Under the terms of this transaction, the loan principal and interest payment cash flows will go first to the holders of the securitization bonds, and then to the residual equity holders. Conn's will retain the servicing of the securitized loan portfolio and will collect a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables. For the month ended August 31, 2015, the resulting servicing revenue to Conn's is expected to be approximately $5.7 million. This amount will decline over time as the loan balances are paid off. In addition, Conn's will retain all credit insurance income together with certain recoveries related to credit insurance and repair service agreements on charged-off accounts.Conn's expects that the securitized customer receivables will be derecognized from its balance sheet if it executes a sale of all or a significant portion of the residual equity, subject to meeting certain accounting requirements. If a significant portion of the residual equity is not sold, the debt and securitized portfolio will remain on the Company's balance sheet. The receivables and the debt will be held in a legally isolated, bankruptcy remote entity. As a result, the debt is non-recourse to Conn's and the financial risk to the Company is limited to the net book value of the residual equity retained (which is the net book value of the receivables, plus the cash reserve, minus the securitized debt). The Company anticipates that the financial terms (advance rates and interest rates) of future securitization transactions will improve based on the following factors:
- Future pools are expected to be recently originated receivables, which have traditionally had lower net losses as a percentage of the pool, than a seasoned pool;
- There are higher amounts of anticipated future interest earnings to be realized from accounts which will ultimately be repaid;
- Repeat issuers typically receive improved financial terms after their first transaction in the securitization market; and
- The Company anticipates obtaining ratings for its future transactions.
Authorization of Securities RepurchasesThe Board of Directors authorized an aggregate repurchase program of up to $75.0 million (the maximum amount permitted under the Company's credit facility and senior note indenture) consisting of (i) shares of the Company's outstanding common stock; (ii) 7.250% Senior Notes Due 2022; or (iii) a combination thereof. Common stock and senior note repurchases may be made from time to time on the open market or through privately negotiated transactions, at management's discretion, based on market and business conditions. The Company has no obligation to repurchase shares or senior notes under the authorization, and the timing and value of the shares and notes that are repurchased will be at the discretion of management and will depend on a number of factors, including the price of the Company's common stock and the senior notes. The Company may suspend or discontinue repurchases at any time without notice. Mr. Wright added, "We will continue to invest in our business and believe the repurchase programs underscore our confidence in our long-term growth prospects, consistent with our overall commitment to generate continued profitable growth and enhanced long-term shareholder value." The Company is considering alternatives for further use of the net proceeds from the securitization transaction, including funding the growth of the business and potentially providing additional returns of capital to stockholders or additional repurchases of senior notes. Conn's has entered into an amendment of its credit facility with its lenders to permit the securitization transaction and to allow for the repurchase program. Additional repurchases of Conn's common stock or senior notes above the $75.0 million would require further amendment to the Company's credit agreement and indenture governing its senior notes. Termination of Stockholders' Rights Plan In connection with the completion of the Company's strategic review, the Board of Directors has approved the termination of the Company's stockholders' rights plan, effective at the close of the securitization transaction, currently anticipated to take place on or about September 10, 2015. The Company adopted its stockholders' rights plan in October 2014 to enable management and the Board to explore strategic alternatives while reducing the likelihood that any person or group would gain control of Conn's through open market accumulation or otherwise without appropriately compensating all of the Company's stockholders.
None of the securities described in this press release have been registered under the Securities Act of 1933, as amended, or applicable state securities laws, and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. This press release shall not constitute an offer to sell or the solicitation of an offer to buy these securities, and there shall not be any offer or sale of these securities in any state in which such offer, solicitation or sale would be unlawful.About Conn's, Inc. Conn's is a specialty retailer currently operating approximately 95 retail locations in Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas. The Company's primary product categories include:
- Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
- Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
- Consumer electronics, including LCD, LED, 3-D and Ultra HD televisions, Blu-ray players, home theater and portable audio equipment; and
- Home office, including computers, printers and accessories.