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Financing Agreements
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6 Months Ended |
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Dec. 31, 2014
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| Debt Disclosure [Abstract] | |
| Financing Agreements |
FINANCING AGREEMENTS
Lines of Credit
A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit up to the maximum of the credit facility. All lenders have a perfected, first security interest in all assets of the Company presented as collateral. Loan advances will be available against a borrowing base report of eligible assets in accordance with the inter-creditor agreement currently in place. Pledged collateral comprises assigned and confirmed inventory, trade receivable, trade advances, derivatives equity and pledged non bullion and bullion loans.
Effective September 12, 2014, the Company obtained a permanent increase in its demand Trading Credit Facility through the addition of a sixth institutional participant, which is providing $50.0 million in demand lines. As of December 31, 2014, the maximum of the Trading Credit Facility was $220.0 million. The Company routinely uses the Trading Credit Facility to purchase precious metals from suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The one-month LIBOR rate was approximately 0.17% and 0.15% as of December 31, 2014 and June 30, 2014, respectively. Borrowings are due on demand and totaled $151.0 million and $135.2 million at December 31, 2014 and at June 30, 2014, respectively. The amounts available under the Trading Credit Facility are determined at the end of each week following a specified borrowing base formula. The Company is able to access additional credit as needed to finance operations, subject to the overall limits of the Trading Credit Facility and lender approval of the revised borrowing base calculation. The amounts available under the Trading Credit Facility after taking into consideration current borrowings, based upon the latest approved borrowing bases in effect, totaled $19.5 million and $14.4 million at December 31, 2014 and June 30, 2014, respectively. The Trading Credit Facility also limits A-Mark's ability to pay dividends. The Trading Credit Facility is cancelable by written notice from the financial institutions.
The Trading Credit Facility has certain restrictive financial covenants, which require the Company to maintain a minimum tangible net worth. In connection with the new line effective September 12, 2014, the minimum tangible net worth financial covenant under the Trading Credit Facility was increased from $25.0 million to $35.0 million. The Company is in compliance with all restrictive financial covenants as of December 31, 2014. The Company's ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.
Through October 8, 2014, the Trading Credit Facility contained a a sub-facility that the Company and SNI (a related party) was able to be drawn on. A-Mark and SNI could draw up to $20.0 million and $5.0 million, respectively, under the sub-facility; provided that the maximum amount that was permitted to be outstanding at any given time could not exceed $23.0 million. Amounts available for borrowing under this sub-facility as of December 31, 2014 and June 30, 2014 were $0.0 million and $3.3 million, respectively. On October 8, 2014, SNI paid off its obligations under the sub-facility in full utilizing funds drawn from its line of credit with CFC, and SNI no longer has any right to draw upon the sub-facility (see Note 3).
Interest expense related to the Company’s borrowing arrangements totaled $0.8 million and $0.8 million, which represents 84.6% and 89.4% of the total interest expense recognized, for the three months ended December 31, 2014 and 2013, respectively. Our borrowing arrangements carried a daily weighted average effective interest rate of 2.84% and 3.22%, respectively, for the three months ended December 31, 2014 and 2013.
Interest expense related to the Company’s borrowing arrangements totaled $1.8 million and $1.6 million, which represents 86.3% and 85.8% of the total interest expense recognized, for the six months ended December 31, 2014 and 2013, respectively. Our borrowing arrangements carried a daily weighted average effective interest rate of 2.95% and 3.19%, respectively, for the six months ended December 31, 2014 and 2013.
Liability on Borrowed Metals
The Company borrows precious metals from its suppliers under short-term agreements, which bear interest at a designated rate. Amounts under these agreements are due at maturity and require repayment either in the form of precious metals or cash. The Company's inventories included borrowed metals with market values totaling $5.7 million and $8.7 million as of December 31, 2014 and June 30, 2014, respectively.
Product Financing Arrangement
The Company has an agreement with a financial institution (a third party) that allows the Company to transfer its gold and silver inventory at a fixed price to this third party. Such agreement allows the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly fee as percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales, and therefore have been accounted for as financing arrangements and reflected in the condensed consolidated balance sheet within product financing obligation. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value recorded as a component of cost of sales in the condensed consolidated statements of income. Such obligation totaled $80.7 million and $24.6 million as of December 31, 2014 and June 30, 2014, respectively.
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