(Bloomberg) -- B. Riley Financial Inc.’s bankers hiked the interest rate on the company’s key loan and cut how much the embattled firm can borrow as it grapples with a debt load of about $2 billion.
The amendment with a group of lenders led by Nomura Holdings Inc. lets B. Riley avoid paying some of the interest it owes on its term loan in cash, but tack it on to the total amount outstanding, according to a Monday regulatory filing. The deal requires B. Riley to cut the balance on its term loans to $100 million within the next year and eliminates a revolving credit line.
B. Riley repaid about $85.9 million in principal, accrued and unpaid interest on the term loan, cutting the balance to $388.1 million, the filing shows. Nomura said the loan totaled about $474 million as of March 31.
The deal doesn’t end the struggles for B. Riley, whose stock price has been devastated as its investments soured in recent years and US authorities probed some of its business deals and disclosures.
The Los Angeles-based firm still hasn’t filed its second-quarter financial statements and missed a deadline to report its annual data, too, before belatedly producing the report. B. Riley breached financial covenants twice last year on one of its smaller loans before negotiating a waiver and amendment with different lenders.
Executive Leaves
In another development, Kenny Young resigned as president of B. Riley and chief executive of B. Riley Principal Investments, according to the filing. He’ll remain in a consulting role for one year.
Other revisions on the Nomura loan disclosed Monday cover prepayments tied to asset sales and the treatment of certain assets in calculating the loan’s borrowing base. The filing didn’t include the specifics, which typically are included in subsequent filings. Representatives for B. Riley and Nomura declined to elaborate.
Under a complex formula, the interest rate on the term loan increases by about one percentage point to 7% plus the adjusted term Secured Overnight Financing Rate, the industry’s benchmark rate — if B. Riley chooses to pay the interest in cash. Alternately, the firm can choose to pay some of the interest in kind, which effectively adds it to the amount owed. For instance, on one portion, the firm could pay the benchmark rate plus 6% in cash and 1.5% in kind.
Easing B. Riley’s debt load has become an added concern on top of the federal inquiries, writedowns on key holdings and a massive loss estimated for the second quarter. Co-founder Bryant Riley said in an Aug. 12 statement the dividend was eliminated “as we prioritize deleveraging.” The firm and Riley have said there’s been no wrongdoing and they’re cooperating with authorities.
B. Riley had said there was no outstanding balance as of March 31 on the now-defunct revolver, which initially had a $100 million limit.
Deal Status
The filing on Monday didn’t elaborate on B. Riley’s efforts to sell assets or update the status of a non-binding bid by Riley himself to take the company private. The process could be slowed by the lack of financial reports, the outcome of the US probes and debts tied to various company arms, which include wealth management, underwriting of small and medium-size companies and a turnaround consulting business.
The talks with lenders coincide with debt discussions underway at Franchise Group Inc., or FRG, a key holding of B. Riley. Lenders granted FRG a short reprieve after the firm violated some terms of its credit agreement, Bloomberg News previously reported.
Those discussions also had a mid-September target to work out a restructuring proposal for FRG’s roughly $1.5 billion of debt. The talks could have an impact on B. Riley, because the firm used FRG shares to secure its loan package from Nomura. Equity shares can be diluted by debt restructuring deals, sometimes severely.
(Updates with Young’s consulting role in the sixth paragraph.)
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