OnDeck Update 6/23
June 24, 2020On June 23rd, OnDeck filed the following statement with the SEC:
On June 23, 2020, we obtained a limited consent (“Consent”) for our corporate debt facility (“Corporate Facility”). Under the Consent, the lenders consented to delay the effectiveness of the increased monthly principal repayments until July 14, 2020 (or such later date as may be agreed by the Administrative Agent), which were triggered by an Asset Performance Payout Event (Level 2) (“APPE”) that occurred on June 17, 2020. In consideration for the Consent, the Company agreed to make a $5 million principal repayment (“Repayment”) substantially concurrent with the execution of the Consent. Under the Consent, the lenders also agreed that, at the Company’s option, the Repayment will either (i) reduce the amount of the monthly principal repayment due on July 17, 2020 by the amount of the Repayment or (ii) if the parties enter into an amendment on or prior to July 17, 2020, be credited towards any principal repayment required under that amendment. The Company entered into the Consent in contemplation of entering into a broader amendment to the Corporate Facility to address impacts stemming from the COVID-19 pandemic. If such an amendment is not entered into, the APPE triggers $21 million monthly principal repayments which, if not cured, would commence on July 17, 2020 and continue until the Corporate Facility is repaid in full. The Company made a payment of approximately $13 million on June 17, 2020 as a result of the previously disclosed Asset Performance Payout Event (Level 1), bringing the total balance outstanding as of that date to approximately $92 million. The Revolving Commitment Termination Date occurred as a result of such Level 1 event. Certain capitalized terms not defined in this section of the report are used with the meanings ascribed to them in the Corporate Facility as amended by prior amendments thereto and the Consent.
Shares of OnDeck closed at 86 cents yesterday. The company was previously warned that long-term pricing below $1/share would result in delisting from the New York Stock Exchange.
OnDeck Status Update
May 28, 2020
OnDeck submitted an unprompted mid-quarter update with the SEC early this morning on its status. Unlike previous submissions, the company prepared a visual of its debt situation. The bad news is that there is a good amount of negotiating with creditors left to be done. The good news was that there was an uptick in borrower payments. The attached graphics were pulled straight from their filing.
The company also said that it believes it is “well-positioned to benefit from economic recovery & market dislocation.” It based that belief on the below stated bulletpoints:
- Small business lending is a large market and will be critical in leading the economic recovery.
- OnDeck has deep experience from a 14-year operating history to increase originations with a targeted approach and reshape the portfolio.
- OnDeck is a scaled platform with demonstrated historical profitability and an established brand, unlike many competitors.
- Consistent with the last crisis, banks are likely to retrench further and only selectively serve SMBs.
- Expected consolidation of SMB lending industry will ultimately lead to improved unit economics and growth opportunities.
The full presentation, which is mostly a recap of the company’s Q1 earnings data, can be accessed here.
OnDeck Hits Payout Event Trigger on $105M Credit Facility
May 22, 2020Earlier today, OnDeck filed a status update to shareholders with the SEC. The company’s portfolio performance triggered an Asset Performance Payout Event (Level 1 they say) with a credit agreement that at present has an outstanding balance of $105 million.
The event triggers monthly principal repayments which, if not cured or amended, would commence with a $13 million payment on June 17, 2020. Subsequent principal payments are based on a percentage of the currently outstanding balance of $105 million until the Corporate Facility matures in January 2021. The Company is in active discussions with the Corporate Facility lender group to evaluate potential options with regard to this facility.
OnDeck was able to further modify agreements on two credit facilities (ODAF II and ODART) to which they had previously secured only interim relief of a few days.
Shares of OnDeck have hovered between 60 cents and 70 cents in the past week.
The Latest With OnDeck
May 18, 2020A Week after OnDeck reported Q1 earnings, the company experienced its first early amortization event brought on by the COVID-19 crisis.
