UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-11599
AMRESCO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-1781257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 N. Pearl Street, Suite 2400, LB 342, Dallas, Texas 75201-7424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 953-7700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
48,771,303 shares of common stock, $.05 par value per share, as of
November 5, 1999.
AMRESCO, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations - Three and
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statement of Shareholders' Equity - Nine
Months Ended September 30, 1999 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 23
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
AMRESCO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
September 30, December31,
1999 1998
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 93,831 $ 66,422
Loans and asset portfolios, net 1,022,784 943,119
Loans held for sale, net 464,589 694,397
Retained interests in securitizations - trading (at fair value) 317,768 538,977
Asset-backed securities - available for sale (at fair value) 120,519 141,181
Mortgage servicing rights, net of accumulated amortization of
$12,686 and $3,872 80,545 49,387
Intangible assets, net of accumulated amortization of
$65,384 and $34,470 348,535 262,815
Deferred income taxes 49,271 30,755
Premises and equipment, net of accumulated depreciation
of $18,265 and $16,769 20,516 23,223
Accounts receivable, net of reserves of $617 and $696 21,478 20,683
Income taxes receivable 65,937
Other assets 84,908 81,814
TOTAL ASSETS $2,624,744 $2,918,710
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 19,865 $ 43,280
Accrued employee compensation and benefits 24,700 28,420
Notes payable 874,997 957,871
Senior subordinated notes 580,090 580,179
Senior notes 57,500
Warehouse loans payable 425,876 587,426
Other liabilities 79,311 78,627
Total liabilities 2,004,839 2,333,303
SHAREHOLDERS' EQUITY:
Common stock, $0.05 par value, authorized 150,000,000
shares; 49,795,642 and 49,099,135 shares issued 2,491 2,456
Capital in excess of par 546,599 543,871
Common stock to be issued for earnouts 87,548
Treasury stock, $0.05 par value, 1,024,339 shares in 1999 and 1998 (17,363) (17,363)
Accumulated other comprehensive loss (7,798) (12,651)
Unamortized stock compensation (5,980) (4,981)
Retained earnings 14,408 74,075
Total shareholders' equity 619,905 585,407
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,624,744 $2,918,710
</TABLE>
See notes to consolidated financial statements.
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
REVENUES:
<S> <C> <C> <C> <C>
Interest and other investment income (loss) $ (7,096) $117,344 $128,209 $302,295
Gain on sale of loans and investments, net 3,038 56,714 125,512 116,397
Mortgage banking and servicing fees 38,353 40,293 103,135 96,273
Unrealized loss on mortgage loans held for sale (40,571) (40,571)
Asset management and resolution fees 5,863 6,601 15,043 13,433
Other revenues (losses) (247) (342) 2,431 8,252
Total revenues 39,911 180,039 374,330 496,079
EXPENSES:
Personnel 69,215 63,688 200,250 156,964
Interest 40,436 70,711 124,917 182,704
Other general and administrative 33,702 31,830 90,532 64,469
Provision for loan and asset portfolio losses 146 5,166 (18) 18,731
Depreciation and amortization 13,967 7,309 38,007 16,740
Impairment of intangible asset 8,651 8,651
Total expenses 166,117 178,704 462,339 439,608
Income (loss) before income taxes (126,206) 1,335 (88,009) 56,471
Income tax expense (benefit) (44,197) 577 (28,342) 22,004
NET INCOME (LOSS) $ (82,009) $ 758 $ (59,667) $ 34,467
Earnings (loss) per share:
Basic $ (1.71) $ 0.02 $ (1.25) $ 0.82
Diluted (1.71) 0.02 (1.25) 0.80
Weighted average number of common shares outstanding
Basic 47,931 44,280 47,818 41,921
Diluted 47,931 45,443 47,818 43,297
</TABLE>
See notes to consolidated financial statements.
AMRESCO, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1999
(In thousands, except par value)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
$0.05 par value
Accumulated
Number of Capital in Other Compr. Total
Shares Excess of Treasury Comprehen. Retained Income Shareholders'
Amount Par Other Stock Income(Loss) Earnings (Loss) Equity
(s) (c) <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1999 49,099 $2,456 $543,871 $(4,981) $(17,363) $(12,651) $ 74,075 $585,407
Comprehensive loss:
Net loss (59,667) $(59,667)
Other comprehensive
income, net of tax:
Unrealized gain on
securities (net of $1,223 Tax) 1,906 1,906
Realized loss on securities
(net of $101 tax) 447 447
Foreign currency translation
adjustments (net of $1,598 tax) 2,500 2,500
Other comprehensive income 4,853
Comprehensive loss $(54,814) (54,814)
Issuance of common stock
for earnout 27 1 194 195
Exercise of stock options 4 34 34
(including tax benefit)
Issuance of common stock for
unearned stock compensation 708 36 6,598 (6,634)
Purchase of subsidiary
stock price change (4,049) (4,049)
Amortization of unearned
stock compensation 5,084 5,084
Common stock to be issued
for earnouts 87,548 87,548
Other (42) (2) (49) 551 500
SEPTEMBER 30, 1999 49,796 $2,491 $546,599 $81,568 $(17,363) $ (7,798) $ 14,408 $617,905
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (59,667) $ 34,467
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of loans and investments (125,512) (116,397)
Unrealized loss on retained interests in securitizations 90,000
Unrealized loss on mortgage loans held for sale 40,571
Depreciation and amortization 38,007 16,740
Impairment of intangible asset 8,651
Accretion of interest income, net (19,153) (10,323)
Provisions for loan and asset portfolio losses (18) 18,731
Deferred income taxes (18,516) (14,055)
Other 9,713 2,207
Increase (decrease) in cash for changes in (exclusive of
assets and liabilities acquired in business combinations):
Loans held for sale, net 304,727 (1,302,580)
Retained interests in securitizations 179,586 (134,183)
Other assets (12,963) (20,838)
Accounts payable (23,415) 4,776
Income taxes payable/receivable 66,665 (18,718)
Warehouse loans payable (161,550) 1,187,256
Other liabilities and accrued compensation and benefits (8,174) 34,655
Net cash provided by (used in) operating activities 268,381 (277,691)
INVESTING ACTIVITIES:
Origination of loans and purchase of asset portfolios (530,627) (698,763)
Collections on loans and asset portfolios 475,828 463,942
Purchase of asset-backed securities - available for sale (115,702)
Proceeds from sale of and collections on asset-backed
securities - available for sale 13,995 22,572
Origination and purchase of mortgage servicing rights (39,163) (17,979)
Purchase of subsidiaries (23,965) (61,579)
Other 3,347 (11,541)
Net cash used in investing activities (100,585) (419,050)
FINANCING ACTIVITIES:
Net proceeds from notes payable and other debt 812,753 1,424,253
Repayment of notes payable and other debt (953,194) (1,158,031)
Proceeds from issuance of senior subordinated notes, net
of issuance costs 320.828
Proceeds from common stock offering 147,524
Other 54 (11,229)
Net cash provided by (used in) financing activities (140,387) 723,345
Net increase in cash and cash equivalents 27,409 26,604
Cash and cash equivalents, beginning of period 66,422 25,866
Cash and cash equivalents, end of period $ 93,831 $ 52,470
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 140,765 $ 170,660
Common stock to be issued for earnouts 87,548
Common stock issued for unearned stock compensation, net 6,128 6,015
Income taxes paid 4,948 27,228
Common stock issued for the purchase of subsidiaries
and earnouts 195 107,026
</TABLE>
See notes to consolidated financial statements
AMRESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
AMRESCO, INC. and subsidiaries (the "Company") have been prepared by
the Company in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month
periods ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the entire fiscal year or any
other interim period. It is recommended that these statements be
read in conjunction with the Company's consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. Certain
reclassifications of prior period amounts have been made to conform
to the current period presentation.
2. Notes Payable and Other Debt
Revolving Credit Agreement
On February 28, 1999, the Company entered into a Third
Modification of the Credit Agreement (the "Credit Agreement") with a
syndicate of lenders led by NationsBank, N.A., as administrative
agent, and Credit Suisse First Boston, as syndication agent, to
modify certain financial covenants and to make certain other changes.
On August 12, 1999, the Company entered into a Fourth
Modification of the Credit Agreement to increase the long-term
revolving facility by $30.0 million to $532.5 million and to make
certain other changes.
On September 29, 1999, the Company entered into a Fifth
Modification of the Credit Agreement to modify the Credit Agreement
to adjust the definition of consolidated earnings before interest,
taxes, depreciation and amortization ("Consolidated EBITDA"), to
allow for certain losses and write-downs and to make certain other
changes.
As of September 30, 1999, the maximum amount currently available
under the Credit Agreement is $600.0 million, subject to certain
requirements such as a contractually determined advance percentage
applied to each asset that is pledged as collateral ("asset coverage
test"). The long term revolving facility of $532.5 million
terminates August 12, 2001 and the term loan commitment of $67.5
million terminates August 12, 2003. The $167.5 million short term
revolving facility terminated August 11, 1999. At September 30,
1999, $543.3 million was outstanding under the Credit Agreement.
Notes Payable
On May 1, 1999, a wholly-owned subsidiary of the Company entered
into a Financing Agreement (the "Financing Agreement") in which
approximately $111.4 million of loans made by such subsidiary to
small-to-medium sized local and regional home building companies were
financed by Adjustable Rate Home Builder Loan Notes issued through
the means of a private securitization. The notes bear interest at
London Interbank Offered Rate plus 0.95% to 1.30% depending upon
classification with the outstanding principal amount, if any, payable
in full on May 25, 2007. At September 30, 1999, $111.4 million was
outstanding under the Financing Agreement.
Senior Notes
On July 1, 1999, the Company repaid the entire $57.2 million
balance of its 8.75% Senior Notes.
Warehouse Loans Payable
On January 11, 1999, a wholly-owned subsidiary of the Company
entered into a Master Repurchase Agreement (the "Repurchase
Agreement") with Bear Stearns Home Equity Trust ("Bear Stearns") for
an amount not to exceed $250.0 million for the sale and repurchase of
certain home equity loans. At September 30, 1999, no amount was
outstanding under the Repurchase Agreement.
On March 31, 1999, a wholly-owned subsidiary of the Company
entered into an amendment of a Secured Note (the "Small Business
Facility") to redefine the maturity date of the Small Business
Facility as December 31, 1999. At September 30, 1999, $114.7 million
was outstanding under the Small Business Facility.
On March 31, 1999, a wholly-owned subsidiary of the Company
entered into an amendment of a Secured Note (the "Franchise
Facility") to redefine the maturity date of the Franchise Facility as
December 31, 1999. At September 30, 1999, $53.0 million was
outstanding under the Franchise Facility.
On March 31, 1999, a wholly-owned subsidiary of the Company
entered into an amendment of a Secured Note (the "Leasing Facility")
to redefine the maturity date of the Leasing Facility as December 31,
1999. At September 30, 1999, no amount was outstanding under the
Leasing Facility.
On March 31, 1999, a wholly-owned subsidiary of the Company
entered into an Amended and Restated Master Repurchase Agreement (the
"Master Repurchase Agreement") with Prudential Securities Credit
Corporation ("Prudential") to redefine the termination date as
December 31, 1999. At September 30, 1999, there was no amount
outstanding under the Repurchase Agreement. On October 1, 1999, the
Master Repurchase Agreement was terminated.
On April 14, 1999, a wholly owned subsidiary of the Company
entered into a Fifth Amendment to the Amended and Restated
Warehousing Credit and Security Agreement (the "Security Agreement")
with Residential Funding Corporation ("RFC") to redefine the
commitment amount as $300.0 million. At September 30, 1999, $14.8
million was outstanding under the Security Agreement.
On June 30, 1999, a wholly-owned subsidiary of the Company
entered into a Master Repurchase Agreement Governing Purchases and
Sales of Mortgage Loans (the "Master Agreement") with Lehman
Commercial Paper Inc., ("Lehman") for the sale and repurchase of
certain mortgage loans. At September 30, 1999, $15.7 million was
outstanding under the Master Agreement. On September 20, 1999, the
Master Agreement was modified by a Letter Agreement ("Letter
Agreement") to provide financing for certain exception loans, as
defined in the Letter Agreement. At September 30, 1999, $174.3
million was outstanding related to the Letter Agreement.
3. Shareholders' Equity
On January 15, 1999, February 23, 1999, March 15, 1999, May 19,
1999 and August 23, 1999, the Company issued options to employees to
purchase approximately 255,000, 25,000, 40,000, 88,000 and 18,100
shares, respectively, of common stock at market price at the date of
issuance. On March 15, 1999, May 19, 1999 and June 7, 1999, the
Company issued approximately 674,000, 27,000 and 7,000 restricted
shares of the Company's common stock (the March 15, 1999 issuance
vests over a two year term and the May 19, 1999 and the June 7, 1999
issuances vest over a three year term) to employees.
The Company has accrued the value of common stock to be issued
related to certain business acquisition purchase contracts. The
number of shares included in weighted average diluted shares
outstanding related to such purchase contracts is determined at the
end of each reporting period based upon the then current market price
until the shares are actually issued. The value of the common stock
to be issued, which totaled $87.5 million, was accrued at September
30, 1999.
