EXHIBIT 10.5
[LETTERHEAD OF NIKKO]
Preferred Credit Corporation
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xx-Xxx Xx ,Chief Financial Officer
Telephone: (000)000-0000
Facsimile: (000)000-0000 June 13,1997
Gentlemen:
This Commitment Letter confirms our agreement between Preferred Credit
Corporation ("Customer") and Nikko Financial Services, Inc. ("Nikko") pursuant
to which Xxxxx shall provide committed financing collateralized by eligible
Mortgage Loans in accordance with the terms and conditions hereof and as set
forth in the Residential Mortgage Financing Facility and the Promissory Note,
dated as of June 13, and the Tri-Party Custody Agreement(s) executed by Customer
related thereto (collectively, the "Agreements"). Capitalized terms not defined
herein shall have the meanings ascribed to them in the Agreements.
In the event of a conflict between the terms of this Commitment Letter and the
terms of the Agreements, the terms of this Commitment Letter shall control.
Subject to the terms and conditions of the Agreements and the Commitment Letter,
Xxxxx hereby commits to:
1. Provide a revolving credit line to Customer for 1 to 4 family residential
second lien (or better) Mortgage Loans which, will have an LTV (when combined
with the LTV of the First Mortgage) less than or equal to 125% ("125 Mortgage
Loans") until June 30,1998 ( the" Expiration Date") as follows:
(a) $ 150,000,000 for 125 Mortgage Loans with the Required Documents
delivered to Custodian in accordance with terms of the Agreements ("125
Mortgage Transactions").
provided, however, that:
(i) all Mortgage Loans shall have an underwritten FICO score in excess of
620;
(ii) all Mortgage Loans shall be eligible for securitzation under the
current applicable rating-agency standards and shall be underwritten in
accordance with the underwriting guidelines previously submitted to,
and approved by, Nikko;
(iii) the total of all Advances involving Mortgage Loans with respect to
which the Required Documents have not yet been delivered, but which
shall be delivered, to Custodian in accordance with Section 9(b) of the
Custody Agreement ("Wet Transaction"), shall not exceed $ 15,000,000.
2. Maintain an Advance Rate per annum as follows:
(a) 175 basis points over LIBOR of comparable maturity for any 125 Mortgage
Transaction and;
(b) 200 basis points over LIBOR of comparable maturity for any Wet
Transaction;
provided, however, that (i) for purposes of the foregoing, "LIBOR" shall
mean the London Inter-Bank Offered Rate, as quoted from time to time, by
Xxxxx in good faith, and (ii) Nikko may charge Customer for any related
daylight overdraft charge at the rate imposed on Nikko, if any.
Customer commits to:
1. With respect to each Advance, provide to Nikko, when such Advance is made
and thereafter on a daily mark to market basis, Collateral equal to 102% of
each such Advance related to a 125 Mortgage Transaction (i.e., at any time
an Advance is made or shall be outstanding, such Advance shall not exceed
98% of the Collateral Value of the items of Collateral included in the Trust
Receipt).
2. Pay Nikko on the first day of each month or of the month following the
expiration or termination of the Commitment, a Non-usage Fee, if the average
daily principal balance of all Advances outstanding during the immediately
preceding calendar month is less than $100 million. Such Non-usage Fee shall
be calculated by multiplying (a) the amount representing the difference
between $100 million and the average daily outstanding principal balance of
all Advances for the relevant month by (b) 25 basis points, and dividing
such product by 12;
3. Provide evidence to Nikko that Customer has, and will continue to maintain,
insurance coverage for itself and its subsidiaries that encompasses employee
dishonesty, forgery or alteration, theft, disappearance and destruction,
robbery and safe burglary, property (other than money and securities), and
computer fraud in an aggregate amount of at least $1,000,000 and shall
include Nikko Financial Services, Inc. as a Loss Payee; and
4. Notify Nikko of its intent to borrow under an Advance at least 1 Business
Day prior to such Advance.
5. Provide Nikko or its designees with such data regarding the Mortgage Loans
as requested by Xxxxx which data shall be in computer-readable form
acceptable to Nikko.
Xxxxx shall have the right to terminate this Commitment Letter, and Xxxxx shall
no longer be obligated to make Advances under this Commitment and may accelerate
the maturity dates of all Advances then outstanding, upon the occurrence of a
Commitment Letter Termination Event. Upon such termination, Xxxxx shall have no
obligation to return any fees collected and may exercise any right or remedy
available to it in the Agreements or at law. A Commitment Letter Termination
Event shall include any one or more of the following:
1. an "Event of Default" shall have occurred under any of the Agreements.
2. Any litigation or proceeding affecting Customer or its subsidiaries that is
likely to be adversely determined and which, if adversely determined, could
have a material adverse effect on the Collateral or the ability of Customer
to pay and perform on the Obligations.
