facility in August 2023, the remaining unamortized deferred financing costs of $1.0 million were charged to interest expense. There were no financing costs incurred with borrowings made under the Promissory Note.

The Promissory Note has a maturity date of April 12, 2024, subject to extension for 60 days in certain limited circumstances. Borrowings under the Promissory Note bear interest at one-month SOFR plus a Term SOFR Adjustment plus 2.25% or at an Alternative Base Rate (as defined in the Promissory Note,) which is 100 basis points less than the interest charged under the Credit Agreement, or at an Alternative Base Rate (as defined in the Promissory Note) plus 1.25% in certain limited circumstances. Under the terms of the Promissory Note interest accrues monthly and is added to the principal balance. Proceeds from borrowings under the Promissory Note of $6.1 million were used to pay accrued interest due upon repayment of the Term Loan Facility. In addition, during the three months ended September 30, 2023, an additional $1.8 million of interest expense related to borrowing under the Promissory Note was accrued and added to the principal balance. As of September 30, 2023, the Promissory Note had a principal balance, inclusive of its paid in-kind interest, of $277.8 million.

The Promissory Note does not include the restrictive covenants found in the Credit Agreement; however, the Company continues to be subject to the interim operating covenants under the Merger Agreement. The Promissory Note may be repaid in whole or in part without penalty. The Promissory Note 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 by 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 owned by a guarantor, subject to certain exclusions. Under the terms of the Promissory Note, acceleration may only occur upon the occurrence of an event of default related to the bankruptcy or insolvency of the Company or certain of its subsidiaries or certain events relating to the validity or perfection of the liens securing the Promissory Note or the enforceability of the Promissory Note and the related documents.

Consistent with the terms of the Merger Agreement, if the closing of the Merger has not occurred by March 12, 2024, Mizuho Bank remains obligated to refinance the Promissory Note with a replacement loan on the terms specified in the Merger Agreement. The parties continue to expect the Merger to be completed by December 31, 2023, subject to obtaining the remaining required regulatory approval and satisfaction of other customary closing conditions.