Under the original Agreement and Plan of Merger (the "Original
Agreement") to purchase Mortgage Investors Corporation ("MIC"), the
former owners of MIC were to receive an earnout payment of between
$70.0 million and $105.0 million over a three year period with the
payments structured to be paid 82% in the Company's common stock and
18% in cash. Effective April 12, 1999, the Original Agreement was
amended (the "Amended Agreement") to fix the earnout payment at
$105.0 million with payments remaining at 82% in the Company's common
stock and 18% in cash. Additionally, under the Amended Agreement,
the Company did not exercise its option to effect redemption of the
earnout prior to September 30, 1999. The Original Agreement called
for the issuance of a portion of the common stock consideration on
April 30, 1999, which is now delayed until at least March 31, 2000,
provided that the issuance of common stock in respect of the earnout
may be deferred under certain circumstances. As of September 30,
1999, $86.1 million was accrued as common stock to be issued for the
stock portion of the earnout related to the Amended Agreement.
4. Segments
The following represents the Company's reportable segment
position as of and for the three and nine months ended September 30,
1999 and 1998 (unaudited, in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999
Commercial Residential Home
Asset Mortgage Commercial Mortgage Equity
Management Banking Finance Banking (1) Lending(2) All Other Eliminations Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues (losses)
from external sources $27,193 $41,266 $39,000 $ 7,401 $ (68,444) (3) $ (6,505) $ _ $ 39,911
Gain (loss) on sale of
loans and investments, net 6,512 1,218 3,640 7,220 (7,076) (8,476) 3,038
Interest expense 7,437 1,652 15,359 468 9,138 6,382 40,436
Depreciation and amortization 213 4,212 2,367 4,206 2,063 906 13,967
Operating income (loss) 10,295 4,189 10,902 (13,311) (114,536) (3) (23,745) (126,206)
1998
Commercial Residential Home
Asset Mortgage Commercial Mortgage Equit
Management Banking Finance Banking (1) Lending(2) All Other Eliminations Total
Revenues from external
sources $29,186 $ 23,300 $34,440 $18,891 $70,735 $ 3,487 $ _ 180,039
Gain (loss) on sale of
loans and investments, net 2,200 (35,417) (5) 8,252 18,202 22,906 (5) 16,143
Interest expense 9,673 14,493 11,656 529 30,382 3,978 70,711
Depreciation and amortization 216 1,998 1,818 827 1,718 732 7,309
Operating income (loss) 10,574 (34,324) 12,170 7,860 13,387 (8,332) 1,335
Nine Months Ended September 30,
1999
Commercial Residential Home
Asset Mortgage Commercial Mortgage Equity
Management Banking Finance Banking (1) Lending (2) All Other Eliminations Total
Revenues (losses) from
external sources $ 86,499 $111,197 $ 131,621 $ 61,013 $ (13,812) (4) $ (2,188) $ _ $ 374,330
Gain (loss) on sale of
loans and investments, net 17,130 5,556 35,750 58,387 17,317 (8,628) 125,512
Interest expense 22,794 5,195 45,566 2,660 31,574 17,128 124,917
Depreciation and amortization 603 11,268 7,012 10,063 6,229 2,832 38,007
Operating income (loss) 34,663 9,902 51,703 (12,710) (129,531) (4) (42,036) (88,009)
Segment assets 373,981 7,821 621,557 164,370 242,489 1,898,610 (684,084) 2,624,744
1998
Commercial Residential Home
Asset Mortgage Commercial Mortgage Equit
Management Banking Finance Banking (1) Lending (2) All Other Eliminations Total
Revenues from external
sources $ 84,255 $ 111,732 $ 82,193 $ 18,891 $ 190,391 $8,617 - $ 496,079
Gain on sale of loans and
investments, net 13,002 (35,848) (5) 25,291 18,202 55,179 (5) 75,826
Interest expense 24,752 35,937 26,012 529 83,298 12,176 182,704
Depreciation and amortization 610 5,248 3,435 827 4,400 2,220 16,740
Operating income (loss) 35,709 (20,574) 31,416 7,860 33,245 (31,185) 56,471
Segment assets 292,694 993,084 364,935 89,781 1,610,918 1,971,126 (538,143) 4,784,395
</TABLE>
(1) Acquired operations August 11, 1998. In July 1999, the Company
ceased its VA refinancing activities and shifted production to FHA
streamlined refinancing.
(2) Discontinued bulk purchases and correspondent operations in late
1998.
(3) Includes a $78.0 million write-down of retained interests in
securitizations due primarily to sustained loss, default and pre-
payment rates as well as increased balance and term requirements for
over-collateralization balances.
(4) Includes a $90.0 million write-down of retained interests in
securitizations.
(5) Includes $34.1 million and $6.5 million of unrealized losses for
commercial mortgage banking and home equity lending, respectively.
5. Comprehensive Income
The Company's total comprehensive earnings were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $(82,009) $ 758 $(59,667) $ 34,467
Other comprehensive income (loss, net of tax:
Unrealized gains (losses) on securities:
Unrealized gains (losses) on securities,
net of taxes of $778, ($8,232), $1,223 and
($8,756), respectively 1,222 (12,877) 1,906 (13,696)
Realized losses (gains) on securities,
net of taxes of $51, $101 and
($3,126), respectively 80 447 (4,889)
Foreign currency translation adjustments,
net of taxes of $819, ($185), $1,598
and ($522), respectively 1,281 (289) 2,500 (817)
Other comprehensive income (loss) net of tax 2,583 (13,166) 4,853 (19,402)
COMPREHENSIVE INCOME (LOSS) $(79,426) $(12,408) $(54,814) $ 15,065
</TABLE>
6. Subsequent Events
On November 5, 1999, the Company sold nine communications loans,
the proceeds of which were used to pay down debt under the Credit
Agreement. As part of this transaction, the Company entered into an
agreement to permanently reduce the long-term revolving facility by
$84.4 million to $448.1 million and to reduce the term loan
commitment amount by $10.6 million to $56.9 million. As of November
5, 1999, the maximum amount currently available under the Credit
Agreement was $505.0 million, subject to certain requirements such as
a contractually determined advance percentage applied to each asset
that is pledged as collateral under the asset coverage test.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company is a diversified financial services company with
five principal segments: asset management, commercial mortgage
banking, commercial finance, residential mortgage banking and home
equity lending. The asset management segment involves acquiring
asset portfolios at a discount to face value and managing and
resolving such asset portfolios to maximize cash recoveries. In
addition, in its asset management segment, the Company provides
special servicing for nonperforming and underperforming loans in
commercial mortgage-backed bond trusts and similar securitized
commercial asset-backed loan portfolios. The commercial mortgage
banking segment involves fee-based origination and servicing of
commercial real estate mortgages and commercial real estate
brokerage. In its commercial finance segment, the Company focuses on
(i) loans to franchisees of nationally recognized restaurant,
hospitality and service organizations, (ii) loans to small business
owners, (iii) real estate structured finance, (iv) communications
finance and (v) single family residential construction lending. The
residential mortgage banking segment, consisting of the acquired
operations of Mortgage Investors Corporation ("MIC"), originates and
sells Federal Housing Administration ("FHA") and Veterans
Administration ("VA") streamlined refinanced loans. The home equity
lending segment involves originating, selling and servicing
nonconforming first mortgage loans.
Revenues from the Company's asset management activities
primarily consist of earnings on asset portfolios, gains on sale of
investments, and fees charged for the management of asset portfolios
and for the successful resolution of the assets within such asset
portfolios. The Company's revenues from its commercial mortgage
banking activities are primarily earned from fees generated by the
(i) origination and underwriting of commercial real estate mortgage
loans, (ii) servicing of loans and (iii) placement of commercial real
estate mortgage loans with permanent investors, interest earned on
loans held for sale and gain from origination and sale of loans.
Revenues from the Company's commercial finance business are primarily
earned from (i) interest and fees on real estate structured finance
activities, communications finance activities, loans to franchisees
of nationally recognized restaurant, hospitality, service
organizations and other small business owners and loans to single
family residential contractors, (ii) accrued earnings on retained
interests in securitizations and (iii) gains on the securitization
and sale of loans. Revenues from the Company's residential mortgage
banking activities consist primarily of cash gains from sales of FHA
and VA streamlined re-financed loans. Revenues from the Company's
home equity lending activities primarily consist of interest earned
on originated home equity loans, accrued earnings on retained
interests in securitizations, cash gains from whole-loan sales of
home equity loans and fees generated by the origination, underwriting
and servicing of home equity loans. Corporate and other revenues
primarily consist of interest earned on investments in residential
mortgage backed securities and other miscellaneous income. Corporate
and other expenses primarily include corporate personnel, overhead
and unallocated interest expense.
The Company continues in discussion with, and working towards a
definitive agreement with, Lend Lease (US) Services ("Lend Lease").
Lend Lease is considering purchasing the asset management, commercial
mortgage banking and real estate structured finance platforms. There
can be no assurance given that a definitive agreement will be entered
into.
Results of Operations
The following discussion and analysis presents the significant
changes in results of operations of the Company for the three and
nine months ended September 30, 1999 and 1998 by segment. The
results of operations of acquired businesses are included in the
consolidated financial statements from the date of acquisition. This
discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(in thousands, except per share data) September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Asset management $ 27,193 $ 29,186 $ 86,499 $ 84,255
Commercial mortgage banking 41,266 23,300 111,197 111,732
Commercial finance 39,000 34,440 131,621 82,193
Residential mortgage banking 7,401 18,891 61,013 18,891
Home equity lending (68,444) 70,735 (13,812) 190,391
Corporate, other and intercompany eliminations (6,505) 3,487 (2,188) 8,617
Total revenues 39,911 180,039 374,330 496,079
Operating expenses:
Asset management 16,898 18,612 51,836 48,546
Commercial mortgage banking 37,077 57,624 101,295 132,306
Commercial finance 28,098 22,270 79,918 50,777
Residential mortgage banking 20,712 11,031 73,723 11,031
Home equity lending 46,092 57,348 115,719 157,146
Corporate, other and intercompany eliminations 17,240 11,819 39,848 39,802
Total operating expenses 166,117 178,704 462,339 439,608
Operating income (loss):
Asset management 10,295 10,574 34,663 35,709
Commercial mortgage banking 4,189 (34,324) 9,902 (20,574)
Commercial finance 10,902 12,170 51,703 31,416
Residential mortgage banking (13,311) 7,860 (12,710) 7,860
Home equity lending (114,536) 13,387 (129,531) 33,245
Corporate, other and intercompany eliminations (23,745) (8,332) (42,036) (31,185)
Total operating income (loss) (126,206) 1,335 (88,009) 56,471
Income tax expense (benefit) (44,197) 577 (28,342) 22,004
Net income (loss) $ (82,009) $ 758 $ (59,667) $ 34,467
Earnings (loss) per share:
Basic $ (1.71) $ 0.02 $ (1.25) $ 0.82
Diluted (1.71) 0.02 (1.25) 0.80
Weighted average shares outstanding:
Basic 47,931 44,280 47,818 41,921
Diluted 47,931 45,443 47,818 43,297
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
The Company reported a 78% decrease in revenues from $180.0
million to $39.9 million. The decrease in revenues was due primarily
to strong results from our commercial businesses (asset management,
commercial mortgage banking and commercial finance) being more than
offset by the performance by our consumer businesses (residential
mortgage banking and home equity lending). The decrease was due
primarily to reduced interest income and gain on sale resulting from
(i) a $78.0 million non-cash write-down of home equity lending
retained interests in securitizations as a result of increased loss
and delinquency rates and sustained pre-payment levels as well as
increased levels of, and term requirements for, over-
collateralization balances, (ii) the Company holding reduced balances
of mortgage loans held for sale as a result of the discontinuance of
the home equity lending capital markets operation and the commercial
mortgage banking conduit operation as a principal and (iii) a
decrease in home equity lending and residential mortgage banking
originations and mark-to-market write-downs and losses on residential
mortgage backed securities and underwriting deviant loans held for
sale offset, in part, by third quarter 1998 revenues including a
$40.6 million unrealized loss on mortgage loans held for sale.
Operating income decreased from $1.3 million for the third quarter of
1998 to a $126.2 million loss for the third quarter of 1999 and net
income decreased from $0.8 million for the third quarter of 1998 to
an $82.0 million loss in the third quarter of 1999. The decreases in
operating income and net income were due primarily to the reasons
previously noted as well as a $10.9 million write-off of goodwill and
other assets related to the Company making the decision to
discontinue the home equity lending branch retail operation as the
remaining home equity lending business transitions to a joint
venture. These decreases were offset, in part, by decreased interest
expense resulting from the discontinuance of the home equity lending
capital markets operation and the commercial mortgage conduit
operation as a principal and a third quarter 1998 unrealized loss on
mortgage loans held for sale. Diluted weighted average common shares
outstanding increased 5% due primarily to common shares issued in
acquisitions offset, in part, by share repurchases. Diluted shares
did not include shares accrued for earnouts as of September 30, 1999,
as their effect to diluted loss per share would have been anti-
dilutive. Diluted earnings per share decreased from $0.02 for the
third quarter of 1998 to a loss per share of $1.71 for the third
quarter of 1999.
