8-K: AFC Gamma Amends Loan Agreement to Expand Borrowing Base

AFC Gamma has amended its loan agreement to include funds in a borrowing base cash account, expanding its borrowing capacity.

Summary

• AFC Gamma, Inc. has entered into an amendment to its Loan and Security Agreement on March 26, 2024.
• The amendment expands the borrowing base to include funds held in a designated borrowing base cash account.
• The borrowing base is now calculated as 50% of the outstanding principal of eligible loans, plus 100% of the funds in the borrowing base cash account, minus discounts and loss reserves.
• A new definition for 'Borrowing Base Cash Account' has been added, specifying it as a blocked account at EWB where funds can be deposited but only withdrawn with the agent's prior written consent.
• Schedule E-1 of the agreement, which lists eligible loan receivables, has been amended and replaced.
• The company has also received a delay until August 1, 2024, for CRE South LLC to become a guarantor under the agreement.

Sentiment

Score: 7

Explanation: The amendment is a positive development as it increases borrowing capacity and provides more financial flexibility. However, the restrictions on the cash account and the delay in the guarantor joinder introduce some minor risks.

Positives

• The amendment expands AFC Gamma's borrowing capacity by including cash in the borrowing base.
• The inclusion of the cash account provides more flexibility in managing liquidity.
• The delay in CRE South LLC becoming a guarantor provides additional time for the company to manage its subsidiary's integration.

Negatives

• The borrowing base is still subject to discounts, loss reserves, and agent-established reserves, which could reduce the available borrowing amount.
• The cash account is a blocked account, requiring the agent's consent for withdrawals, which could limit immediate access to funds.

Risks

• The agent has the discretion to deem any loan receivable ineligible, which could reduce the borrowing base.
• The delay in CRE South LLC becoming a guarantor could pose a risk if the subsidiary's financial condition deteriorates before the joinder date.
• The agreement is subject to the agent's discretion and could be impacted by changes in the agent's risk assessment.

Future Outlook

The amendment is expected to provide AFC Gamma with increased borrowing capacity and flexibility. The company will need to ensure CRE South LLC becomes a guarantor by August 1, 2024, unless otherwise agreed with the agent.

Industry Context

This amendment is a common practice in lending agreements to provide borrowers with more flexibility and access to capital. It reflects the ongoing need for companies to manage their liquidity and borrowing capacity effectively.

Comparison to Industry Standards

• The inclusion of a cash account in the borrowing base is a fairly standard practice in asset-based lending, similar to how other specialty finance companies structure their credit facilities.
• The specific percentages and conditions (50% for loans, 100% for cash) are typical for this type of lending, but the exact terms vary based on the borrower's credit profile and the lender's risk appetite.
• Companies like Ares Capital Corporation and Blackstone Secured Lending also use similar borrowing base structures, though the specific terms and eligible assets may differ.

Stakeholder Impact

• Shareholders may view the increased borrowing capacity positively.
• Lenders benefit from the expanded borrowing base and the inclusion of the cash account.
• The company has more flexibility in managing its finances.

Next Steps

• AFC Gamma needs to ensure the Borrowing Base Cash Account is properly managed.
• AFC Gamma must ensure CRE South LLC becomes a guarantor by August 1, 2024, or obtain a further waiver from the agent.

Key Dates

Keywords

Loan Agreement, Borrowing Base, Cash Account, Amendment, Lenders, Guarantor, CRE South LLC, AFC Gamma, Debt Financing