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World Acceptance Nears a Violation of Loan Covenant

Adam Rust's picture

Posted October 9, 2014

World Acceptance is in danger of failing to meet the terms of a covenant written into the most recent amendment of its commercial credit agreement.

According to a loan that the company signed with a consortium of lenders back in March of this year, World Acceptance must maintain a minimum net worth of $265 million. Back when World signed that agreement, the sum of its assets minus its liabilities stood at $307.4 million But the company has had a rough go over the last few months. As of June 30th, World's net worth has slipped to $284.3 million. To some extent, this is a problem that was outside of the normal range of expectations. The lenders and the company had little reason to believe that the trigger would be relevant. At the end of September 2013, World reported a net worth of $352.7 million. In March 2012, the number stood at $418.9 million. 

A covenant in the September 6th, 2013 amendment required World to maintain a minimum net worth of $275,000. 

My question is this: will World's lenders actually enforce the language in this contract, or will they choose to ignore the situation? Will they use the moment as a merely a means to provoke another agreement, and in so doing, to extract another round of advisory fees? 

The question may present itself in the next week or so. World is yet to publish results from the quarter that ended on September 30th. It would be reasonable to expect a filing in the very near future. 

An interesting development did occur last month, however. KPMG declined to continue in its role as World's independently registered public account firm.  This is unusual, as most firms prefer to keep corporate clients. Generally, the only reason to do so is when there is some doubt about the integrity of the information supplied by the client.  

Who Finances World Acceptance?

  • Wells Fargo (Lender, Administrative Agent, and Collateral Agent)
  • Bank of America
  • Bank of Montreal
  • Capital One
  • TD Bank
  • BB&T
  • Texas Capital Bank
  • First Tennessee Bank

About World Acceptance

World Acceptance is a multi-product consumer finance company. They offer consumer installment loans in a variety of term lengths as well as a variety of services such as motor club memberships or credit insurances.  Recently, the CFPB issued a Civil Investigative Demand to the company. They have 1,271 stores in 15 states and in Mexico.