Asset Management. Revenues for the three months ended September
30, 1999 primarily consisted of $15.5 million in interest and other
investment income, $6.5 million in gain on sale of investments and
$5.9 million in asset management and resolution fees. The $2.0
million decrease in revenues from $29.2 million for the third quarter
of 1998 to $27.2 million for the third quarter of 1999 was primarily
comprised of a $5.9 million decrease in interest and other investment
revenue offset, in part, by a $4.3 million increase in gain on sale
of loans and investments. The decrease in interest and other
investment revenue was due primarily to a decreased aggregate
investment balance as the Company has substantially curtailed its
reinvestment activities. The increase in gain on sale of loans and
investments was due primarily to sales of loans and real estate.
Operating expenses for the quarter ended September 30, 1999
primarily consisted of $7.4 million in interest expense, $5.1 million
in personnel cost and $4.1 million in other general and
administrative expenses. The $1.7 million decrease in expenses from
$18.6 million for the prior year period to $16.9 million for the
quarter ended September 30, 1999 was due primarily to a $2.2 million
decrease in interest expense related to financing decreased
investment balances.
Commercial Mortgage Banking. Revenues for the quarter ended
September 30, 1999 primarily consisted of $34.4 million in
origination, underwriting and servicing revenues, $5.6 million in
interest income and $1.2 million in gain on sale of loans. The $18.0
million increase in revenues from $23.3 million for the prior year
period to $41.3 million for the quarter ended September 30, 1999 was
primarily comprised of a $34.1 million unrealized loss being recorded
in the third quarter of 1998, a $2.6 million increase in gain on sale
and a $1.1 million increase in income from equity affiliate offset,
in part, by a $16.9 million decrease in interest income and a $2.9
million decrease in origination, underwriting and servicing revenues.
The increases in revenues from the prior year quarter were due
primarily to $37.9 million of aggregate losses on mortgage loans held
for sale and losses from equity affiliate being recorded in 1998.
The decrease in interest income was due primarily to the Company
exiting the conduit operation as a principal, thereby holding reduced
balances of mortgage loans held for sale, and the decrease in
origination, underwriting and servicing revenues was due primarily to
decreased AMRESCO Capital originations.
Operating expenses for the quarter ended September 30, 1999
consisted of $23.6 million in personnel expense, $7.6 million of
other general and administrative expense, $4.2 million of
depreciation and amortization and $1.7 million of interest expense.
The $20.5 million decrease in expenses from $57.6 million for the
prior year quarter to $37.1 million for the quarter ended September
30, 1999 was primarily comprised of a $12.8 million decrease in
interest expense, an $8.4 million decrease in other general and
administrative expenses and a $1.6 million decrease in personnel
expenses offset, in part, by a $2.2 million increase in depreciation
and amortization expense. The decreases in expenses from the prior
year period were due primarily to the discontinuance of the
commercial mortgage conduit operation as a principal and a $6.5
million settlement fee being recorded in the prior year quarter. The
increase in depreciation and amortization was due primarily to
amortization expense related to holding increased balances of
mortgage servicing rights.
Commercial Finance. Revenues for the three months ended
September 30, 1999 primarily consisted of $33.5 million of interest
income, $3.6 million of gain on securitization and sale of loans and
$1.8 million of origination and underwriting fees. The $4.6 million
increase in revenues from $34.4 million for the prior year period to
$39.0 million for the three months ended September 30, 1999 was
primarily comprised of $8.3 million increase in interest and other
investment income offset, in part, by a $4.6 million decrease in gain
on sale of loans. The increase in interest and other investment
income was due primarily to increased balances of loans held by the
real estate, communication and builder groups and loans held for sale
by business lending (included in the business lending group are
Independence Funding Company L.L.P. ("Independence Funding") and
TeleCapital L.P. ("TeleCapital") which were acquired in mid-1998).
The decrease in gain on sale of loans was due primarily to the
completion of an approximate $70.0 million small business
administration ("SBA") securitization in the third quarter of 1999 as
opposed to an approximate $114.8 million franchise loan
securitization in the prior year quarter.
Operating expenses for the quarter ended September 30, 1999
primarily consisted of $15.4 million of interest expense, $7.2
million of personnel expense, $2.9 million of other general and
administrative expense and $2.4 million of depreciation and
amortization. The $5.8 million increase in expenses from $22.3
million for the prior year period to $28.1 million for the quarter
ended September 30, 1999 was primarily comprised of $3.7 million of
interest expense, $2.2 million of personnel expense and $1.1 million
of other expenses offset, in part, by a $1.2 million decrease in
provision for loan losses. The increase in interest expense was due
primarily to financing increased balances of loans and loans held for
sale and the increases to other expenses were due primarily to
acquisitions and business expansion. The provision for loan losses,
related primarily to real estate and communications loans, was
decreased after the Company completed a review of the adequacy of its
provisions.
Residential Mortgage Banking. Revenues for the quarter ended
September 30, 1999 primarily consisted of $7.2 million of cash gain
on sale of loans. The $11.5 million decrease in revenues from $18.9
million for the prior year period to $7.4 million for the quarter
ended September 30, 1999 related primarily to decreased originations
as a result of the Company re-focusing its primary operation from
refinancing Veteran's Administration ("VA") loans to refinancing
Federal Housing Administration ("FHA") loans and the effect of
operating in an increasing interest rate environment. The change in
focus was due to the VA amending its rules to allow borrowers to
refinance under the Interest Rate Reduction Refinance Loan ("IRRRL")
program only if they are 30 days or less past due as compared to the
previous rule of 90 days or less.
Operating expenses for the quarter ended September 30, 1999
consisted of $11.3 million in personnel expense, $4.8 million of
other general and administrative expense and $4.2 million of
depreciation and amortization. The $9.7 million increase in expenses
from $11.0 million for the prior year quarter to $20.7 million for
the quarter ended September 30, 1999 was due primarily to the line of
business being in existence for only a portion of the third quarter
of 1998 as MIC was purchased on August 11, 1998. Given the current
low origination levels, various operating expenses have been reduced,
including an approximate 300 person reduction in personnel from the
September 30, 1999 level.
Home Equity Lending. Revenues for the three months ended
September 30, 1999 primarily consisted of a $63.9 million interest
and other investment loss and a $7.1 million loss on sale of loans
offset, in part, by $2.1 million in mortgage banking and servicing
fees. The $139.1 million decrease in revenues from $70.7 million for
the prior year period to a $68.4 million loss for the quarter ended
September 30, 1999 was primarily comprised of a $109.4 million
decrease in interest revenue and a $36.5 million decrease in gain on
sale of loans offset, in part, by a $6.5 million unrealized loss on
mortgage loans held for sale recorded in the third quarter of 1998.
The decrease in other investment income was due primarily to a $78.0
million non-cash write-down of retained interests in securitizations
recorded in the current quarter and the discontinuance of the home
equity lending capital markets business in late 1998 which resulted
in holding reduced balances of loans held for sale. The decrease in
gain on sale was due also to the discontinuance of the capital
markets operation in late 1998 and a third quarter 1999 $9.5 million
write-down and loss on sale of loans that lacked adequate
documentation for securitization.
The non-cash write-down of retained interests in securitizations
of $78.0 million during the third quarter of 1999 was based upon the
Company's valuation model which reflected increased loss severity
(33.4% versus 25.2% previous quarter), prepayments (25.4% versus
17.9% previous quarter), delinquencies (2.8% constant default rate
from 2.3% constant default rate previous quarter) and over-
collateralization balance requirements. The Company is expecting
losses to decrease as loans are liquidated, however, should losses
continue at current levels, additional write-downs would be likely.
Operating expenses for the quarter ended September 30, 1999
primarily consisted of $15.1 million of other general and
administrative expense, $11.2 million of personnel expense, $9.1
million of interest expense and $8.7 million of goodwill impairment.
Operating expenses decreased by $11.2 million from $57.3 million for
the prior year period to $46.1 million for the quarter ended
September 30, 1999. The decrease primarily consisted of $21.2
million of reduced interest expense, $4.2 million of reduced
personnel expense and $3.6 million in reduced provision for loan and
investment losses offset, in part, by an $8.7 million goodwill
impairment and an $8.8 million increase in other general and
administrative expenses. Interest expense, personnel expense and
provision for loan losses decreased due primarily to the
discontinuance of the capital markets operation and the goodwill
impairment and the increases in other general and administrative
expenses were due primarily to the closure of the Company's retail
branches as this operation transitions to a joint venture.
Corporate, Other and Intercompany Eliminations. Revenues for
the quarter ended September 30, 1999 primarily consisted of an $8.5
million loss on investments related to a write-down of residential
mortgage backed securities due to poor performance offset, in part,
by $1.9 million of interest income from residential mortgage backed
securities. The $5.4 million increase in expenses from $11.8 million
for the prior year period to $17.2 million for the quarter ended
September 30, 1999 was due primarily to increased personnel and
interest expense.
Income Taxes. As of September 30, 1999, the Company had a
deferred tax asset of $49.3 million, a substantial portion of which
was generated from the current quarter loss. The Company must have
future taxable income to realize this asset and management
anticipates the recorded net deferred tax asset will be realized in
the normal course of business.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
The Company reported a 25% decrease in revenues from $496.1
million for the year-to-date period ended September 30, 1998 to
$374.3 million for the year-to-date period ended September 30, 1999
due primarily to a $174.1 million decrease interest and other
investment income offset, in part, by a $40.6 million unrealized loss
on mortgage loans held for sale recorded in the prior year-to-date
period. Operating income decreased from $56.5 million for the first
nine months of 1998 to an $88.0 million loss for the first nine
months of 1999 and net income decreased from $34.5 million for the
first nine months of 1998 to a $59.7 million loss for the first nine
months of 1999. As with the results for the third quarter, year-to-
date 1999 decreases were due primarily to strong performance by the
commercial businesses being more than offset by the performance of
the consumer businesses. The home equity lending decrease was due
primarily to $90.0 million of non-cash write-downs of retained
interests in securitization recorded during the first nine months of
1999, the Company making the decision to discontinue the capital
market and branch retail operations and losses and write-downs on
underwriting deviant loans held for sale. The residential mortgage
banking decrease was due primarily to decreased originations as a
result of the Company re-focusing its primary operation from
refinancing VA loans to refinancing FHA loans and operating in an
increasing interest rate environment. Such decreases were offset, in
part, by commercial mortgage banking income for the current year-to-
date period as compared to losses in the prior year-to-date period
and increased net interest income and gain on sale of loans recorded
by commercial finance. Diluted weighted average common shares
outstanding increased 10% due primarily to common shares issued in
acquisitions offset, in part, by share repurchases. Diluted shares
did not include shares accrued for earnouts as of September 30, 1999,
as the effect of including such shares in diluted loss per share
would have been anti-dilutive. The loss for the year-to-date period
resulted in a decrease from diluted earnings per share of $0.80 for
the first nine months of 1998 to a $1.25 diluted loss per share for
the first nine months of 1999.
Asset Management. Revenues for the nine months ended September
30, 1999 primarily consisted of $53.7 million of interest income,
$17.1 million of gain on sale of investments and $15.0 million in
asset management and resolution fees. The $2.2 million increase in
revenues from $84.3 million for the first nine months of 1998 to
$86.5 million for the first nine months of 1999 was primarily
comprised of a $4.1 million increase in gain on sale and a $3.7
million increase in asset management and resolution fees offset, in
part by a $5.0 million decrease in interest and other investment
income. The increase in gain on sale was due primarily to sales of
investments and real estate. The increase in asset management and
resolution fees was due primarily to increased special servicing and
asset management contracts (primarily foreign management contracts)
and the decrease in interest and other investment income was due
primarily to holding reduced balances of investments.
Operating expenses for the period ended September 30, 1999
primarily consisted of $22.8 million in interest expense, $15.1
million in personnel cost and $12.4 million in other general and
administrative expenses. The $3.3 million increase in expenses from
$48.5 million for the prior year period to $51.8 million for the nine
months ended September 30, 1999 was due primarily to a $4.4 million
increase in personnel expense and a $1.8 million increase in other
general and administrative expenses related to business growth
offset, in part, by a $2.0 million decrease in interest expense
related to a reduced average debt balance.
Commercial Mortgage Banking. Revenues for the nine months ended
September 30, 1999 primarily consisted of $91.0 million in
origination, underwriting and servicing revenues, $14.6 million in
interest income and $5.6 million in gain on sale of assets. The $0.5
million decrease in revenues from $111.7 million for the prior year
period to $111.2 million for the nine months ended September 30, 1999
was comprised of a $37.1 million reduction of interest income and a
$5.2 million reduction of income from equity affiliate offset, in
part, by an increase from prior year revenues due to a $34.1 million
unrealized loss recorded in 1998 and a $7.3 million increase in gain
on sale of loans. The decrease in interest income was due primarily
to exiting the conduit operation as a principal thereby holding
reduced balances of mortgage loans held for sale and the decrease in
income from equity affiliate was a result of exiting the AMRESCO
Capital conduit joint venture. The increase in gain on sale of loans
was due primarily to increased originated mortgage servicing right
gains over the prior year period.
