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 maturing in 2025 with new bonds maturing one to four years later.
The current unsecured bonds, which mature in 2025 with an interest rate of 7.875%, could be exchanged for one of two new bond options: those with the same interest rate maturing in 2026 (with a corporate option to extend until 2027), or new bonds . with an interest rate of 10% that would mature in 2029.
FOA also advised that all investors who participate “could receive a cash compensation equal to 0.25% of the aggregate principal amount of the outstanding 2025 unsecured notes redeemed,” according to the announcement.
Anyone with potential interest in the deal must register their intent to participate by 5 p.m. ET on Oct. 25, when the deal expires, the company said. FOA has the right to change this date. The deal applies to “eligible holders of 2025 unsecured notes only,” who will then receive the memorandum detailing the exchange offer and its mechanics.
By exchanging current notes for new, secured debt maturing after the original 2025 maturity date – and making that a priority for noteholders – FOA can gain more immediate financial breathing space.
In its original announcement in June, FOA said more than 90% of the parties to the 2025 unsecured debt deal agreed to the exchange offer. The company said Tuesday that 94% of existing bondholders have either pre-consented to the exchange or “otherwise communicated their intent to participate in the exchange offer and provided their consent in the consent solicitation.”
FOA previously explained that it is optimistic about the final results of this action.
“The announcement marks another important step to improve the company’s capital structure and achieve sustainable growth and profitability,” the company said of the move in June.
This is the latest in a series of moves the leading reverse mortgage loan company has taken in recent years to shore up its finances. These include the closing of the mortgage branch and its sale Incenter title activities and commercial lending, and in particular the acquisition of a former leading lender American consultant group (AAG).
Since closing the AAG deal in April 2023, FOA has taken several steps to balance its size with its ambitions in reverse mortgages and other retirement solutions. In addition to uniting the FAR and AAG brands under one umbrella, the company has reduced its workforce and faced the threat of delisting. New York Stock Exchange (NYSE) because it does not meet the continuous listing standard.
But lately, things are looking up for the company. The company successfully implemented a 10-for-1 reverse stock split in June and posted improved profits in the second quarter. The earnings report showed reduced losses – although no black ink recovery yet – and enthusiasm from company executives about the expected business impact associated with the Home Equity Conversion Mortgage (HECM) program and its own marketing efforts.
FOA CEO Graham Fleming was optimistic about the situation Ginny Mae‘s development of a new HECM-backed Securities (HMBS) program called “HMBS 2.0,” says it is expected to 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 enable the securitization of these buyouts into the pools backed by Ginnie Mae,” Fleming explained during an earnings call in August. “This has the potential to have a positive impact on earnings, tangible assets and liquidity.”
The company also unveiled a series of new TV spots featuring former AAG spokesman Tom Selleck. He is featured in three 2-minute commercials that the company says are designed to represent the newly unified brand while “increasing market visibility and customer recognition.”
At the end of July, FOA also posted a message an infomercial featuring Selleck to his YouTube channel. In additional earnings material, FOA said its sentiment analysis of media coverage of reverse mortgages has steadily improved, and that coverage of the company itself is “neutral to positive.”
FOA’s stock price is also higher. After implementing the reverse stock split in late July, FOA’s stock price rose from $0.73 at the end of trading on July 25 to $7.19 per share the next day. This roughly corresponds to the 10:1 ratio expected to occur on the effective date.
The share price as of Tuesday afternoon now stands at $11.73 and shows signs of a rally during September.
