Shares of World Acceptance Corp. (NASDAQ:WRLD) are up by more than 11% as of 11:30 a.m. EDT after the company announced that it amended and extended a key credit facility that allows for greater share repurchases.
Cheap credit is the lifeblood of any lender. On Monday, the company announced it had amended the terms on its revolving credit agreement to extend its maturity day by another year, from June 15, 2018 to June 15, 2019.
According to an 8-K filed with the SEC, substantial changes to the credit facility include:
- Extending the maturity by another year, to June 15, 2019.
- Increasing the commitments by lenders to $480 million from $370 million.
- Reducing the maximum allowed ratio of total debt to adjusted net worth from 2.75 to 1 down to 2.0 to 1.
- Narrowing the definition of "eligible finance receivables," or the consumer loans that can be used as collateral in the facility.
- Expanding the circumstances under which the Company may make restricted payments by allowing for certain share repurchases in an aggregate amount of up to 50% of consolidated adjusted net income in any fiscal year, commencing with the fiscal year ending March 31, 2017.
- Restricting certain bulk purchases of loans by World Acceptance.
The company's most recent quarterly filing shows that World Acceptance borrows through this credit agreement at a rate of approximately 5.8%, including fees and debt amortization expense. The company earns fee and interest income in excess of 40% annually on its gross loans, thus giving it a wide spread between its funding costs and the yield it earns on its loans.
The new terms include a grab bag of improved terms for lenders and World Acceptance alike. As for today's pop in the share price, the market seems to like the trade-off of lower leverage limits and a narrowed definition of eligible collateral in exchange for new terms that allow for greater share repurchases by World Acceptance. The company will report its fiscal fourth-quarter earnings on Tuesday, May 9.