Operating expenses for the nine months ended September 30, 1999
consisted of $64.3 million in personnel expense, $20.6 million of
other general and administrative expense, $11.2 million of
depreciation and amortization and $5.2 million of interest expense.
The $31.0 million decrease in expenses from $132.3 million for the
prior year period to $101.3 million for the nine months ended
September 30, 1999 was comprised primarily of $30.7 million of
interest expense and $7.8 million of other general and administrative
expenses offset, in part, by a $6.0 million increase in depreciation
and amortization expense and a $1.5 million increase in personnel
expense. The decrease in interest expense was due primarily to
financing reduced balances of commercial loans held for sale as a
result of exiting the conduit operation as a principal and the
decrease in other general and administrative expense was also due
primarily to exiting the conduit operation as a principal. The
increase in depreciation and amortization was due primarily to
amortizing increased balances of mortgage servicing rights and the
increase in personnel expense was due primarily to an increase in
commission expense.
Commercial Finance. Revenues for the nine months ended
September 30, 1999 primarily consisted of $91.4 million of interest
income, $35.8 million of gain on securitization and sale of loans and
$4.3 million of origination and underwriting fees. The $49.4 million
increase in revenues from $82.2 million for the prior year period to
$131.6 million for the nine months ended September 30, 1999 was
comprised primarily of a $36.1 million increase in interest income, a
$10.5 million increase in gain on sale of loans and a $2.8 million
increase in origination and underwriting fees. The increase in
interest and other investment income was due primarily to increased
balances of loans held by the real estate, communication and builder
groups and loans held for sale by the business lending group (which
includes Independence Funding and TeleCapital which were acquired in
mid-1998). The increase in gain on sale of loans was due primarily
to $328.7 million of securitizations and sales of small business and
SBA loans completed in the first nine months of 1999 as compared to
$247.5 million of securitizations and sales of small business loans
for the first nine months of 1998.
Operating expenses for the nine months ended September 30, 1999
primarily consisted of $45.6 million of interest expense, $20.7
million of personnel expense, $10.5 million of other general and
administrative expense and $7.0 million of depreciation and
amortization. The $29.1 million increase in expenses from $50.8
million for the prior year-to-date period to $79.9 million for the
nine months ended September 30, 1999 was comprised primarily of an
increases of $19.5 million of interest expense, $9.4 million of
personnel expense, $5.2 million of other general and administrative
expenses and $3.6 million of depreciation and amortization offset, in
part by an $8.6 million decrease in the provision for loan losses.
The increase in interest expense was due primarily to the additional
financing required to support increased levels of loans and loans
held for sale and the remaining increases over the prior year-to-date
period were due primarily to expanded operations. The decrease in
provision for loan losses was due primarily to the Company reducing
its provisions following a periodic review of its allowance for loan
losses.
Residential Mortgage Banking. Revenues for the first nine
months of 1999 of $61.0 million consisted primarily of cash gain on
sale of loans of $58.4 million and interest income of $2.6 million.
The $42.1 million increase in revenues from $18.9 million for the
period from August 11, 1998 (the date of purchase of MIC) to
September 30, 1998 was due primarily to a $40.2 million increase in
gain on sale of loans and a $1.9 million increase in interest income.
The increases were due primarily to conducting operations during a
brief period in the prior year-to-date period as compared to a full
nine months of operations in 1999. Operating expenses for the nine
months ended September 30, 1999 primarily consisted of $44.5 million
of personnel expense (primarily commissions), $16.5 million of other
general and administrative expenses, $10.1 million of depreciation
and amortization and $2.7 million of interest expense. The $62.7
million increase in expenses from $11.0 million for the period from
August 11, 1998 to September 30, 1998 to $73.7 million for the nine
months ended September 30, 1999 were also due to a brief term of
operations in the prior year-to-date period.
The business segment incurred a $12.7 million operating loss for
the first nine months of 1999 due primarily to a shortfall in
originations as a result of the Company re-focusing its primary
operation from refinancing VA loans to refinancing FHA loans and
operating in an increasing interest rate environment. The change in
focus was due to the VA amending its rules to allow borrowers to
refinance under the IRRRL program only if they are 30 days or less
past due as compared to the previous rule of 90 days or less.
Home Equity Lending. Revenues for the nine months ended
September 30, 1999 primarily consisted of $40.4 million of interest
and other investment losses, $17.3 million of cash gains on whole
loan sales and $7.7 million of mortgage banking and servicing fees.
The $204.2 million decrease in revenues from $190.4 million for the
prior year-to-date period to a $13.8 million loss for the nine months
ended September 30, 1999 was comprised primarily of a $170.2 million
decrease in interest and other investment income and a $44.4 million
decrease in gain on sale of loans offset, in part, by a $6.5 million
unrealized loss recorded in the prior-year-to-date period and a $3.5
million increase in origination and servicing fees. The decrease in
interest income was due primarily to a $90.0 million non-cash write-
down of retained interests in securitizations in the current year and
holding reduced balances of loans held for sale due to the
discontinuance of the capital markets operation in late 1998. The
decease in gain on sale was due primarily to the discontinuance of
the capital markets operation in late 1998 and $9.5 million of losses
and write-downs of underwriting deviant loans held for sale during
1999. The increase in origination and servicing fees was due
primarily to an increased servicing portfolio.
Operating expenses for the nine months ended September 30, 1999
consisted of $33.8 million of other general and administrative
expense, $32.6 million of personnel expense, $31.6 million of
interest expense, $8.6 million of goodwill impairment, $6.2 million
of depreciation and amortization and $2.8 million of provisions for
loan losses. Operating expenses decreased by $41.4 million from
$157.1 million for the prior year period to $115.7 million for the
nine months ended September 30, 1999. This decrease primarily
consisted of $51.7 million of reduced interest expense, a $9.2
million decrease in provision for loan and investment losses and a
$7.7 million decrease in personnel expenses offset, in part, by a
$16.7 million increase in other general and administrative expenses
and an $8.7 million goodwill impairment. The decreases were due
primarily to the discontinuance of the capital markets operation
resulting in holding reduced balances of mortgage loans held for
sale. The increases in other general and administrative expenses and
the goodwill impairment were due primarily to expenses related to the
Company making the decision to terminate its branch retail operations
as the remaining home equity business transitions to a joint venture.
As part of the transition the Company wrote-off $8.7 million of
goodwill related to the branch retail operation.
Corporate, Other and Intercompany Eliminations. Revenues for
the nine months ended September 30, 1999 primarily consisted of an
$8.6 million loss on sale of investments primarily related to an $8.5
million write-down of residential mortgage backed securities offset,
in part, by $6.3 million of interest income from investments in
residential mortgage backed securities. Operating expenses remained
stable with a $5.0 million increase in interest expense for first
nine months of 1999 from the first nine months of 1998 being offset
by a $4.3 million decrease in general and other administrative
expenses and a $1.2 million decrease in personnel expense.
Liquidity and Capital Resources
Cash and cash equivalents totaled $93.8 million at September 30,
1999. Cash flows provided by operating activities plus principal
collections on loans, asset portfolios, asset-backed securities and
mortgage servicing rights totaled $763.0 million for the first nine
months of 1999 compared to $208.8 million for the same period in
1998. The variance from the prior period was due primarily to net
cash receipts from retained interests in securitizations of $179.6
million ($138.0 million was received from a net interest margin
transaction, the proceeds of which were used to pay down existing
debt) for the first nine months of 1999 as compared to a prior year
period use of cash for retained interests in securitizations of
$134.2 million, a lower balance of loans held for sale and related
warehouse debt due primarily to the Company exiting the capital
intensive home equity lending capital markets operation and a $79.3
million income tax receivable receipt related to 1998 losses. The
following table is a summary of selected cash flow activity and debt
ratios during the first nine months of 1999 and 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating activities $ 268,381 $(277,691)
Net cash used in investing activities (100,585) (419,050)
Net cash provided by (used in) financing activities (140,387) 723,345
Other financial measures:
Cash flow from operations and collections on loans, asset
portfolios, asset-backed securities and mortgage servicing rights 762,965 208,823
Cash provided by new capital and borrowings (used in repayment),
net (excluding warehouse loans payable) (140,466) 734,574
Cash used for purchase of asset portfolios, asset-backed
securities, mortgage servicing rights and originations of loans (569,790) (832,444)
EBITDA (1) 83,566 255,915
Interest coverage ratio (2) 0.7x 1.4x
</TABLE>
The following table is a summary of selected debt ratios as of
September 30, 1999 and December 31, 1998:
1999 1998
Ratio of total debt to equity 3.0:1 3.7:1
Ratio of core debt to equity (3) 2.3:1 2.7:1
(1) EBITDA is calculated as operating income before interest, income
taxes, depreciation and amortization. The Company has included
information concerning EBITDA because EBITDA is one measure of an
issuer's historical ability to service its indebtedness. EBITDA
should not be considered as an alternative to, or more meaningful
than, net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(2) Interest coverage ratio means the ratio of earnings before
interest, taxes, depreciation and amortization to interest expense.
(3) Excludes indebtedness under warehouse lines of credit.
The following table shows the components of the Company's
capital structure, including certain short-term debt, as of September
30, 1999 and December 31, 1998 (dollars in millions):
1999 1998
% of % of
Dollars Total Dollars Total
Shareholders' equity $ 619.9 25% $ 585.4 21%
Senior notes 57.5 (1) 2
Senior subordinated notes 580.1 23 580.2 21
Mortgage warehouse loans 425.9 17 587.4 21
Notes payable 875.0 35 957.9 35
Total $2,500.9 100% $2,76804 100%
(1) Repaid in full July 1, 1999.
Total assets decreased $0.3 billion to $2.6 billion at September
30, 1999 from $2.9 billion at December 31, 1998. The decrease was
due primarily to sales of loans held for sale, a sale of home equity
lending retained interests through a net interest margin transaction
and a non-cash write-down of home equity lending retained interests
in securitization offset, in part, by an increase in loans by
commercial finance and intangibles due to acquisition earnouts.
On July 1, 1999, the Company repaid the entire $57.2 million
balance of its 8.75% Senior Notes Due July 1, 1999. The Company
believes it has sufficient liquidity to meet its obligations and
funding requirements to maintain its operations at the currently
reduced investment pace. The primary sources of liquidity currently
include internally generated funds, additional availability under the
Credit Agreement, the warehouse facilities and cash balances.
See Note 2, "Notes Payable and Other Debt", included in "Item 1.
Financial Statements" for a discussion of changes in the Company's
debt facilities since December 31, 1998.
On November 5, 1999, the Company closed the sale of nine
communications loans the proceeds of which were used to pay down debt
under the Credit Agreement. As part of this transaction, the Company
permanently reduced the total commitment under the Credit Agreement
by $95.0 million to $505.0 million. Additionally, the Company is
considering the disposal of certain other assets, including the
potential sale to Lend Lease, to further pay down the Credit
Agreement. As of November 5, 1999, approximately $46.7 million was
available under the Credit Agreement as determined by the asset
coverage test and $407.1 million was outstanding.
The Company has historically accessed the capital markets as an
important part of its capital raising activities, which included
raising funds in debt and equity offerings, to finance the
acquisition of assets, the origination and accumulation of loans and
to securitize and sell mortgage loans originated by its different
business lines. Due to current market conditions related to the
Company's securities, debt and equity, and debt constraints placed
upon the Company through certain debt agreements, the Company
believes its access to the capital markets will continue to be
significantly limited for the foreseeable future and that other
sources of third party financing will also be limited.
Other Matters
The actual weighted average annual prepayment rate on the
Company's home equity securitizations was 30.3% for the period from
inception of each security through August 31, 1999, which is higher
than originally projected and together with increased losses and a
change in assumption estimates to reflect these rates going forward,
a $78.0 million non-cash write-down of home equity retained interests
in securitizations was recorded during the third quarter of 1999
bringing total year-to-date write-downs of home equity retained
interests to $90.0 million The weighted average annual prepayment
rate on the Company's home equity securitizations is estimated to be
29.0% for the next twelve months. Prepayment rates on the Company's
franchise and small business loan securitizations are in line with
expectations. Current valuations take into account the change in
prepayment assumptions as well as other assumptions influenced by
market conditions. The discount rate used to value the retained
interests is influenced primarily by volatility and predictability of
the underlying cash flows which generally become more certain as the
securities season. The weighted-average discount rate used to value
the Company's retained interests at September 30, 1999 was 17.4%.
The Company has utilized, for initial valuation purposes, a 20%
discount rate on its home equity securitizations, discount rates
ranging from 18% - 20% for its commercial finance franchise loan
securitizations, a 15% discount rate on its commercial finance small
business loan securitizations and an 18% discount rate on its
commercial finance SBA loan securitizations. The lower discount
rates on the commercial finance securitizations were due to the
reduced risk resulting from a borrower cross-collateralization
feature in these securitizations. Retained interests in
securitizations at September 30, 1999 consisted of $206.0 million of
home equity loan interests, $110.3 million of commercial finance loan
interests and $1.5 million related to a commercial mortgage whole
loan sale.