3. Customer consolidates or amalgamates with, or merges into or transfers all
or substantially all its assets to another entity and, at the time of such
consolidation, amalgamation, merger or transfer:
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(a) the resulting, surviving or transferee entity fails to assume all the
obligations of Customer and its subsidiaries under this Commitment
Letter and the Agreements by operation of law or pursuant to an
agreement satisfactory to Nikko; or
(b) the benefits of any guarantee, support letter or "keep well" letter
relating to this Commitment Letter or the transactions herein
contemplated fail to extend to the performance by such resulting,
surviving or transferee entity of its obligations under this Commitment
Letter.
4. Financial Condition
(a) A change in Customer's business, operations or financial condition that
would materially and adversely affect the ability of Customer to
perform its obligations under this Commitment Letter and the Agreements
as determined in good faith by Xxxxx;
(b) GAAP Net Worth is less than $ 17 million;
(c) Customer's Adjusted Net Worth is less than $ 17 million. With respect
to the foregoing, "Adjusted Net Worth" shall mean, at any date, the sum
of Tangible Net Worth plus 1% of the aggregate outstanding principal
balance of all 1 to 4 family residential mortgage loans in Customer's
servicing portfolio, if any. "Tangible Net Worth" shall mean the excess
of total assets over total debt determined in accordance with GAAP but
shall exclude all assets (other than deferred commitment fees) which
would be classified as intangible assets under GAAP (e.g., purchased
and capitalized value of servicing rights, excess servicing fees,
goodwill, and deferred charges including, without limitation,
unamortized debt discount and expense, and organization costs).
(d) As of any date Customer's ratio of current assets to current
liabilities is less than 1.05:1; provided,however, that "current
assets" shall include residual securities at the then current market
value.
(e) Customer experiences three (3) consecutive quarterly losses;
(f) Customer, directly or indirectly, engages in any business other than
the mortgage banking business;
(g) Customer uses the proceeds of the Advances for any purpose other than
to fund the related Mortgage Loans;
(h) Customer sells any asset other than in its ordinary course of its
business; and
(i) Customer guarantees the debt obligation of any other entity.
5. Financial Statements:
(a) Customer shall fail to deliver to Nikko within 90 days after the last
day of its fiscal year, its audited consolidated statement of income
and statement of changes in cash flow for such year and balance sheet
as of the end of such year in each case presented fairly in accordance
with GAAP and the requirements of HUD Handbook IG 4000.3 REV and
accompanied, in all cases, by an unqualified report of a firm of
independent certified public accountants acceptable to Nikko.
(b) Customer shall fail to deliver to Nikko within 60 days after the last
day of each of the first three fiscal quarters in any fiscal year of
Customer, its consolidated statement of income and statement of changes
in cash flow for such quarter and balance sheet as of the end of such
quarter presented fairly in accordance with GAAP.
(c) Customer shall fail to deliver to Nikko within 30 days after the last
day of each calendar month in any fiscal year of Customer, (i) its
consolidated statement of income for such month and balance sheet as of
the end of such month accompanied in each case by a certificate of the
chief financial officer or treasurer of Customer stating that such
financial statements are presented fairly in accordance with GAAP and
the requirements of HUD Handbook IG 4000.3 REV and (ii) an officer's
certificate from its chief financial officer or treasurer certifying
that there does not exist an event of default in the Agreements.
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(d) Customer shall fail to deliver to Nikko as soon as available copies of
all proxy statements, financial statements, and reports which Customer
sends to its stockholders, and copies of all regular, periodic and
special reports, and all registration statements under the Securities
Act of 1933, as amended, which it files with the Securities and
Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange.
(e) Customer shall fail to deliver to Nikko as soon as the same are
available, copies of all regular, periodic and special audit reports
conducted by GNMA, FNMA and/or FHLMC with respect to Customer's
operations.
6. There occurs a catastrophic event or events resulting in the effective
absence of a "repo market" for a period of at least 30 consecutive days
respecting mortgage loans and such event results in Nikko not being able to
finance any Advance through the repo market with Xxxxx's traditional repo
counterparties. Upon the occurrence of such an event, Customer shall not be
obligated to make any further payments of Commitment Fees or Non-usage Fees
Customer hereby represents, warrants and covenants that Nikko is not, and will
not, be Customer's sole source of funding of its business, and that it has not
and will not guarantee any debt obligation of any entity without the express
written consent of Nikko. Customer agrees to immediately notify Xxxxx upon any
intent to effect any change in ownership of Customer.
Please acknowledge your agreement to the foregoing by signing and returning the
enclosed duplicate of this letter, whereby this Commitment Letter shall become a
binding agreement between Nikko and Customer.
Sincerely,
Nikko Financial Services, Inc.
BY: /s/ Xxxxx Xxxxxx
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NAME: Xxx Xxxxxx
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TITLE: Managing Director
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AGREED AND ACCEPTED
Preferred Credit Corporation
BY: /s/ Xxxx Xxxxxxxxx
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NAME: Xxxx Xxxxxxxxx
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TITLE: C.E.O.
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