Finance of America Companies Inc. (NYSE:FOA), a mortgage banking firm, has announced a significant restructuring of its debt and the issuance of new securities, according to a recent SEC filing. On Monday, the company completed an exchange offer and consent solicitation transactions, leading to the exchange of $342.6 million of its existing 7.875% Senior Notes due 2025 for new securities and cash.
The exchanged notes, which represented approximately 97.9% of the outstanding aggregate principal amount, were replaced with $195.8 million of new 7.875% Senior Secured Notes due 2026 and $146.8 million of 10.000% Exchangeable Senior Secured Notes due 2029. Additionally, holders received a cash consideration of $856,555. This exchange offer was accompanied by amendments to the existing indenture, removing most restrictive covenants and certain default provisions.
The new Senior Secured Notes, guaranteed by multiple Finance of America subsidiaries, are secured by collateral and will mature on November 30, 2026, with the possibility of extending to November 30, 2027. The interest rate on these notes will increase after the first anniversary and further if the maturity is extended. A partial prepayment is scheduled for November 15, 2025.
Furthermore, the new Exchangeable Notes, which also carry a senior guarantee and are secured by collateral, will mature on November 30, 2029, and bear interest at 10.000% per annum. These notes are exchangeable into shares of the company’s Class A common stock at an initial rate of 36.36364 shares per $1,000 principal amount, subject to adjustments.
The collateral securing the new notes includes substantially all unencumbered assets of certain subsidiaries, with additional provisions for securing the obligations post-termination of the Working Capital Notes with Blackstone (NYSE:BX) Inc. affiliates and others.
The company also entered into a registration rights agreement, committing to file a shelf registration statement for the common stock deliverable upon the exchange of the new Exchangeable Notes and to keep it effective until the maturity date or until no notes are outstanding.
In other recent news, Finance of America has reported its financial results for the second quarter of 2024. Despite a GAAP net loss of $5 million, the company revealed positive adjusted EBITDA of $9 million, marking the first instance since 2022. In addition, the company has instituted a reverse stock split while projecting loan volumes between $475 million and $500 million for the third quarter.
Furthermore, Finance of America has successfully decreased total expenses from $110 million in Q2 2023 to $85 million in Q2 2024. The company, in response to Stephen Laws from Raymond James, confirmed that their July production aligns with Q3 guidance. New lender partnerships have also been highlighted, contributing to a reduction in cash burn.
In terms of future plans, the company is investing in digital technologies to enhance customer experience and market penetration. They anticipate the proposed HMBS 2.0 program to benefit both Finance of America and the reverse mortgage industry. The next earnings call, scheduled for November, is expected to provide an update on Q3 progress.
InvestingPro Insights
Finance of America Companies Inc.'s recent debt restructuring aligns with several key financial metrics and trends highlighted by InvestingPro. The company's market cap stands at $298.27 million, reflecting its position in the mortgage banking sector. Despite the recent debt exchange, FOA has shown strong recent performance, with InvestingPro data indicating a 71.97% price return over the last three months and an impressive 126.11% return over the past six months.
These positive short-term trends are particularly noteworthy given the company's historical challenges. An InvestingPro Tip points out that FOA's stock price has performed poorly over the last decade, suggesting that the recent restructuring could be a pivotal move for the company's financial health and market perception.
The debt exchange may also be viewed in light of FOA's valuation metrics. With a P/E ratio (adjusted) of 6.27 for the last twelve months as of Q2 2024, the company is trading at a relatively low earnings multiple, as noted by another InvestingPro Tip. This could indicate that the market has not fully priced in the potential benefits of the debt restructuring.
For investors seeking more comprehensive analysis, InvestingPro offers 12 additional tips for FOA, providing deeper insights into the company's financial position and market outlook.
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