In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133". This statement has delayed the
effective date for SFAS 133 for one year, to fiscal years beginning
after June 15, 2000 and the Company does not foresee early adoption
of the standard.
Year 2000 Issue
General
Many of the world's computers, software programs and other
equipment using microprocessors or embedded chips currently have date
fields that use two digits rather than four digits to define the
applicable year. These computers, programs and chips may be unable
to properly interpret dates beyond the year 1999; for example,
computer software that has date sensitive programming using a two-
digit format may recognize a date using "00" as the year 1900 rather
than the year 2000. Such errors could potentially result in a system
failure or miscalculation causing disruptions of operations,
including, among other things, a temporary inability to process
transactions or engage in similar normal business activities, which,
in turn, could lead to disruptions in the Company's operations or
performance.
The Company's assessments of the cost and timeliness of
completion of Year 2000 modifications set forth below are based on
management's best estimates, which were derived using numerous
assumptions relating to future events, including, without limitation,
the continued availability of certain internal and external resources
and third party readiness plans. Furthermore, as the Company's Year
2000 initiative (described below) progresses, the Company continues
to revise its estimates of the likely problems and costs associated
with the Year 2000 problem and to adapt its contingency plan.
However, there can be no assurance that any estimate or assumption
will prove to be accurate.
The Company's Year 2000 Initiative
The Company has been conducting a comprehensive Year 2000
initiative with respect to its internal business-critical systems
since mid-1997. This initiative encompasses information technology
("IT") systems and applications, as well as non-IT systems and
equipment with embedded technology, such as fax machines and
telephone systems, which may be impacted by the Year 2000 problem.
Business-critical systems encompass internal accounting systems,
including general ledger, accounts payable and financial reporting
applications; cash management systems; loan servicing systems; and
decision support systems; as well as the underlying technology
required to support the software. The initiative includes assessing,
remediating or replacing, testing and upgrading the Company's
business-critical IT systems with the assistance of a consulting firm
that specializes in Year 2000 readiness. Based upon this initiative,
and the testing done to date, the Company does not anticipate any
material difficulties in achieving Year 2000 readiness with respect
to its internal business-critical systems, and the Company achieved
that Year 2000 readiness with respect to virtually all its internal
business-critical systems by March 31, 1999.
In addition to its own internal IT systems and non-IT systems,
the Company may be at risk from Year 2000 failures caused by or
occurring to third parties. These third parties can be classified
into two groups. The first group includes borrowers, significant
business partners, lenders, vendors and other service providers with
whom the Company has a direct contractual relationship. The second
group, while encompassing certain members of the first group, is
comprised of third parties providing services or functions to large
segments of society, both domestically and internationally such as
airlines, utilities and national stock exchanges.
As is the case with most other companies, the actions the
Company can take to avoid any adverse effects from the failure of
companies, particularly those in the second group, to become Year
2000 ready is extremely limited. However, the Company has
communicated with those companies that have significant business
relationships with the Company, particularly those in the first
group, to determine their Year 2000 readiness status and the extent
to which the Company could be affected by any of their Year 2000
readiness issues. In connection with this process, the Company has
sought to obtain written representations and other independent
confirmations of Year 2000 readiness from the third parties with whom
the Company has material contracts. Responses from all third parties
having material contracts with the Company have not been received.
In addition to contacting these third parties, where there are direct
interfaces between the Company's systems and the systems of these
third parties in the first group, the Company conducted testing in
the second quarter of 1999 in conformance with the guidelines of the
Federal Financial Institutions Examination Council. Based on
responses received and testing to date, it is not currently
anticipated that the Company will be materially affected by any third
party Year 2000 readiness issues.
For all business-critical systems interfaces, readiness was
achieved by September 30, 1999. Replacement providers believed to be
compliant have been identified for significant third party providers
that did not complete their Year 2000 initiatives.
There can be no assurance that the systems of the Company or
those of third parties will not experience adverse effects after
December 31, 1999. Furthermore, there can be no assurance that a
failure to convert by another company, or a conversion that is not
compatible with the Company's systems or those of other companies on
which the Company's systems rely, would not have a material adverse
effect on the Company.
The Company has incurred approximately $1.0 million of costs
related to its Year 2000 initiative through September 30, 1999 and
does not anticipate incurring any significant additional costs.
These cost estimates do not include costs associated with internal
resources assigned to the initiative.
Potential Risks
In addition to the Company's internal systems and the systems
and embedded technology of third parties with whom the Company does
business, there is a general uncertainty regarding the overall
success of global remediation efforts relating to the Year 2000
problem, including those efforts of providers of services to large
segments of society, as described above in the second group. Due to
the interrelationships on a global scale that may be impacted by the
Year 2000 problem, there could be short-term disruptions in the
capital or real estate markets or longer-term disruptions that would
affect the overall economy.
Due to the general uncertainty with respect to how this issue
will affect businesses and governments, it is not possible to list
all potential problems or risks associated with the Year 2000
problem. However, some examples of problems or risks to the Company
that could result from the failure by third parties to adequately
deal with the Year 2000 problem include:
In the case of lenders, the potential for liquidity stress due
to disruptions in funding flows;
in the case of exchanges and clearing agents, the potential for
funding disruptions and settlement failures; and
in the case of vendors or providers, service failures or
interruptions, such as failures of power, telecommunications and the
embedded technology of building systems (such as HVAC, sprinkler and
fire suppression, elevators, alarm monitoring and security, and
building and parking garage access).
With respect to the Company's loan portfolios, risks due to the
potential failure of third parties to be ready to deal with the Year
2000 problem include:
potential borrower defaults resulting from computer failures of
retail systems of major tenants in retail commercial real estate
properties such as shopping malls and strip shopping centers;
potential borrower defaults resulting from increased expenses or
legal claims related to failures of embedded technology in building
systems, such as HVAC, sprinkler and fire suppression, elevators,
alarm monitoring and security, and building and parking garage
access; and
delays in reaching projected occupancy levels due to
construction delays, interruptions in service or other market
factors.
These risks are also applicable to the Company's portfolios of
mortgage backed securities, as these securities are dependent upon
the pool of mortgage loans underlying them. If the investors in
these types of securities demand higher returns in recognition of
these potential risks, the market value of any future MBS portfolios
of the Company also could be adversely affected.
Other problems that could result from the failure of the Company
or third parties to achieve Year 2000 readiness include impairment of
the Company's ability to report to investors and owners with respect
to portfolio performance and collect and remit payments, including
those with respect to return on investments, taxes and insurance.
Furthermore, the Company's loan servicing operations rely on
computers to process and manage loans. These operations are of such
a volume and nature that manual processing would be time consuming
and expensive. Therefore, a failure of the Company's own systems or
the systems provided by third parties and used by the Company to be
timely compliant could have a material adverse effect on the
Company's loan servicing operations.
The Company believes that the risks most likely to affect the
Company adversely relate to the failure of third parties, including
its borrowers and sources of capital, to achieve Year 2000 readiness.
If its borrowers' systems fail, the result could be a delay in making
payments to the Company or the complete business failure of such
borrowers. The failure, although believed to be unlikely, of the
Company's sources of capital to achieve Year 2000 readiness could
result in the Company being unable to obtain the funds necessary to
continue its normal business operations.
Some of the risks associated with the Year 2000 problem may be
mitigated through insurance maintained or purchased by the Company,
its business partners, borrowers and vendors. However, the scope of
insurance coverage in addressing these potential issues under
existing policies has yet to be tested, and the economic impact on
the solvency of the insurers has not been explored. Therefore, no
assurance can be given that insurance coverage will be available or,
if it is available, that it will be available on a cost-effective
basis or that it will cover all or a significant portion of any
potential loss.
Business Continuity/Disaster Recovery Plan
The Company currently has a business continuity/disaster
recovery plan that includes business resumption processes that do not
rely on computer systems and the maintenance of hard copy files,
where appropriate. The business continuity/disaster recovery plan is
monitored and updated as potential Year 2000 readiness issues of the
Company and third parties are specifically identified. Due to the
inability to predict all of the potential problems that may arise in
connection with the Year 2000 problem, there can be no assurance that
all contingencies will be adequately addressed by such plan.
Private Litigation Securities Reform Act of 1995
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The
forward-looking statements are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
The factors that could cause actual results to differ materially
include the following: industry conditions and competition, interest
rates, business mix, availability of additional financing, and the
risks described from time to time in the Company's reports to the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Disclosure
The Company is subject to interest rate risk due to the
Company's balance sheet being primarily comprised of loans and
interest bearing investments primarily financed by London Interbank
Offered Rate based notes payable and warehouse loans payable and
fixed rate subordinated debt. The Company manages this risk by
striving to balance its origination and mortgage banking activities
with its asset management and servicing operations which are
generally counter cyclical in nature. In addition, the Company is a
party to financial instruments with off-balance sheet risk entered
into in the normal course of business to hedge against changes in
interest rates. The Company may reduce its exposure to fluctuations
in interest rates by creating offsetting positions through the use of
derivative financial instruments. Derivatives are used to lower
funding costs, to diversify sources of funding or to alter interest
rate exposures arising from mismatches between assets and
liabilities. The Company does not use derivative financial
instruments for trading or speculative purposes, nor is the Company
party to highly leveraged derivatives. These financial instruments
include interest rate cap agreements, put options and forward and
futures contracts. The instruments involve, to varying degrees,
elements of interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. The Company
controls the risk of its hedging agreements, interest rate cap
agreements and forward and futures contracts through approvals,
limits and monitoring procedures.
As part of its interest rate risk management process, the
Company performs various sensitivity analyses that quantify the net
financial impact of changes in interest rates on its interest rate
sensitive assets, liabilities and derivative portfolio. The analyses
incorporate scenarios under which the assets, liabilities and
derivatives are valued based upon their projected discounted cash
flows or market values as provided by Bloomberg quotations adjusted
for certain selected hypothetical changes in interest rates.
Included in the analyses are pre-payment rates, discount rates,
credit losses and effects related to re-pricing. The following are
the Company's interest rate sensitivity analyses as of September 30,
1999:
Retained Interests in Securitization (trading):
Change in Hypothetical Hypothetical
Interest Rates Fair Value Change($) Change(%)
10% $322.6 $ 4.8 1.5%
0 317.8 - -
(10) 300.0 (17.8) (5.6)
A hypothetical increase in interest rates is projected to
decrease loan pre-payments increasing the fair value of the retained
interests. This increase is projected to more than offset a decrease
in fair value of the retained interests caused by higher market
interest rates.
Other than Trading:
Change in Hypothetical Hypothetical
Interest Rates Fair Value Change ($) Change (%)
10% $832.5 $ 1.6 0.2%
0 830.9 - -
(10) 827.2 (3.7) (0.4)
The other than trading category includes loans held for sale,
loans and asset portfolios, asset backed securities, mortgage backed
securities, mortgage servicing rights, derivative positions, senior
subordinated notes and the amount outstanding under the Company's
Credit Agreement to the extent the fair value could be affected by a
widening of spreads. In an increasing interest rate environment, the
Company projects the fair value of its debt obligations to reduce
offset, in part, by a fair value reduction in its asset and
derivative portfolios.
Foreign Exchange Risk
Foreign exchange risk arises from the possibility that changes
in foreign exchange rates will impact the value of financial
instruments. When the Company buys or sells a foreign currency or a
financial instrument denominated in a currency other than US dollars,
exposure exists from a net open currency position. Until the
position is covered by selling or buying an equivalent amount of the
same currency or by entering into a financing arrangement denominated
in the same currency, the Company is exposed to a risk that the
exchange rate may move against it. As of September 30, 1999, the
Company has offset any material exposure to foreign exchange risk by
entering into financing arrangements denominated in the currency of
its foreign investments.
Any market interest rate change would adjust the Company's
projected cash flows from its variable rate assets and liabilities.
Such changes in cash flows are not reflected in the above analysis as
the fair values of variable assets and liabilities would not
materially be affected by a 10% change in interest rates. As with
any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table.
For example, although certain assets and liabilities may have similar
maturities or periods to re-pricing, they may react in different
degrees to changes in interest rates. Changes in interest rates
related to certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates while changes in interest
rates related to other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as variable
rate loans, have features which restrict changes in interest rates on
a short-term basis and over the life of the asset. Additionally,
changes in market interest rates may increase or decrease due to pre-
payments and defaults influenced by changes in market interest rates
affecting the valuation of certain assets. Accordingly, the data
presented in the above table should not be relied upon as indicative
of actual results in the event of changes in interest rates.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits and Exhibit Index
Exhibit No.
