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Item 1.01
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Entry into a Material Definitive Agreement
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General
As previously disclosed, The New Home Company Inc. (the “Company”) entered into an Agreement and Plan of Merger, dated as of July 23, 2021 (the “Merger Agreement”), with Newport Holdings, LLC (the “Parent”) and Parent’s wholly-owned subsidiary, Newport Merger Sub, Inc. (“Merger Sub”) pursuant to which, subject to the terms and conditions of the Merger Agreement, on September 8, 2021 (the “Closing Date”), Merger Sub merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of the Parent.
On the Closing Date, the Company also entered into a Credit Agreement (the “New Credit Agreement”) among the Parent, the subsidiary guarantors party thereto from time to time (the “Subsidiary Guarantors”), the initial lenders party thereto and JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent for the lenders. The New Credit Agreement provides for a senior unsecured revolving credit facility (the “Revolving Credit Facility”) not to exceed an aggregate principal amount of $100 million, which revolving credit facility may, subject to the lenders’ discretion, be increased by an amount equal to the greater of $50 million and 10.0% of Consolidated Tangible Assets (as defined in the New Credit Agreement). There is a $30 million sublimit for the issuance of letters of credit under the Revolving Credit Facility. All obligations under the Revolving Credit Facility are guaranteed by the Parent and the Subsidiary Guarantors.
The Revolving Credit Facility is, subject to customary conditions, available for general corporate purposes or any other purpose not prohibited by the New Credit Agreement. The New Credit Agreement will mature on September 8, 2025, provided that if on July 16, 2025, any of the Company’s 7.25% senior unsecured notes due 2025 remain outstanding, then the New Credit Agreement will mature on such date.
Interest Rate and Fees
Borrowings under the Revolving Credit Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 0.00% floor, or (b) a base rate determined by reference to the highest of (i) the prime rate last quoted by The Wall Street Journal, (ii) the federal funds rate plus 0.50% and (iii) the one-month adjusted LIBOR plus 1.00%. The applicable margin for the Revolving Credit Facility may range from 2.50% to 3.25% for LIBOR loans and 1.50% to 2.25% for base rate loans, in each case, based on the Company’s net leverage ratio. The Company’s net leverage ratio is calculated as the ratio of (x) Consolidated Net Debt (as defined in the New Credit Agreement) to (y) the sum of (A) Consolidated Net Debt plus (B) the stockholders’ equity of the Company and its restricted subsidiaries (the “Net Leverage Ratio”).
In addition to paying interest on the outstanding principal under the Revolving Credit Facility, the facility also includes a commitment fee that may range from 0.25% to 0.40% per annum (based on the Company’s Net Leverage Ratio) in respect of the unused commitments that is due quarterly. The Company will also be required to pay customary agency fees as well as customary fees in respect of outstanding letters of credit.
Restrictive Covenants and Other Matters
The Revolving Credit Facility includes financial covenants, which require the Company to maintain (i) a Consolidated Tangible Net Worth (as defined in the Credit Agreement) of not less than 65% of Consolidated Tangible Net Worth on the Closing Date, plus the sum of (x) 50% of the cumulative Consolidated Net Income for each fiscal quarter commencing after the Closing Date and (y) 50% of the net cash proceeds of any equity issuance received by the Company after the Closing Date (subject to certain deductions set forth