The news was publicized in a May 11th filing with the SEC:
On May 7th, an early amortization event occurred with respect to the Series 2019-1 notes issued by OnDeck Asset Securitization Trust II LLC, or ODAST II as a result of an asset amount deficiency in that Series. Beginning on the next payment date under the ODAST II Agreement, all remaining collections held by ODAST II, after payment of accrued interest and certain expenses, will be applied to repay the principal balance of the Series 2018-1 notes and the Series 2019-1 notes on a pro rata basis.
The company also revealed that it had amended a debt facility “so that no borrowing base deficiency shall occur during the period from April 27, 2020 to July 16,2020.”
On May 15th, OnDeck notified shareholders of additional events and maneuvers through a new filing published after the closing bell. The filing stated that:
On May 12th, a similar event happened with the 2018-1 notes as had happened with the 2019-1 notes.
On May 14th, OnDeck modified the terms of a debt facility so that “from March 11, 2020 to August 31, 2020, receivables granted temporary relief in response to the COVID-19 pandemic will generally not be considered delinquent […] so long as such receivable is paying in accordance with its modified terms.”
Also on May 14th, OnDeck obtained a temporary waiver on another debt facility. “Under the waiver, the lenders temporarily waived the occurrence and existence of reported borrowing base deficiencies and any failure to cure such deficiency amount, in each case, until the close of business on May 19, 2020.” OnDeck accepted the waiver with the understanding it would enter into a broader amendment to remain in compliance with performance and other criteria in light of increased delinquency and other portfolio dynamics that result from COVID-impacted loans. “If such an amendment is not entered into or if the borrowing base deficiency is not otherwise cured, the borrowing base deficiency would constitute an event of default under the ODAF II Facility at close of business on May 19, 2020.”
The 19th is tomorrow.
A similar waiver was obtained for another debt facility. The company has until May 20th to enter into a broader amendment to remain in compliance on that one.
The company is in a fight for its survival. In late April, OnDeck “suspended nearly all new term loan and line of credit originations and previously ceased all equipment finance lending.” The company reported that it is “focused on liquidity and capital preservation and expects there will be a significant portfolio contraction, reflecting an 80% or more reduction in the second quarter origination volume.”
The stock closed at 64 cents on Friday and a market cap of only $37.3M. Shares had traded over $4 earlier in the year.
On May 7th, shareholders voted overwhelmingly in favor of keeping CEO Noah Breslow on the company’s board of directors.
OnDeck Reports Q1 Net Loss of $59M, Suspends Non-PPP Lending Activities
April 30, 2020OnDeck has suspended the funding of its Core loans and lines of credit to new or existing customers (unless the loan agreement has already been executed).
The company has also suspended its pursuit of a bank charter. The company has instituted a 15% pay reduction for its full-time employees, a 60% pay reduction for part-time employees, and furloughed additional employees that will receive benefits but no salary. OnDeck CEO Noah Breslow and members of the Board took a 30% pay reduction.
The company said that PPP funding has not really reached real small businesses like the ones they serve and as such only a handful of their customers have received PPP funds. While OnDeck is approved to operate as a PPP lender themselves, they have been acting as an agent of them in the interim and will dedicated their resources almost entirely to this endeavor. The company anticipates that originations of its own products could contract by 80% or more in Q2.
The company has not tripped any covenants or triggers with its own lenders as of yet but is currently in discussions with them on a path forward in this environment.
OnDeck reported a Q1 net loss of $59M on Thursday morning. The first quarter loss was driven by an increase in the Allowance for credit losses to reflect the increase in expected credit losses related to the COVID-19 pandemic. Provision for credit losses was $107.9 million. The Allowance for credit losses increased to $206 million at March 31, 2020, up $55 million or 36.1% from year-end and $58 million or 39.5% from a year ago. The 15+ Day Delinquency Ratio increased to 10.3% from 9.0% the prior quarter and 8.7% a year-ago reflecting a broad-based decline in portfolio collections since mid-March.