10.(a) Fourth Modification of Credit Agreement between
AMRESCO, INC. , as borrower, Bank of America, N.A.,
formerly NationsBank, N.A. as administrative agent
and Credit Suisse First Boston as syndication agent
for the "Lenders"
10.(b) Fifth Modification of Credit Agreement between
AMRESCO, INC. , as borrower, Bank of America, N.A.,
formerly NationsBank, N.A. as administrative agent
and Credit Suisse First Boston as syndication agent
for the "Lenders"
10.(c) Agreement regarding application of sale proceeds to
the Credit Agreement between AMRESCO, INC. , as
borrower, Bank of America, N.A., formerly
NationsBank, N.A. as administrative agent and
Credit Suisse First Boston as syndication agent for
the "Lenders"
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURE
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, thereunto duly authorized.
AMRESCO, INC.
Registrant
Date: November 10, 1999 By: /s/Barry L. Edwards
Barry L. Edwards
Executive Vice President
and Chief Financial Officer
FOURTH MODIFICATION OF CREDIT AGREEMENT
AND CONSENT
THIS FOURTH MODIFICATION OF CREDIT AGREEMENT AND CONSENT (this
"Modification Agreement") is entered into as of August 12, 1999, by and
between AMRESCO, INC., a Delaware corporation ("Borrower"), and BANK OF
AMERICA, N.A., formerly NationsBank, N.A., a national banking association,
as Administrative Agent ("Administrative Agent"), for and on behalf of the
Lenders (defined below).
W I T N E S S E T H:
WHEREAS, reference is made to the credit facilities made pursuant to
and governed by that certain Credit Agreement (as amended, the "Credit
Agreement") dated as of August 12, 1998, executed by and among Borrower,
Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and
the financial institutions, funds and other entities from time to time
designated as "Lenders" therein (the "Lenders"), as amended by (i) First
Modification of Credit Agreement (the "First Modification") dated as of
September 17, 1998, (ii) Second Modification of Credit Agreement (the
"Second Modification") dated as of November 30, 1998, and (iii) Third
Modification of Credit Agreement and Consent (the "Third Modification")
dated as of February 28, 1999 (each capitalized term used but not otherwise
defined herein shall be defined as set forth in the Credit Agreement); and
WHEREAS, Borrower has requested certain consents and modifications to
the Credit Agreement, and Borrower desires to increase the Revolving
Commitment by $30,000,000.00, to a total of $532,500,000.00, pursuant to
Section 2.1(d)(l) of the Credit Agreement; and
WHEREAS, the Lenders, acting through Administrative Agent pursuant to
the Credit Agreement, have agreed to the requested modifications, subject
to and upon the terms and conditions contained herein.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that, for and in
consideration of the terms and conditions contained herein and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Administrative Agent, for and on behalf of the
Lenders, and Borrower hereby agree as follows:
1. Revolving Commitment Increase. Effective as of August 18, 1999,
after giving effect to the full payment and termination of the Short Term
Revolving Facility and the increase in the Revolving Commitment pursuant to
Section 2.1(b)(1) of the Credit Agreement, the Revolving Commitment (which
now consists solely of the Long Term Revolving Facility), will be
$532,500,000.00, and the respective Revolving Loan Commitment Amounts and
Revolving Loan Percentages of the Revolving Lenders will be as set forth on
the replacement Schedule I to the Credit Agreement which is attached hereto
as Exhibit A and incorporated herein by reference for all purposes. The
Schedule I attached as Exhibit A shall for all purposes be the Schedule I
to the Credit Agreement from and after August 18, 1999, unless and until
further supplemented, modified or replaced in accordance with the Credit
Agreement. As of August 18, 1999 (i) the outstanding Advances under the
Notes shall be reallocated to correspond with the revised Revolving Loan
Percentages of the Revolving Lenders as reflected in the new Schedule I,
and (ii) Borrower will execute and deliver new Notes to those Revolving
Lenders whose Revolving Loan Commitment Amounts have increased in the new
amount of each such Revolving Lender's revised Revolving Loan Commitment
Amount.
2. Limitation on Commitment Increases. Notwithstanding anything to
the contrary in the Credit Agreement or any other Loan Document, in no
event shall the aggregate of the Revolving Commitment and the Term Facility
exceed $775,000,000. Accordingly, the references to an increased facility
in an amount up to $900,000,000 in Preliminary Statement II and in
Section 2.1(d) of the Credit Agreement, and all other such references in
the Loan Documents, shall be amended to reflect the maximum amount of
$775,000,000, any such subsequent increase remaining subject to all terms
and conditions of the Credit Agreement.
3. Limitation on Letter of Credit Facility. In addition to all
other limitations on and conditions to the issuance of Letters of Credit,
the Letter of Credit Exposure shall not at any time exceed $60,000,000.
Accordingly, Section 2.1(b)(ii)(B) is hereby amended to read as follows:
"(B) The Letter of Credit Exposure shall not exceed the lesser of
(1) $60,000,000 or (2) fifteen percent (15%) of the Revolving
Commitment.."
4. Asset Coverage. In order to provide borrowing availability for
100% of Borrower's cash securing the Credit Facilities:
(a) The definition of Asset Coverage Ratio (as defined in the
Third Modification and incorporated into the Credit Agreement) is amended
to read as follows:
"Asset Coverage Ratio means the ratio of the Asset
Coverage Values to the aggregate outstanding balance of
the Revolving Credit Facility (including Swingline
Advances and Competitive Bid Loans), the Term Facility
and the Letter of Credit Exposure, less the amount of
"Cash and Equivalents" shown in the "Pledged Assets"
column on the monthly report delivered pursuant to
Section 7.1(f)."
; and
(b) Schedule IV of the Credit Agreement, setting forth the
schedule for determination of the Asset Coverage Requirement, is hereby
modified, restated and replaced in its entirety by the Schedule IV attached
hereto as Exhibit C.
5. Pricing. (a) To modify the adjustments to the Applicable Rate
that are based on the ratio of retained interests in securitizations to
aggregate asset value for purpose of determining the Asset Coverage
Requirement, the definition of Asset Coverage Values is amended to read in
its entirety as follows:
"Asset Coverage Values at any time of determination means an
amount equal to the aggregate asset values obtained after
applying approved advance rates to certain of Borrower's net
assets (on a consolidated basis and adjusting for liens other
than Lenders' Liens but excluding all assets of Excluded
Subsidiaries and any Foreign Subsidiary or which are located
outside the United States), as shown on, and using the advance
rates shown on, Schedule IV attached hereto, as such schedule may
be changed from time to time by Borrower and Administrative Agent
(except that changes to the advance rates applied shall be
approved by Required Lenders and the addition of new asset
categories shall be subject to a veto of Required Lenders as set
forth in Schedule IV); provided, however, that (i) if and to the
extent that the value of retained interests in securitizations
(including without limitation interest only strips, residuals and
other similar items) is equal to or greater than thirty percent
(30%), but less than or equal to thirty-five percent (35%), of
the aggregate asset values used in determining the Asset Coverage
Requirement, and any such excess value is a necessary component
of the Asset Coverage Requirement to support the aggregate
outstanding principal balances of the Credit Facilities and the
Letter of Credit Exposure (less "Cash and Equivalents" securing
the Credit Facilities in the amount shown in the "Pledged Assets"
column on the monthly report delivered pursuant to
Section 7.1(f)), then, notwithstanding anything to the contrary
in this Agreement or the other Loan Documents, the Applicable
Rate shall automatically be increased by one quarter of one
percent (.25%), and (ii) if and to the extent that the value of
retained interests in securitizations (including without
limitation interest only strips, residuals and other similar
items) is greater than thirty-five percent (35%) of the aggregate
asset values used in determining the Asset Coverage Requirement,
and any such excess value is a necessary component of the Asset
Coverage Requirement to support the aggregate outstanding
principal balances of the Credit Facilities and the Letter of
Credit Exposure (less "Cash and Equivalents" securing the Credit
Facilities in the amount shown in the "Pledged Assets" column on
the monthly report delivered pursuant to Section 7.1(f)), then,
notwithstanding anything to the contrary in this Agreement or the
other Loan Documents, the Applicable Rate shall automatically be
increased by an additional one quarter of one percent (.25%) (for
a total increase of one-half of one percent (.50%)), in each case
such adjustment to remain in effect until such time as the
monthly report calculating the Asset Coverage Requirement
delivered pursuant to Section 7.1(f) indicates that such
circumstances no longer exist; and, provided further, that if and
to the extent that the value of retained interests in
securitizations (including without limitation interest only
strips, residuals and other similar types) equals or exceeds
forty percent (40%) of the aggregate asset values used in
determining the Asset Coverage Requirement, then such excess
value shall not be included in the determination of the Asset
Coverage Requirement."
(b) To reflect the adjustments to the Applicable Rate provided
for in the definition of Asset Coverage Values on Schedule II of the Credit
Agreement, and to delete provision for a decrease in the Applicable Rate
based on Borrower's debt rating as previously set forth therein,
Schedule II of the Credit Agreement is hereby modified, restated and
replaced in its entirety by the Schedule II attached hereto as Exhibit D.
(c) The definition of Applicable Rate is amended to include the
following language at the end of such definition: "and on Schedule II."
6. Warehouse Lines. Debt of Excluded Subsidiaries that meets all
the requirements for a Warehouse Line under and as defined in the Credit
Agreement may be included as a Warehouse Line. Accordingly, the phrase ",
any Excluded Subsidiary" shall be inserted in the first clause of the
definition of Warehouse Lines after the words "any Guarantor."
7. Confidentiality of Borrower Information. To clarify that the
Lenders' agreement with respect to confidentiality of Borrower information
is not limited to financial data, the second sentence of Section 7.3 of the
Credit Agreement, up to the proviso in that sentence, is hereby amended to
read as follows:
"Each Lender covenants and agrees to preserve the confidentiality
of any data or information, financial or otherwise, concerning
Borrower or any Affiliate of Borrower, or related to the
businesses or operations of Borrower or any Affiliate of
Borrower, with respect to which Borrower or any Affiliate of
Borrower has (a) an obligation of confidentiality to a third
party (to the extent such obligation has been disclosed to such
Lender) or (b) informed such Lender of the confidential nature of
the specific information, except to the extent such Lender is
required to disclose such information pursuant to any applicable
law, rule, regulation or order of any Governmental Authority;"
8. Interest/Dividend Coverage Ratio. Section 8.3 of the Credit
Agreement is amended to read in its entirety as follows:
"Section 8.3. Interest/Dividend Coverage Ratio. Borrower
shall not permit the Interest/Dividend Coverage Ratio to be less
than (i) 1.50 to 1.00 from the Closing Date through December 30,
2000, and (ii) 1.75 to 1.00 from and after December 31, 2000."
9. Investments. (a) Section 8.9(c) is amended to read in its
entirety as follows:
"(c) Investments in Excluded Subsidiaries so long as the
aggregate amount of such Investments does not exceed $75,000,000;
provided, however, that if the following requirements with
respect to a particular Excluded Subsidiary are satisfied, then
Investments in such Excluded Subsidiary shall not be included for
purposes of calculating the foregoing limitation:
(i) (A) the applicable Excluded Subsidiary was
established and is serving as a bankruptcy remote special
purpose entity in connection with an asset financing of any
kind (and no matter how such financing is treated under
GAAP), and Borrower shall deliver to Administrative Agent
upon request a copy of the non-consolidation opinion
obtained in connection with the closing of such transaction
evidencing such matter;
(B) such Excluded Subsidiary is not an operating
entity;
(C) Borrower and all Guarantors, as applicable,
have pledged or caused to be pledged to Administrative Agent
on behalf of the Lenders in accordance with the Loan
Documents (1) 100% of the ownership interests in such
Excluded Subsidiary (including without limitation all stock
or other shareholders' equity, partnership interests or
beneficial trust interests) and (2) all retained and/or
residual interests in such Excluded Subsidiary or from such
financing transaction or any other rights to distributions
or payments from such Excluded Subsidiary or such financing
transaction (whether such rights are certificated,
contractual rights to payment, retained ownership rights or
otherwise) held by Borrower or any Guarantor, or held by any
other Subsidiary of Borrower if and to the extent that such
other Subsidiary is not prohibited from pledging the same as
security for the obligations and such interests are not
pledged as security for other Debt that is permitted under
this Agreement, in each case such that Administrative Agent
has a valid first priority perfected security interest
therein on terms and subject to documentation acceptable to
Administrative Agent; and
(D) the structure of the transaction is within
customary market terms and the aggregate amount invested in
such Excluded Subsidiary is limited to a reasonable and
customary amount for the particular type of transaction, as
determined by Administrative Agent in its sole and absolute
discretion, and provided that Borrower has furnished to
Administrative Agent all information regarding the
transaction deemed necessary or appropriate by
Administrative Agent to evaluate in making such
determination, and Administrative Agent shall have five (5)
Business Days from receipt of such information to respond to
Borrower as to its determination regarding such transaction
(Administrative Agent's failure to respond to Borrower
within such response period being deemed satisfaction of the
requirements of this subparagraph (D)); or
(ii) the applicable Excluded Subsidiary is a Partially-
Owned Subsidiary and all of the stock or other ownership
interest of Borrower or any Subsidiary of Borrower in such
Excluded Subsidiary has been pledged to Administrative Agent
on behalf of the Lenders pursuant to a Pledge Agreement,
such stock or other ownership interest gives the holder
thereof a controlling interest in such entity, as determined
by Administrative Agent in its sole and absolute discretion,
and Administrative Agent in its sole and absolute discretion
determines with respect to any Partially-Owned Subsidiary
that Borrower's and each Guarantor's investment therein can
be timely recovered in full by Borrower or such Guarantor or
the loss of such investment will not materially adversely
effect the financial condition of Borrower or such
Guarantor;"
(b) Section 8.9(e) is amended to read in its entirety as
follows:
"(e) Loans to any employees of Borrower or any Subsidiary of
Borrower (i) to facilitate relocations, (ii) who are the former
shareholders of MIC, in an aggregate amount not to exceed
$17,000,000, evidenced by promissory notes that are due and
payable in full on or before September 30, 1999, or, if the
shares of stock to be issued as consideration to such
shareholders pursuant to the MIC Merger Agreement have not been
issued, or cash consideration in lieu thereof has not been paid
to such shareholders, on or before September 30, 1999, then on
the date that such stock or cash consideration is given or paid,
which promissory notes shall be in form and content acceptable to
Administrative Agent, and with respect to which such loans
Borrower or any Subsidiary of Borrower is entitled to an offset
under the MIC Merger Agreement, and (iii) in addition to those
permitted above, so long as the aggregate of such loans pursuant
to this clause (iii) does not exceed $1,500,000."
