Notes Payable to Banks and Other Debt Obligations

6 Months Ended

Jun. 30, 2012

Notes Payable to Banks and Other Debt Obligations

Notes Payable to Banks and Other Debt Obligations

(8)  Notes Payable to Banks and Other Debt Obligations

The Company’s notes payable and other debt obligations at June 30, 2012 and December 31, 2011 consisted of the following (dollars in thousands):

		June 30,		December 31,
Description	Terms and Conditions	2012		2011
Bank of Scotland reducing note facility, net of unamortized discount (1) (2)	Secured by substantially all assets and subsidiaries of FC Commercial (excluding FH Partners) and guaranteed by FirstCity, matures December 2014	$	69,867	$	86,579
BOS (USA) reducing note facility ($25.0 million term note) (1)	Secured by all assets of FLBG2, matures December 2014	—		—
Bank of America term note (1)	Secured by all assets of FH Partners, matures December 2014	31,971		49,228
WFCF $25.0 million revolving loan facility (3)	Secured by assets of ABL and guaranteed by FirstCity up to $5.0 million, matures January 2015	19,428		21,405
FNBCT $15.0 million revolving loan facility (4)	Secured by assets of FC Investment and its subsidiaries, and guaranteed by FirstCity, matures August 2013	2,000		—
Non-recourse bank notes payable of various U.S. Portfolio Entities	Secured by assets (primarily Portfolio Assets) of the underlying entities, various maturities through October 2015	7,492		18,113
Non-recourse bank notes payable of consolidated railroad subsidiaries	Secured by assets of the subsidiaries, various maturities through March 2016	7,231		5,156
Non-recourse bank note payable of real estate investment entity (5)	Secured by real estate property owned by the entity	—		7,361
Other notes and debt obligations		1,884		2,094
Total notes payable and other debt obligations		$	139,873	$	189,936

(1)In December 2011, FirstCity entered into a debt refinancing arrangement with Bank of Scotland that resulted in the amendment and restatement of the Reducing Note Facility (“BoS Facility A”) and a new loan agreement with BOS (USA) (“BoS Facility B”). In connection with this debt refinancing arrangement, FirstCity also obtained a new credit facility with Bank of America. This debt refinancing transaction was accounted for as a debt extinguishment and, as such, BoS Facility A and BoS Facility B were initially recorded at their estimated fair values of $91.6 million and $-0-, respectively, in December 2011.

(2)The unamortized discount on this loan facility at June 30, 2012 and December 31, 2011 was $2.0 million and $3.1 million, respectively. Also, the carrying value of this loan facility included $10.6 million and $13.2 million denominated in Euros at June 30, 2012 and December 31, 2011, respectively (see Note 10).

(3)This revolving loan facility was amended and restated on January 31, 2012 (see discussion below).

(4)FC Investment, a FirstCity wholly-owned subsidiary, obtained this revolving loan facility in May 2012 (see discussion below).

(5)FirstCity de-recognized this note payable from its consolidated balance sheet in March 2012 upon the acquisition of the underlying real estate property by the creditor in a foreclosure transaction (see Note 4 for additional information). This non-cash activity did not have a material impact on the Company’s results of operations for the six-month period ended June 30, 2012.

FC Investment Holdings Corporation

On May 21, 2012, FC Investment Holdings Corporation (“FC Investment”), a FirstCity wholly-owned subsidiary, as borrower, and FirstCity, as guarantor, and First National Bank of Central Texas (“FNBCT”), as lender, entered into a loan agreement dated May 16, 2012 (the “FNBCT Loan Facility”). In addition, on May 21, 2012, FirstCity executed a guaranty agreement that provided for its unlimited guaranty for repayment of the indebtedness of FC Investment including, without limitation, under the FNBCT Loan Facility. The FNBCT Loan Facility is a $15.0 million revolving loan facility that provides funding for FC Investment and its subsidiaries to finance the purchase of loans and other assets, to make investments in equity interests in or capital contributions to affiliates which are owned with other investors, and for working capital. The primary terms and conditions of the FNBCT Loan Facility are as follows:

·Provides maximum outstanding borrowings up to $15.0 million;

·The loan facility is secured by security interests in substantially all of the assets of FC Investment and its subsidiaries (the “Covered Entities”). FirstCity Servicing Corporation (“FC Servicing”), a FirstCity wholly-owned subsidiary, provides a security interest in servicing fees payable to it by the Covered Entities and the non-wholly owned portfolio entities owned by the Covered Entities. FC Servicing does not provide a security interest in servicing agreements entered into with the Covered Entities, or in any of its other assets and does not guaranty the obligations under this loan facility;

·Provides that no advance will be made that causes the outstanding balance of the loan facility to exceed an amount equal to 25.0% of the net present value of the equity interests and loans and other assets owned by the Covered Entities which are pledged to secure the loan facility reduced by any reserves established by FNBCT related to the pledged loans and other assets and the pledged equity interests (“Net Present Collateral Value”);

·Provides for a fluctuating interest rate equal to the greater of (i) the rate of interest published in the Wall Street Journal as the prime rate of commercial banks, or (ii) 4.0%;

·Provides for a maturity date of August 15, 2013;

