FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

NOTE 12: FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

Revolving Credit Facilities

October 2019 Credit Facility

In October 2019, we entered into a $200 million committed and unsecured revolving line of credit with a syndicate of banks maturing in October 2023 (the “October 2019 Credit Facility”). The October 2019 Credit Facility was subsequently amended to, among other things, increase the aggregate committed and unsecured revolving line of credit amount to $625 million with a maturity date of October 29, 2024 and

change the applicable interest rates. Refer to Note 12 - Financing Activities and Off-Balance Sheet Risk, of the 2022 Form 10-K for more information.

April 2023 Credit Agreement

On March 24, 2023, RHS, our wholly-owned subsidiary, entered into the Second Amended and Restated Credit Agreement (the “April 2023 Credit Agreement”) among RHS, as borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, amending and restating the $2.275 billion 364-day senior secured revolving credit facility entered into in April 2022 (Refer to Note 12 - Financing Activities and Off-Balance Sheet Risk, of the 2022 Form 10-K for more information).

The April 2023 Credit Agreement provides for a 364-day senior secured revolving credit facility with a total commitment of $2.175 billion. Under circumstances described in the April 2023 Credit Agreement, the aggregate commitments may be increased by up to $1.0875 billion, for a total commitment under the April 2023 Credit Agreement of $3.2625 billion. Borrowings under the credit facility must be specified to be Tranche A, Tranche B, Tranche C or a combination thereof. Tranche A loans are secured by users’ securities purchased on margin and are used primarily to finance margin loans. Tranche B loans are secured by the right to the return from National Securities Clearing Corporation (“NSCC”) of NSCC margin deposits and cash and property in a designated collateral account and used for the purpose of satisfying NSCC deposit requirements. Tranche C loans are secured by the right to the return of eligible funds from any reserve account of the borrower and cash and property in a designated collateral account and used for the purpose of satisfying reserve requirements under Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Borrowings under the April 2023 Credit Agreement will bear interest at a rate per annum equal to the greatest of (i) Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 0.10%, (ii) the Federal Funds Effective Rate (as defined in the April 2023 Credit Agreement) and (iii) the Overnight Bank Funding Rate (as defined in the April 2023 Credit Agreement), in each case, as of the day the loan is initiated, plus an applicable margin rate. The applicable margin rate is 1.25% for Tranche A loans and 2.50% for Tranche B and Tranche C loans. Undrawn commitments will accrue commitment fees at a rate per annum equal to 0.50%.

The April 2023 Credit Agreement requires RHS to maintain a minimum consolidated tangible net worth and a minimum excess net capital, and subjects RHS to a specified limit on minimum net capital to aggregate debit items. In addition, the April 2023 Credit Agreement contains certain customary affirmative and negative covenants, including limitations with respect to debt, liens, fundamental changes, asset sales, restricted payments, investments and transactions with affiliates, subject to certain exceptions. Amounts due under the April 2023 Credit Agreement may be accelerated upon an “event of default,” as defined in the April 2023 Credit Agreement, such as failure to pay amounts owed thereunder when due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject in some cases to cure periods.

As of December 31, 2022 and September 30, 2023, there were no borrowings outstanding and we were in compliance with all covenants, as applicable, under our revolving credit facilities.

Credit Card Funding Trust

Robinhood Credit has a trust subsidiary that has entered into an arrangement with a financial institution to purchase up to $100 million of credit card receivables originated by Coastal Bank under the Program Agreement, providing incremental availability to offer customer credit. Since inception of the arrangement and as of September 30, 2023, no purchases have occurred and no balances were outstanding with this financial institution.

Off-Balance Sheet Risk

Coastal Bank Program Agreement

Under the Program Agreement, Coastal Bank may fund up to $225 million of credit card receivables. Robinhood Credit pays Coastal Bank interest which accrues daily based on the average balance of advances during the month at the federal funds rate plus a margin of 8.50%, 7.00%, 5.75%, 4.50% and 4.50% for each sequential increment of $50 million and residual $25 million. The credit card receivables and the funding from Coastal Bank are treated as off-balance sheet, considering Coastal Bank is the legal lender and originator, the party to which the customer has a creditor-borrower relationship; and the legal owner of the receivables. As of September 30, 2023, off-balance sheet customer principal amounts funded under the Program Agreement were approximately $197 million. The related accrued interest payable and interest expense were immaterial.

Transaction Settlement

In the normal course of business, we engage in activities involving settlement and financing of securities transactions. User securities transactions are recorded on a settlement date basis, which is generally two business days after the trade date for equities and one business day after the trade date for options. These activities may expose us to off-balance sheet risk in the event that the other party to the transaction is unable to fulfill its contractual obligations. In such events, we may be required to purchase financial instruments at prevailing market prices in order to fulfill our obligations.