10. Definition of MIC Merger Agreement. The definition of "MIC
Merger Agreement", as set forth in the Third Modification and incorporated
into the Credit Agreement, is hereby amended to read as follows:
"MIC Merger Agreement means the Agreement and Plan of
Merger, dated July 14, 1998. by and among Borrower, MIC
Acquisition, Inc., Mortgage Investors Corporation, William
Edwards and certain other stockholders, as amended by the
Amendment thereto dated March 31, 1999."
11. Definition of Loan Documents. The definition of "Loan
Documents", as defined in the Credit Agreement and as used in the Credit
Agreement, the other Loan Documents and herein, shall be, and is hereby,
modified to include this Modification Agreement and any and all documents
executed in connection herewith.
12. Conditions Precedent to this Modification Agreement. As
conditions precedent to this Modification Agreement and the modifications
to the Credit Agreement pursuant hereto and the consents granted hereunder,
all of the following shall have been satisfied:
(a) Borrower and the Guarantors (including all new Guarantors
listed on any Supplement to Credit Agreement delivered pursuant to in
Section 12(d) below and any prior Supplements) shall have executed and
delivered to Administrative Agent this Modification Agreement;
(b) Borrower shall have delivered to Administrative Agent all
corporate resolutions, consents, powers of attorney, certificates or
documents as Administrative Agent may request relating to (i) the existence
of Borrower, and (ii) the corporate and partnership authority for the
execution and validity of this Modification Agreement, together with all
other documents, instruments and agreements and any other matters relevant
hereto or thereto, all in form and content satisfactory to Administrative
Agent;
(c) Borrower shall have paid all applicable amendment and other
fees as agreed in connection with this Modification Agreement and the
increase in the Revolving Commitment;
(d) Borrower shall have caused to be executed and delivered to
Administrative Agent a Supplement to the Loan Documents to add all
Subsidiaries of Borrower, other than Excluded Subsidiaries, Foreign
Subsidiaries and Investment Advisor Subsidiaries, as Guarantors under the
Guaranty Agreement, and as assigning or pledging parties under the
Collateral Assignment, the Security Agreement and the Pledge Agreement, and
Administrative Agent shall have received all such corporate existence and
authority documentation, resolutions and other agreements, stock
certificates and other equity ownership certificates, stock powers,
financing statements, instruments and certificates as Administrative Agent
shall reasonably require with respect to such additional Guarantors.
Borrower shall also have caused to be executed and/or delivered to
Administrative Agent such modifications to the Stock Pledge Agreement and
such stock certificates of, or other evidences of equity interests in, the
Excluded Subsidiaries (with stock powers as applicable) to effectively
evidence and perfect the Lenders' security interests therein; and
(e) Borrower shall have executed and delivered to Administrative
Agent, for the benefit of the Revolving Lenders, an agreement, in form and
content acceptable to Administrative Agent, pursuant to which Borrower
irrevocably agrees to reduce the Revolving Commitment by an amount equal to
or greater than $30,000,000.00, and to make any payments that may be
required in connection with such reduction as provided in Section 3.6(c) of
the Credit Agreement, on or before August 12, 2000.
13. Reaffirmation of Debt and Liens. Borrower acknowledges and
agrees that it is well and truly indebted to the Lenders pursuant to the
terms of the Notes, the Credit Agreement and the other Loan Documents, as
modified hereby, and that all liens and security interests securing the
Obligations are and remain in full force and effect.
14. Ratification. Except as otherwise expressly modified by this
Modification Agreement, all terms and provisions of the Credit Agreement
(as previously modified), the Notes, and the other Loan Documents shall
remain unchanged and hereby are ratified and confirmed and shall be and
shall remain in full force and effect, enforceable in accordance with their
terms.
15. Payment of Expenses. Borrower shall pay to Administrative Agent,
on behalf of the Lenders, upon demand, the reasonable attorneys' fees and
expenses of Administrative Agent's counsel and all filing and recording
fees and other reasonable expenses incurred by Administrative Agent in
connection with this Modification Agreement.
16. Current Guarantors and Excluded Subsidiaries. Attached hereto as
Exhibit B is a correct and complete list of each of the Subsidiaries of
Borrower that are required to be "Guarantors" under the Credit Agreement
and related Loan Documents as of the date hereof, indicating the initial
Guarantors that executed the Credit Agreement and the additional Guarantors
added by a Supplement to the Loan Documents. Attached hereto as Exhibit E
is a replacement Schedule V to the Credit Agreement which lists all of the
Excluded Subsidiaries as of the date hereof.
17. Further Assurances. Borrower shall execute and deliver to
Administrative Agent such other documents as may be necessary or as may be
required, in the opinion of Administrative Agent and/or counsel to
Administrative Agent, to effect the transactions contemplated hereby and to
protect the Lenders' Liens and security interests, and the rights and
remedies of Administrative Agent and/or the Lenders under the Loan
Documents.
18. Binding Agreement. This Modification Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto, and the
Lenders, and their respective legal representatives, successors and
assigns.
19. Enforceability. In the event the enforceability or validity of
any portion of this Modification Agreement, the Credit Agreement, the
Notes, or any of the other Loan Documents is challenged or questioned, such
provision shall be construed in accordance with, and shall be governed by,
whichever applicable federal or New York law would uphold or would enforce
such challenged or questioned provision.
20. Choice of Law. THIS MODIFICATION AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT FEDERAL LAWS PREEMPT THE
LAWS OF THE STATE OF NEW YORK.
21. Counterparts. This Modification Agreement may be executed in
multiple counterparts, all of which are identical, each of which shall be
deemed an original, and all of which counterparts together shall constitute
one and the same instrument.
22. Entire Agreement. This Modification Agreement, the Credit
Agreement and the Notes, together with the other Loan Documents, contain
the entire agreements between the parties relating to the subject matter
hereof and thereof and all prior agreements relative thereto which are not
contained herein or therein are terminated.
THIS MODIFICATION AGREEMENT AND THE OTHER WRITTEN INSTRUMENTS,
AGREEMENTS AND DOCUMENTS EXECUTED IN CONNECTION WITH THIS MODIFICATION
AGREEMENT, AND THE CREDIT AGREEMENT, THE NOTES, AND THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
IN WITNESS WHEREOF, this Agreement is executed effective as of the
date first written above.
BORROWER:
AMRESCO, INC., a Delaware corporation
By:
Thomas J. Andrus,
Senior Vice President and Treasurer
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A., formerly NationsBank, N.A.,
a national banking association, as Administrative
Agent for the Lenders
By:
Elizabeth Kurilecz,
Managing Director
ACKNOWLEDGED AND AGREED TO as of the
12th day of August, 1999, by:
GUARANTORS:
AFC EQUITIES INVESTORS, INC., f/k/a AFC EQUITIES, INC.
AFC EQUITIES MANAGEMENT, INC.
ALPINE, INC.
AMREIT HOLDINGS, INC.
AMREIT MANAGERS GP, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CAPITAL CONDUIT CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CAPITAL, L.P.
AMRESCO CMF, INC.
AMRESCO COMMERCIAL FINANCE, INC.
AMRESCO CONSOLIDATION CORP.
AMRESCO EQUITY INVESTMENTS, INC.
AMRESCO EQUITY INVESTMENTS II, INC.
AMRESCO FINANCE AMERICA CORPORATION
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INDEPENDENCE FUNDING, INC.
AMRESCO-INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO MANAGEMENT, INC.
AMRESCO MBS-II, INC.
AMRESCO MORTGAGE CAPITAL LIMITED-I, INC.
AMRESCO MORTGAGE SERVICES LIMITED, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RESIDENTIAL PROPERTIES, INC.
AMRESCO SERVICES, L.P.
AMRESCO VENTURES, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
FINANCE AMERICA CORPORATION
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO FOWLER, L.P.
LIFETIME HOMES, INC.
MSPI, INC.
MORTGAGE INVESTORS CORPORATION
OAK CLIFF FINANCIAL, INC.
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
AMRESCO INSURANCE SERVICES, INC.
AFC EQUITIES, L.P.
AMREIT MANAGERS, L.P.
AMRESCO-MBS I, INC.
AMRESCO MORTGAGE CAPITAL, INC.
HF ACQUISITION SUB, INC.
AMRESCO RECEIVABLES MANAGEMENT CORP.
AMRESCO CONSUMER RECEIVABLES CORPORATION
AMRESCO CONSUMER INVESTMENTS, L.P.
AMRESCO CONSUMER ACQUISITIONS CORP.
By: AMRESCO, INC., a Delaware corporation, as agent
and attorney-in-fact
By:
Thomas J. Andrus,
Senior Vice President and Treasurer
EXHIBIT A
SCHEDULE 1
LENDERS AND BORROWER
I. LENDERS, AGENTS AND ARRANGERS
A. ADMINISTRATIVE AGENT
Bank of America, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Elizabeth Kurilecz
Tel: (214) 508-0975
Fax: (214) 508-0604
B. SYNDICATION AGENT
Credit Suisse First Boston
Eleven Madison Avenue, 20th Floor
New York, New York 10010-3629
Attn: Jay Chall
Tel: (212) 325-9010
Fax: (212) 325-8320
C. ARRANGERS
Banc of America Securities LLC
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Gary Kahn
Tel: (214) 508-3507
Fax: (214) 325-8320
Credit Suisse First Boston
Eleven Madison Avenue, 20th Floor
New York, New York 10010-3629
Attn: Jay Chall
Tel: (212) 325-9010
Fax: (212) 325-8320
C. REVOLVING LENDERS:
Bank of America, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Elizabeth Kurilecz
Tel: (214) 508-0975
Fax: (214) 508-0604
Bank One, Texas, N.A.
c/o First National Bank of Chicago
One First National Plaza, Suite 0631
Chicago, Illinois 60670
Attn: Thomas T. Bower
Tel: (312) 732-6904
Fax: (312) 732-1775
Bank United
400 Colony Square
Suite 200
Atlanta, Georgia 30361
Attn: John D. West
Tel: (404) 877-9192
Fax: (404) 877-9195
Comerica Bank - Texas
8828 Stemmons, Suite 441
Dallas, Texas 75247
Attn: Donald P. Hellman
Tel: (214) 589-4419
Fax: (972) 263-9837
Credit Lyonnais, New York Branch
1301 6th Avenue
New York, New York 10019
Attn: Paul Connolly
Tel: (212) 261-3885
Fax: (212) 261-3401
Fleet Bank, N.A.
1185 Avenue of the Americas
16th Floor
New York, New York 10036
Attn: Edward Walsh
Tel: (860) 986-3784
Fax: (860) 986-7624
The Bank of New York
One Wall Street, 17th Floor
New York, NY 10286
Attn: Robert A. Tweed
Tel: (212) 635-6465
Fax: (212) 635-6468
LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Terry Keating
Tel: (312) 904-2689
Fax: (312) 904-2982
U.S. Bank National Association
601 2nd Avenue South
MPFP 0508
Minneapolis, Minnesota 55402-4302
Attn: John P. Crenshaw
Tel: (612) 973-0572
Fax: (612) 973-0826
Credit Suisse First Boston
Eleven Madison Avenue, 20th Floor
New York, New York 10010-3629
Attn: Jay Chall
Tel: (212) 325-9010
Fax: (212) 325-8320
Bear Stearns Investment Products, Inc.
245 Park Avenue, 4th Floor
New York, NY 10167
Attn: Mark A. Sorenson
Tel: (212) 272-7959
Fax: (212) 272-4844
Prudential Securities Credit Corp.
One Seaport Plaza
27th Floor
New York, NY 10292
Attn: Jeffrey French
Tel: (212) 214-7558
Fax: (212) 214-7678
Dresdner Bank AG,
New York & Grand Cayman Branches
75 Wall Street
New York, NY 10005
Attn: J. Curtin Beaudouin
Tel: (212) 429-2120
Fax: (212) 429-2524
PNC Bank, N.A.
