8-K
OLD MARKET CAPITAL Corp (OMCC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 3, 2022
NICHOLAS FINANCIAL, INC.
(Exact name of registrant as specified in its Charter)
| British Columbia, Canada | 0-26680 | 59-2506879 |
|---|---|---|
| (State or Other Jurisdiction of<br><br>Incorporation or Organization) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>Identification No.) |
| 2454 McMullen Booth Road, Building C<br><br>Clearwater, Florida | 33759 | |
| --- | --- | |
| (Address of Principal Executive Offices) | (Zip Code) |
(727) 726-0763
(Registrant’s telephone number, Including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock | NICK | NASDAQ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
As part of the restructuring plan disclosed in response to Item 8.01 of this Current Report on Form 8-K, on November 3, 2022, Nicholas Financial, Inc., a Florida corporation (“Nicholas”) and indirect wholly-owned subsidiary of Nicholas Financial, Inc., a British Columbia company and the registrant (the “Company”), entered into a loan servicing agreement (the “Servicing Agreement”) with Westlake Portfolio Management, LLC, a California limited liability company (“Westlake”).
Pursuant to the Servicing Agreement, on or around the “Closing Date” (expected to occur prior to early December 2022), Westlake will begin servicing all receivables held by Nicholas under its automobile finance installment contracts and direct loans, except for charged-off and certain other receivables. Those receivables covered by the Servicing Agreement as of the Closing Date are referred to as the “initial receivables.” Nicholas expects to add additional receivables to the receivables pool covered under the Servicing Agreement from time to time in the future. All receivables remain vested in Nicholas.
More specifically, Westlake has agreed to manage, service, administer and make collections on the receivables, as well as perform certain other duties specified in the agreement, in accordance with servicing practices and standards used by prudent sale finance companies or lending institutions that service motor vehicle secured retail installment contracts of the same type. Westlake will maintain custody of the receivable files and lien certificates, acting as custodian for the Company.
Under the Servicing Agreement, Nicholas has agreed to pay Westlake a boarding fee with respect to the initial receivables, and boarding fees based on a percentage of any additional receivables to be added to the pool in the future. In addition, Nicholas is obligated to pay Westlake monthly servicing fees depending on the aggregate principal balance of receivables, the types of services provided by Westlake and the payment status of the various loans. The Company expects to classify such fees as administrative costs on its financial statements. The disclosure on administrative costs included in Item 2.05 of this Current Report on Form 8-K, which relates solely to the initial receivables, is incorporated herein by reference. Any additional receivables will also be subject to such servicing fees and presented as administrative costs on the Company’s financial statements. Collections of amounts made after accounts have been charged off are split between Nicholas and Westlake. Nicholas must also reimburse Westlake for certain expenses specified in the Servicing Agreement.
The Servicing Agreement contains representations and warranties by both parties. It allows Westlake to delegate its duties under the agreement to an affiliate or subservicer with Nicholas’ prior written consent. If certain events specified in the Servicing Agreement occur (“Servicer Termination Events”), Nicholas is entitled to terminate Westlake’s rights and obligations and appoint a successor servicer under the agreement.
The Servicing Agreement will become effective after Nicholas has transferred the relevant receivables files to Westlake and expires upon the earliest to occur of (i) the date on which Nicholas sells, transfers or assigns all outstanding receivables to a third party (including to Westlake), (ii) the date on which the last receivable is repaid or otherwise terminated and (iii) 3 years from the Closing Date. If Nicholas terminates the Agreement other than for a Servicer Termination Event, it is obligated to pay Westlake a termination fee if the termination occurs prior to the third anniversary of the Closing Date, which fee, if payable, is expected to exceed $1 million.
Item 2.05 Costs Associated with Exit or Disposal Activities.
As part of the restructuring plan disclosed in response to Item 8.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference, the Board of Directors of the Company determined on November 3, 2022 to close 34 of its 36 branches. Consolidation of workforce associated with these closures is expected to impact approximately 173 employees, representing 82% of the Company workforce as of such date.
The expected total charges are between $11.1 million and $12.4 million, consisting of cash expenditures between $11.0 million and $12.3 million, and approximately $0.1 million of non-cash impairment charges associated with lease obligations.
Of the expected total charges, the Company estimates incurring, in the first year following implementation of the restructuring plan, between $4.3 million and $4.6 million of administrative costs, between $0.2 million and $0.3 million of employee-related costs, including severance expenses, and between $3.3 million and $3.4 million for lease terminations, and, in the second through fifth year following such implementation, between $3.2 million and $4.0 million of administrative costs in the aggregate.
The closing of branches and consolidation of the workforce is expected to be completed by January 31, 2023. The Company expects that the majority of lease terminations and employee-related charges will be recorded in the third quarter of Fiscal Year 2023.
The above estimates of charges and timelines could change as the Company’s plans evolve and become finalized.
Item 8.01 Other Events.
