Industry-leading reverse mortgage lender Finance of America (FOA) on Tuesday announced updates and new details for a previously announced exchange offer, which would swap current investor bonds due in 2025 with new bonds due one to four years later.
The current unsecured notes, due in 2025 with an interest rate of 7.875%, could be swapped for one of two new bond options — those with the same interest rate due in 2026 (with a company option to extend into 2027), or new bonds with a 10% interest rate that would come due in 2029.
FOA also advised that any investors who participate could receive “a cash fee equal to 0.25% of the aggregate principal amount of outstanding 2025 unsecured notes that are exchanged,” according to the announcement.
Anyone with potential interest in the agreement must signal their intent to participate by 5 p.m. ET on Oct. 25, when the deal is set to expire, the company said. FOA has the discretion to change this date. The deal is applicable for “only eligible holders of 2025 unsecured notes,” who will then be provided with the memorandum detailing the exchange offer and its mechanisms.
By exchanging the current notes for new, secured debt that will come due beyond the original 2025 maturity date — and prioritizing it for noteholders — FOA can have more immediate financial breathing room.
In its original announcement in June, FOA said that more than 90% of the parties to the 2025 unsecured debt agreement consented to the exchange offer. The company said Tuesday that 94% of the existing bond holders have either agreed to the exchange in advance or have “otherwise communicated their intent to participate in the exchange offer and deliver their consents in the consent solicitation.”
FOA previously explained that it is optimistic about the ultimate results of this action.
“The announcement marks another significant step to improve the company’s capital structure and achieve sustainable growth and profitability,” the company said in June of the move.
This is the latest in a series of moves that the industry-leading reverse mortgage company has made in the past few years to shore up its finances. These include the closure of its forward mortgage arm, sales of its Incenter title business and commercial lending business, and most notably, its acquisition of former industry-leading lender American Advisors Group (AAG).
Since closing the AAG deal in April 2023, FOA has made multiple moves to balance its size with its ambitions for reverse mortgages and other retirement solutions. In addition to unifying the FAR and AAG brands under one umbrella, the company has reduced its headcount and has faced threats of delisting from the New York Stock Exchange (NYSE) for being out of compliance with its continued listing standard.
But things have been looking up for the company recently. It successfully implemented a 10-to-1 reverse stock split in June, and it posted improved earnings in the second quarter. The earnings report showed reduced losses — although short of recovery into black ink — and enthusiasm from company leaders over expected business impacts related to the Home Equity Conversion Mortgage (HECM) program and its own marketing efforts.
FOA CEO Graham Fleming expressed optimism regarding Ginnie Mae’s development of a new HECM-backed Securities (HMBS) program dubbed “HMBS 2.0,” saying it is anticipated to help further improve the company’s liquidity position.
“This exciting program provides a more favorable HMBS structure that will significantly reduce the capital required for buyouts and allows for the securitization of these buyouts in the pools backed by Ginnie Mae,” Fleming explained during an August earnings call. “This has the potential to have a positive impact on earnings, tangible net worth and liquidity.”
The company also unveiled a series of new TV spots with former AAG spokesman Tom Selleck. He is featured in three 2-minute commercials that the company said is designed to represent the newly unified brand while “enhancing market visibility and customer recognition.”
In late July, FOA also posted an infomercial featuring Selleck to its YouTube channel. In supplementary earnings materials, FOA said that its sentiment analysis of reverse mortgage media coverage has been steadily improving, and that coverage of the company itself skews “neutral to positive.”
FOA’s share price is also higher. Following the implementation of the reverse stock split at the end of July, FOA’s share price jumped from $0.73 at the end of trading on July 25 to $7.19 per share the following day. This roughly corresponds to the 10:1 ratio that was expected to take place on the effective date.
As of Tuesday afternoon, its share price now stands at $11.73 and has shown signs of a rally over the course of September.
This is a sound idea if there is sufficient participation and the interest rates are not substantially beyond where interest rates will be over the next few years. Sweeteners can have a way of backfiring.
Best of luck in reining a somewhat difficult liabilities section of a balance sheet.