·Provides that all net cash flow from the pledged assets be deposited into a pledged account with FNBCT on a monthly basis, and for funds to be distributed out of the pledged account and applied in the following manner and priority: (i) to interest due under the loan facility, (ii) to fees and expenses due under the loan facility, (iii) payment of principal outstanding under the loan facility in an amount required to reduce the outstanding principal balance of the loan as is required so that the principal balance of the loan is equal to 25.0% of the Net Present Collateral Value, (iv) payment of principal if an event of default has occurred, (v) payment of the principal in such additional amount as may be determined by FNBCT in its discretion, and (vi) any remaining balance to FC Investment;

·Provides that FNBCT is only required to fund up to $7.5 million, with the balance of the commitment under the revolving loan facility to be funded by a participating bank in the loan facility;

·Provides for (i) an administration fee of $25,000 for the period through the maturity date, which fee was paid at closing, (ii) a facility fee in the amount of $93,750 for the period through the maturity date, which fee was paid at closing, and (iii) a non-utilization fee payable following each calendar quarter equal to 0.50% of the average daily amount by which the outstanding principal amount of the revolving loan during the preceding calendar quarter is less than $15.0 million, provided, in the event the financial institution participating in the revolving loan fails to advance its pro-rata share of any advance in a circumstance in which FNBCT is funding the advance, the non-utilization fee shall be calculated based on the average daily amount by which the total amount funded by FNBCT from its own funds during the preceding calendar quarter is less than  $7.5 million;

·FC Investment must maintain a minimum interest coverage ratio, based on net cash flows from the pledged assets, of 2.0 to 1.0 (on  a consolidated basis);

·FC Investment must maintain a minimum tangible net worth (defined) of $75.0 million (on a consolidated basis); and

·The FNBCT Loan Facility and other loan documents do not create any security interest in the property of, or impose any contractual limitations upon, FirstCity Commercial Corporation, FH Partners LLC, FLBG Corporation or any of their subsidiaries, which are FirstCity subsidiaries and are parties to, or provide guaranties or security interests with respect to, FirstCity’s loan facility with Bank of Scotland.

In addition to the foregoing, the FNBCT Loan Facility contains representations, warranties and certain other covenants on the part of FC Investment, FirstCity and the other Covered Entities that are typical for a loan facility of this type. Furthermore, the FNBCT Loan Facility and related loan documents contain customary events of default, including, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. In the event that an event of default occurs and is continuing, FNBCT may accelerate the indebtedness under this loan facility. At June 30, 2012, FC Investment was in compliance with all covenants or other requirements set forth in this loan facility.

Wells Fargo Capital Finance (American Business Lending, Inc.)

On January 31, 2012, American Business Lending, Inc. (“ABL”), a FirstCity wholly-owned subsidiary, and Wells Fargo Capital Finance (“WFCF”) entered into an Amended and Restated Loan Agreement (“WFCF Credit Facility”) that amended and restated the existing $25.0 million loan facility agreement, as amended. The WFCF Credit Facility is a $25 million revolving loan facility that provides funding for ABL to finance and acquire SBA 7(a) loans, and is secured by substantially all of ABL’s assets. The primary terms and conditions of the WFCF Credit Facility are as follows:

·Provides for maximum outstanding borrowings of up to $25.0 million (Maximum Credit Line);

·Provides for a borrowing base for originating loans based on the amount by which the sum of (i) ABL-originated SBA guaranteed loans (up to 100%) and non-guaranteed loans (60%-80%) plus (ii) certain previously-purchased performing loans (up to 80%), exceeds the aggregate amount, if any, of loan reserves established by ABL and/or WFCF on the borrowing base loans;

·Outstanding borrowings bear interest at alternate annual rates equal to (i) LIBOR rate plus 3.50% for LIBOR rate loans; (ii) base rate (higher of LIBOR rate or Wells Fargo  prime rate) plus 0.75% for base rate loans; or (iii) base rate plus 0.75% otherwise;

·Provides for a prepayment fee in the event of ABL’s termination of the Credit Agreement equal to 3.0% of the Maximum Credit Line if prepayment is made on or before January 31, 2013, or 2.0% of the Maximum Credit Line if prepayment is made between January 31, 2013 and January 30, 2015; and

·Provides for an initial maturity date of January 31, 2015 (which may be extended upon agreement by WFCF and ABL).

In connection with the WFCF Credit Facility, FirstCity reaffirmed its limited guaranty in favor of WFCF with respect to ABL’s obligations. As such, FirstCity continues to provide WFCF with an unconditional limited guaranty for all of ABL’s obligations under the WFCF Credit Facility up to a maximum amount of $5.0 million plus enforcement costs.

The WFCF Credit Facility includes covenants that are customary for a loan facility of this type, including maximum capital expenditure levels and financial covenants related to minimum tangible net worth levels, maximum indebtedness to tangible net worth ratio, maximum delinquent and defaulted loan levels, maximum loan charge-off levels, and minimum net interest coverage levels.

In addition, the WFCF Credit Facility contains representations and warranties of ABL that are typical for a loan facility of this type. The WFCF Credit Facility also contains customary events of default, including but not limited to, failure to make required payments; failure to comply with certain agreements or covenants; change of control; certain events of bankruptcy and insolvency; and failure to pay certain judgments. In the event that an event of default occurs and is continuing, WFCF may accelerate the indebtedness under this loan facility. At June 30, 2012, ABL was in compliance with all covenants or other requirements set forth in the WFCF Credit Facility.