On November 3, 2022, the Company announced a change in operating strategy and restructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this plan, the Company would shift from a decentralized to a regionalized business model. While the Company intends to continue purchase and origination activities, its servicing, collections and recovery operations will be outsourced to Westlake. The Company expects that this plan will reduce overhead, streamline operations and reduce compliance risk, while maintaining the Company’s underwriting standards. The related press release is attached as Exhibit 99.1 hereto.
Item 9.01 Financial Statements and Exhibits
| Exhibit # | Description |
|---|---|
| 99.1 | Press Release Restructuring Plan |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.
| NICHOLAS FINANCIAL, INC. | ||
|---|---|---|
| (Registrant) | ||
| Date: November 3, 2022 | /s/ Irina Nashtatik | |
| Irina Nashtatik | ||
| Chief Financial Officer<br><br>(Principal Financial Officer) |
EX-99.1
Exhibit 99.1
 |
FOR IMMEDIATE RELEASE | |
|---|---|---|
| Nicholas | Contact: Irina Nashtatik | NASDAQ: NICK |
| Nicholas Financial, Inc.<br><br>Corporate Headquarters<br><br>2454 McMullen-Booth Rd.<br><br>Building C, Suite 501<br><br>Clearwater, FL 33759 | CFO<br><br>Ph # (727)-726-0763 | Web site: www.nicholasfinancial.com |
Nicholas Financial Announces Change in Operating Structure and
Servicing Agreement with Westlake Portfolio Management
November 03, 2022 – Clearwater, Florida - Nicholas Financial, Inc. (NASDAQ: NICK) announced today a restructuring plan designed substantially to reduce operating expenses and free up capital. Under this plan, Nicholas will shift from a decentralized to a regionalized business model. While Nicholas intends to continue purchase and origination activities, its servicing, collections and recovery operations will be outsourced to Westlake Portfolio Management.
CEO Mike Rost commented that “Nicholas will remain a consumer finance company for automobiles and light trucks. We are taking this step to reduce our operational footprint after careful consideration of our options and believe that this plan will reduce overhead, streamline operations, and reduce compliance risk, while maintaining Nicholas’s underwriting standards. We expect significant annual operating cost savings to substantially exceed the upfront costs associated with the restructuring. We also anticipate that this will allow the company to pay down the line of credit with Wells Fargo and free up equity capital.” Chairman Jeffrey Royal added: “Westlake is an excellent fit for the direction the company is taking. They will fully service the portfolio and reduce operating expenses, allowing us to focus on the front-end operational changes and make some of our equity capital available for investment. The Company will be looking to allocate excess cash into our newly restructured finance business as well as review new business opportunities with the sole goal being to generate sufficient returns on shareholder equity. Please see our letter to shareholders issued on May 25, 2022 for more information on how the board thinks about capital allocation.”
About Nicholas Financial, Inc.
Nicholas Financial, Inc. (NASDAQ:NICK) is a specialized consumer finance company, operating branch locations in both Southeastern and Midwestern U.S. States. The Company engages primarily in acquiring and servicing automobile finance installment contracts (“Contracts”) for purchases of used and new automobiles and light trucks. Additionally, Nicholas Financial originates direct consumer loans (“Direct Loans”) and sells consumer-finance related products. For an index of Nicholas Financial, Inc’s new releases or to obtain a specific release, please visit our website at www.nicholasfinancial.com.
About Westlake Portfolio Management, LLC
Westlake Portfolio Management, LLC is a wholly owned subsidiary of Westlake Services, LLC. Westlake Portfolio Management provides industry leading collection services for automobile receivables that help clients reduce costs and improve receivable performance. Clients benefit from Westlake Portfolio Management’s technology platform that results in effective and compliant collection efforts, above and beyond what most automobile dealers, finance companies, and lenders can do on their own, making Westlake Portfolio Management an ideal choice for portfolio servicing.
Forward-Looking Information
This release contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management’s current beliefs and assumptions, as well as information currently available to management. When used in this document, the words “anticipate”, “estimate”, “expect”, “will”, “may”, “plan,” “believe”, “intend,” “forecast” and similar expressions are intended to identify forward-looking statements. Such statements, including statements about the expected benefits, costs and timing of the Company’s restructuring and change in operating strategy, including its servicing arrangement with Westlake and its exit and disposal activities are subject to certain risks, uncertainties and assumptions, including but not limited to the risk that the anticipated benefits of the restructuring and change in operating strategy, including the servicing arrangement with Westlake, do not
materialize to the extent expected or at all, and that the actual costs of the exit and disposal activities exceed the Company’s estimates or that such activities are not completed on a timely basis, and including the risk factors discussed under “Item 1A – Risk Factors” in our Annual Report on Form 10-K (some of which, to the extent relating to loan servicing, administration and/or collection, apply similarly to Westlake), and our other filings made with the U.S. Securities and Exchange Commission (“SEC”). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. All forward-looking statements included in this report are based on information available to the Company as of the date of filing, and the Company assumes no obligation to update any such forward-looking statement except as required by law.