Financing Agreements |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financing Agreements |
Lines of Credit
The Company has an uncommitted demand revolving credit facility ("Trading Credit Facility”) provided to the Company by a syndicate of financial institutions, with Coöperatieve Rabobank U.A. ("Rabobank") acting as lead lender and administrative agent and Natixis, New York Branch acting as syndication agent. The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis. As of September 30, 2018, the Trading Credit Facility provided the Company with access up to $260.0 million, featuring a $210.0 million base, with a $50.0 million accordion option. The Trading Credit Facility is scheduled to mature on March 29, 2019. As of September 30, 2018, the Company incurred $2.6 million of loan costs in connection with the Trading Credit Facility, which was capitalized and is being amortized over the term of the Trading Credit Facility. As of September 30, 2018 and June 30, 2018, the remaining unamortized balance was approximately $0.3 million and $0.5 million, respectively.
The Company routinely uses the Trading Credit Facility to purchase and finance precious metals and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a 2.50% margin for revolving credit line loans and a 4.50% margin for bridge loans (that is, for loans that exceed the available revolving credit line). The one-month LIBOR rate was approximately 2.26% and 2.09% as of September 30, 2018 and June 30, 2018, respectively. Borrowings are due on demand and totaled $179.0 million and $200.0 million at September 30, 2018 and at June 30, 2018, respectively. The amounts available under the respective borrowing facilities 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 borrowing facilities and lender approval of the revised borrowing base calculation. Based on the latest approved borrowing bases in effect, the amounts available under the Trading Credit Facility after taking into account current borrowings, totaled $3.5 million and $22.1 million as determined on the Friday before September 30, 2018 and on Friday, June 30, 2018, respectively.
The Trading Credit Facility has certain restrictive financial covenants, including one requiring the Company to maintain a minimum tangible net worth. As of September 30, 2018 the minimum tangible net worth financial covenant under the Trading Credit Facility was $47.5 million. The Company is in compliance with all restrictive financial covenants as of September 30, 2018.
Interest expense related to the Company’s lines of credit totaled $2.0 million and $1.7 million, which represents 57.2% and 63.5% of the total interest expense recognized, for the three months ended September 30, 2018 and 2017, respectively. Our lines of credit carried a daily weighted average effective interest rate of 4.54% and 3.75%, respectively, for the three months ended September 30, 2018 and 2017.
Debt obligation with Goldline Lenders
On August 28, 2017, in connection with the closing of the Goldline acquisition (see Note 1), Goldline, then known as Goldline Acquisition Corp., entered into a privately placed credit facility in the amount of $7.5 million (the “Goldline Credit Facility”) with various lenders (the "Goldline Lenders"). Borrowings under the Goldline Credit Facility were used to finance a portion of the consideration payable pursuant to the Goldline acquisition.
The Goldline Credit Facility is secured by a first priority lien on substantially all of the assets of Goldline , and is guaranteed by the Company. Interest on the Goldline Credit Facility is payable quarterly in arrears at the rate of 8.5% per annum, and the Goldline Lenders under the Goldline Credit Facility are entitled to an additional funding fee payment at maturity equal to the greater of 3.0% of the principal amount of the Goldline Credit Facility and 10.0% of cumulative EBITDA (for the periods ending June 30, 2018, 2019 and 2020) of Goldline in excess of $10.0 million, on a pro rata basis. The Goldline Credit Facility has a three-year maturity, and all outstanding principal and unpaid interest is due upon maturity (August 28, 2020).
As of September 30, 2018 and June 30, 2018, the carrying balance of the Goldline Credit facility was $7.3 million and $7.2 million, respectively, and the remaining unamortized loan cost balance was approximately $0.2 million and $0.3 million, respectively, which is amortized ratably through the maturity date. As of September 30, 2018, the balance of the loan fee payable was $0.2 million.
Interest expense related to the Goldline Credit Facility (including debt loan amortization costs) totaled $195,000 which represents 5.5% of the total interest expense recognized, for the three months ended September 30, 2018. The Goldline Credit Facility's weighted average effective interest rate was 8.84% for the three months ended September 30, 2018. Interest expense related to the Goldline Credit Facility (including debt loan amortization costs) totaled $79,000 which represents 2.9% of the total interest expense recognized, for the three months ended September 30, 2017. The Goldline Credit Facility's weighted average effective interest rate was 9.38% for the three months ended September 30, 2017.
The obligations of Goldline and the Company under the Goldline Credit Facility are subordinated to the Company’s obligations under the Trading Credit Facility (see Lines of Credit, above in Note 14). Under the subordination agreements, the Goldline Lenders are permitted to collect quarterly interest-only payments and a balloon payment of principal and accrued interest at the end of the loan term, provided that no event of default is continuing under the Trading Credit Facility and the Company is in pro-forma compliance with the financial covenants under the Trading Credit Facility.