Noah Breslow, chief executive officer, is quoted in the announcement:
“In the span of several weeks, the spread of COVID-19 led to government-mandated lockdowns for small businesses both in the US and globally, placing our customers under unprecedented economic stress.After a successful and rapid transition to remote work, we effected immediate changes to our business to preserve liquidity, support our customer base, manage our loan portfolio and reduce costs. With an uncertain timetable for the reopening of the economy, and the effectiveness of government stimulus for small businesses unclear, we will be reducing debt balances in the second quarter and focusing on managing our portfolio, delivering government stimulus to our customer base and ensuring the company has the runway to scale operations again when the economy reopens.”
The company fully utilized its initial $50 million share repurchase authorization in the first quarter of 2020. On February 10, 2020, the Board authorized the company to repurchase up to an additional $50 million of common shares, and the company has approximately $23 million of remaining capacity under that authorization. The company suspended share repurchases late February but maintains authorization to resume purchases at its sole discretion.
For 2020, OnDeck expects:
- Portfolio contraction reflecting an 80% or more reduction in second quarter origination volume
- Increased delinquency and charge-offs stemming from COVID-related economic deterioration
- Reduced Net Interest Margin reflecting a lower portfolio yield
- Reduced operating expenses, on pace to cut second quarter expenses by approximately 25%.
The company had been on a modestly positive trajectory as of year-end 2019.
The company’s stock had a somewhat minor rally on Wednesday, closing at $1.61. That’s still substantially down from where it stood on February 20th at $4.22. It hit a low of 66 cents on March 18th. The share price dropped by nearly 19% after earnings were released on Thursday morning.
This story will be updated as the information becomes available.
OnDeck Has Applied to Become a PPP Lender
April 10, 2020OnDeck has applied to become a lender for the Paycheck Protection Program (PPP), according to a post the company made on social media. The online lender is one of the first to publicly announce an official entry for consideration since the application went live for fintech companies Wednesday evening.
OnDeck CEO Noah Breslow said on LinkedIn, “We are excited to be one of the fintechs delivering PPP loans as a direct lender – our team has been working around the clock getting us ready and now we wait and hope we are approved soon!”
OnDeck’s Chief Accounting Officer is Leaving The Company
March 16, 2020On March 9th, OnDeck filed a disclosure with the SEC that their Chief Accounting Officer, Nicholas Sinigaglia, would be leaving the company on May 1st. Sinigaglia was with the company for more than 5 years.
OnDeck said it was doing this as part of changes it had made to streamline its finance organization.
Shares of OnDeck have dropped by more than 50% since that time, likely wrought by the sudden economic disruption.
OnDeck NASCAR Partnership
March 13, 2020
This week OnDeck announced a new partnership with JR Motorsports, sponsoring their no. 8 Chevrolet team. The deal will see OnDeck’s colors brandished on the car driven by Daniel Hemric for two races during the 2020 NASCAR Xfinity Series season. The first of these races will be in Atlanta this weekend, with the second being in Chicago this June.
“It’s awesome to see a new company like OnDeck come into the world of NASCAR and I couldn’t be happier that they have allowed me to be the one that gets to represent them at both Atlanta and lat this year in Chicago with our JR Motorsports Camaro,” Hemric said in a statement. “It’s great to see them using a platform like NASCAR to help get their messaging across. Hopefully they’ll have a great time and we can come away with a couple of victories.”
“We are always looking for innovative ways to engage and connect with small business owners all across the US and Canada, and NASCAR is clearly just a huge and growing phenomenon in the US,” OnDeck’s Sr. Vice President of Marketing Shannon Smith told AltFinanceDaily in a call. “NASCAR fans are 13% more likely than the national average to be small business owners. So given that, this is just a great way to align our brand investment with something that clearly small business owners are really interested in.”
The news comes as OnDeck had an unfortunate week in the stock market, with its value having plummeted by over 40% due to market turbulence.