Goldline Lenders
The following table shows the directors, executive officer and principal stockholder that participated in the Goldline Credit Facility transaction, and provides related information:
Notes Payable
Securitization/Variable Interest Entity
On September 14, 2018, AM Capital Funding, LLC (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes, Series 2018-1, Class A (the “Class A Notes”) in the aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B (the “Class B Notes” and together with the Class A Notes, the “Notes”) in the aggregate principal amount of $28 million. The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%. The Notes have a maturity date of December 15, 2023. The Notes were issued under a Master Indenture and the Series 2018-1 Supplement thereto, each dated as of the Closing Date, between AMCF and Citibank, N.A., as trustee. The Company holds $10.0 million of the Notes. The Notes are not insured or guaranteed by A-Mark or CFC. CFC acts as servicer with respect to the Notes.
AMCF applied the net proceeds from the sale of the Notes to purchase loans and precious metals inventory, and to pay certain costs and expenses.
AMCF is a special purpose entity whose sole activity consists of operating, owning, and financing indenture assets. The Notes are primarily payable from, and secured by, (i) precious metals obtained by AMCF from third parties, and (ii) a portfolio of loans collateralized by precious metals, which loans were originated by either CFC or acquired by CFC from third parties and conveyed by CFC to AMCF. The indenture requires AMCF to maintain a specified level of collateral. The indenture also provides that AMCF’s assets are not to be commingled with those of CFC or A-Mark (or any affiliate), and that AMCF is to maintain separate books and records.
CFC and A-Mark may from time to time also contribute cash or sell precious metals to AMCF in exchange for cash or subordinated, deferred payment obligations from AMCF. In addition, AMCF may from time to time sell precious metals to A-Mark for cash.
As of September 30, 2018, the carrying balance of the Note was $87.1 million (which excludes the $10.0 million note that the Company retained) , and the remaining unamortized loan cost balance was approximately $2.9 million, which is amortized using the effective interest method through the maturity date. As of September 30, 2018, the balance of the interest payable was $234,000.
Interest on the Note is payable monthly in arrears at the aggregate rate of 5.26% per annum. The interest expense related to the Note (including debt loan amortization costs) totaled $254,000 which represents 7.2% of the total interest expense recognized by the Company, for the three months ended September 30, 2018. The Notes' weighted average effective interest rate was 5.88% for the three months ended September 30, 2018
The Company has both the power to direct the activities that most significantly impact AMCF’s economic performance, and the obligation to absorb losses or the right to receive benefits of AMCF that could potentially be significant to AMCF. Therefore, the Company has determined AMCF is a variable interest entity ("VIE") and that the Company is the primary beneficiary of the VIE. Therefore, the Company consolidates AMCF for accounting purposes. See Note 2 for additional information about our VIE policy.
The assets and liabilities of the VIE are shown on the face of the condensed consolidated balance sheets of the Company at September 30, 2018 and June 30, 2018.
Liability on Borrowed Metals
The Company recorded liabilities on borrowed precious metals with market values totaling $227.2 million and $280.3 million as of September 30, 2018 and June 30, 2018, respectively, with the corresponding metals reflected on the condensed consolidated balance sheets.
Advanced pool metals
The Company borrows precious metals (usually in the form of pool metals) from its suppliers and customers under short-term agreements using other precious metals from its inventory as collateral. Amounts under these arrangements require repayment either in the same form of the metals borrowed or in cash. The Company has the ability to sell the metals and to repurchase similar metals as needed, under the terms of the arrangement, in order to repay the obligation. Once the obligation is repaid, the metals held as collateral are released back to the Company.
Liability on borrowed metals — Other
Liabilities may also arise from: (1) unallocated metal positions held by customers in the Company’s inventory, (2) amounts due to suppliers for the use of consigned inventory, and (3) shortages in unallocated metal positions held by the Company in the supplier’s inventory. Unallocated or pool metal represent an unsegregated inventory position that is due on demand, is a specified physical form, based on the total ounces of metal held in the position. Amounts due under these arrangements require delivery either in the form of precious metals, or in cash.
Product Financing Arrangements
The Company has agreements with financial institutions (third parties) that allows the Company to transfer its gold and silver inventory at an agreed-upon price based on the spot price with these third parties. Such agreements allow 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 a 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 are reflected in the condensed consolidated balance sheet as product financing arrangements. 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 operations. Such obligation totaled $53.1 million and $113.9 million as of September 30, 2018 and June 30, 2018, respectively.
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