500 West Jefferson Street
Suite 1100
Louisville, Ky 40202
Attn: Janice Bolling
Tel: (502) 581-3112
Fax: (502) 581-3844
Farallon Debt Investors I, LLC
c/o Farallon Capital Management, LLC
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Attn: Ms. Meridee Moore
Ms. Kirsten Lynch
Tel: (415) 421-2132
Fax: (415) 421-2133
ING Baring (U.S.) Capital LLC
135 E. 57th Street, 6th Floor
New York, New York 10022
Attn: Ms. Ann Sutton
Tel: (212) 409-1581
Fax: (212) 371-9295
D. TERM LENDERS
The Bank of New York
One Wall Street, 17th Floor
New York, NY 10286
Attn: Robert A. Tweed
Tel: (212) 635-6465
Fax: (212) 635-6468
Allstate Life Insurance Company
3075 Sanders Road, Suite G3A
Northbrook, IL 60062-7127
Attn: Tom Napholz
Tel: (847) 402-7835
Fax: (847) 402-3092
KZH III LLC, f/k/a/
KZH Holding Corporation III
c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, NY 10001
Attn: Virginia Conway
Tel: (212) 946-7575
Fax: (212) 946-7776
Tyler Trading
100 North Tryon Street
NCI-007-06-07
Charlotte, NC 28255
Attn: Kelly C. Walker
Tel: (704) 388-8943
Fax: (704) 388-0648
Strata Funding Ltd.
c/o Deutsche Morgan Grenfell (Cayman) Limited
P.O. 10184 GT, Elizabethan Square
Grand Cayman, Cayman Islands
Attn: Director
Tel: (345) 949-8244
Fax: (345) 949-8178
Ceres Finance Ltd.
c/o Deutsche Morgan Grenfell (Cayman) Limited
P.O. 10184 GT, Elizabethan Square
Grand Cayman, Cayman Islands
Attn: Director
Tel: (345) 949-8244
Fax: (345) 949-8178
Pacifica Partners I, L.P.
c/o Imperial Credit Asset Management
150 S. Rodeo Drive, Suite 230
Beverly Hills, CA 90212
Attn: Mike Bacevich
Tel: (310) 246-3726
Fax: (310) 777-3026
LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Terry Keating
Tel: (312) 904-2689
Fax: (312) 904-2982
Floating Rate Portfolio
c/o INVESCO Senior Secured Management, Inc.
1166 Avenue of the Americas, 27th Floor
New York, NY 10036-2789
Attn: Peter C. Wollman
Tel: (212) 278-9647
Fax: (212) 278-9847
Revolving Loan Revolving
Commitment Amount Loan Percentage
Revolving Lenders:
Bank of America $75,000,000 14.08450704%
Credit Suisse First Boston 56,250,000 10.56338028%
U.S. Bank 56,250,000 10.56338028%
Bank One 37,500,000 7.04225352%
Bank United 37,500,000 7.04225352%
Fleet Bank 37,500,000 7.04225352%
Prudential Securities 37,500,000 7.04225352%
LaSalle Bank National 45,000,000 8.45070423%
Association
Bank of New York 33,750,000 6.33802817%
Dresdner Bank 26,250,000 4.92957746%
Comerica 22,500,000 4.22535211%
Bear Stearns 7,500,000 1.40845070%
Credit Lyonnais 18,750,000 3.52112676%
Farallon Debt Investors 14,250,000 2.67605634%
PNC Bank 11,250,000 2.11267606%
ING Baring 15,750,000 2.95774648%
Total $532,500,000 100.00000000%
Term Loan Term Loan
Commitment Amount Percentage
Term Lenders:
Pacifica Partners $10,000,000 14.814815%
Tyler Trading $7,500,000 11.111111%
Allstate Life $7,500,000 11.111111%
Insurance Company
Allstate Life $7,500,000 11.111111%
Insurance Company
KZH III LLC $5,100,000 7.555556%
Bank of New York $5,000,000 7.407407%
Tyler Trading $5,000,000 7.407407%
LaSalle Bank National $5,000,000 7.407407%
Association
Floating Rate Portfolio $5,000,000 7.407407%
Ceres $4,950,000 7.333333%
Strata $4,950,000 7.333333%
Total $67,500,000 100.0%
II. BORROWER with copy to:
AMRESCO, INC. AMRESCO, INC.
700 N. Pearl Street 700 N. Pearl Street
Suite 2400 Suite 2400
Dallas, Texas 75201-7424 Dallas, Texas 75201-7424
Attn: Treasurer Attn: General Counsel
Fax No.: (214) 953-7828 Fax No.: (214) 953-7757
EXHIBIT B
GUARANTOR SUBSIDIARIES OF BORROWER
AS OF AUGUST 12, 1999
INITIAL GUARANTORS ON CREDIT AGREEMENT 8/12/98:
AFC EQUITIES INVESTORS, INC., f/k/a AFC EQUITIES, INC.
AFC EQUITIES MANAGEMENT, INC.
ALPINE, INC.
AMREIT HOLDINGS, INC.
AMREIT MANAGERS GP, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CAPITAL CONDUIT CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CAPITAL, L.P.
AMRESCO CMF, INC.
AMRESCO COMMERCIAL FINANCE, INC.
AMRESCO CONSOLIDATION CORP.
AMRESCO EQUITY INVESTMENTS, INC.
AMRESCO EQUITY INVESTMENTS II, INC.
AMRESCO FINANCE AMERICA CORPORATION
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INDEPENDENCE FUNDING, INC.
AMRESCO-INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO MANAGEMENT, INC.
AMRESCO MBS-II, INC.
AMRESCO MORTGAGE CAPITAL LIMITED-I, INC.
AMRESCO MORTGAGE SERVICES LIMITED, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RESIDENTIAL PROPERTIES, INC.
AMRESCO SERVICES, L.P.
AMRESCO VENTURES, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
FINANCE AMERICA CORPORATION
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO FOWLER, L.P.
LIFETIME HOMES, INC.
MSPI, INC.
MORTGAGE INVESTORS CORPORATION
OAK CLIFF FINANCIAL, INC.
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
AMRESCO INSURANCE SERVICES, INC.
WHITE ROCK INVESTMENTS, INC.
ADDITIONAL GUARANTORS BY SUPPLEMENT DATED 2/28/99:
AFC EQUITIES, L.P.
AMREIT MANAGERS, L.P.
AMRESCO-MBS I, INC.
AMRESCO MORTGAGE CAPITAL, INC.
HF ACQUISITION SUB, INC.
ADDITIONAL GUARANTORS BY SUPPLEMENT DATED MAY 31, 1999:
AMRESCO RECEIVABLES MANAGEMENT CORP.
AMRESCO CONSUMER RECEIVABLES CORPORATION
AMRESCO CONSUMER INVESTMENTS, L.P.
AMRESCO CONSUMER ACQUISITIONS CORP.
EXHIBIT C
<TABLE>
<CAPTION>
SCHEDULE IV
ASSET COVERAGE REQUIREMENT
Assets Balance Less Pledged Net
Sheet Assets Advance % Asset Values
(a)-(b)=(c) (d) (c x d=e)
<S> <C> <C> <C> <C>
Cash and Equivalents 0%
Accounts Receivable (net of reserves)
Management Contracts 85%
AMRESCO CAPITAL TRUST Stock held 50%(g)
Loans held for sale, net
Residential Mortgage - Originated 100%
Residential Mortgage - Wholesale 95%
Residential Mortgages - Impaired 80%
Residential Mortgage - FHA/VA 98%
Commercial Mortgage 95%
Commercial Mortgage - FNMA 99%
Commercial Finance - Small Business 95%
Commercial Finance - Franchise 98%
Commercial Finance - Construction 95%
Commercial Finance - Guarantied 98%
Commercial Finance - SBA Non-
Guarantied 75%
Commercial Finance - Telecapital 85%
Loans, net
Residential Mortgage 100%
Commercial Mortgage - Servicing
Advances 90%
Commercial Finance - Real Estate 85%
Structure Finance
Commercial Finance - Builders Group 85%
Commercial Finance - BLD 85%
Commercial Finance - SBA Guarantied 98%
Commercial Finance - SBA Non-Guarantied 75%
Commercial Finance - Telecapital 85%
Corporate and Other 85%
CMBS Servicing Strips 0%
Investments in purch. loan and
other asset port.
Loan portfolios
Foreign 0%
Domestic 85%
Real Estate
Foreign 0%
Domestic 85%
Partnerships and joint ventures 70%
Asset backed and other securities
available for sale 75%
Retained interests in
securitizations-trading
Residential Mortgage 70%
Nim 25%
Commercial Lending Corporation 85%
New Asset Pool (f) 50%
Premises and equipment, net of
acc. depreciation 50%
Other Assets 0%
Intangible Assets 0%
Deferred Income Taxes 0%
Total Asset Values
</TABLE>
(a) Value of Borrower's assets per balance sheet
(b) Assets pledged under other credit facilities or not subject to prior
perfected security interest securing Credit Facilities
(c) Balance sheet value less assets pledged under other facilities or not
subject to prior perfected security interest securing Credit Facilities
(d) Advance rate applied
(e) Value of assets securing Credit Facilities times Advance Percentage
(f) An advance rate of 50% will be applied to any new asset class;
provided that (i) the total value related to new asset classes included
in the calculation of the Asset Coverage Requirement shall be the lesser
of $100,000,000 or an amount equal to 10% of the total "Pledged Assets"
value included in such calculation, and (ii) Borrower shall be entitled
to add a new class of assets with a higher advance rate than 50%, by
delivering a written request for such approval to Administrative Agent
and the Lenders so long as such request is not refused by the Required
Lenders within thirty (30) days of receipt of such request (the addition
of any new class shall be effective, if no objection is raised, on the
first reporting date after the expiration of such thirty day period)
(g) 0% until 1/1/99
EXHIBIT D
COMMITMENT FEE PERCENTAGE; LIBOR MARGIN; LETTER OF CREDIT FEES
1.If the Asset Coverage Ratio is equal to or greater than 1.40 to 1.00:
Ratio of Total
Consolidated Debt
Less Outstanding Commitment Letter of
Balance of Warehouse LIBOR Fee Credit Fee
TIERS Lines to Borrower's Margin Percentages
Consolidated Net Percentages
Worth*
I Greater than or (a) 237.5 b.p. 37.5 b.p. 237.5 b.p
equal to 2.50X
(b) 337.5 b.p.
II Greater than or (a) 212.5 b.p. 25.0 b.p. 212.5 b.p
equal to 1.50X but
less than 2.50X
(b) 312.5 b.p.
III Greater than or (a) 200.0 b.p. 25.0 b.p. 200.0 b.p
equal to 1.00X but
less than 1.50X
(b) 300.0 b.p.
IV Less than 1.00X (a) 187.5 b.p. 25.0 b.p. 187.5 b.p
(b) 287.5 b.p.
(a) - The LIBOR Margin for the Revolving Credit Facility.
(b) - The LIBOR Margin for the Term Facility.
* - The calculation of the applicable ratio of Total
Consolidated Debt less outstanding balance of Warehouse Lines to
Borrower's Consolidated Net Worth shall be made and effective on
the first day of the calendar month in which Administrative Agent
receives the quarterly financial statements and related officer's
certificate required to be delivered by Borrower pursuant to
Section 7.2 (b) and (c) showing that such adjustment is
appropriate (except that with respect to any Adjusted LIBOR Rate
or Competitive Bid Loan then in effect, such change shall occur
at the end of the applicable Interest Period or maturity as to
the related Advance, LIBOR Rate Portion or Competitive Bid Loan).
2.If the Asset Coverage Ratio is less than 1.40 to 1.00:
Ratio of Total
Consolidated Debt
Less Outstanding Commitment Letter of
Balance of Warehouse LIBOR Fee Credit Fee
TIERS Lines to Borrower's Margin Percentages
Consolidated Net Percentages
Worth*
I Greater than or (a) 275.0 b.p. 37.5 b.p. 275.0 b.p
equal to 2.50X
(b) 375.0 b.p.
II Greater than or (a) 250.0 b.p. 25.0 b.p. 250.0 b.p
equal to 1.50X but
less than 2.50X
(b) 350.0 b.p.
III Greater than or (a) 237.5 b.p. 25.0 b.p. 237.5 b.p
equal to 1.00X but
less than 1.50X
(b) 337.5 b.p.
IV Less than 1.00X (a) 225.0 b.p. 25.0 b.p. 225.0 b.p
(b) 325.0 b.p.
(a) - The LIBOR Margin for the Revolving Credit Facility.
(b) - The LIBOR Margin for the Term Facility.
(c) - The Commitment Fee for the Long Term Revolving Facility
* - The calculation of the applicable ratio of Total
Consolidated Debt less outstanding balance of Warehouse Lines to
Borrower's Consolidated Net Worth shall be made and effective on
the first day of the calendar month in which Administrative Agent
receives the quarterly financial statements and related officer's
certificate required to be delivered by Borrower pursuant to
Section 7.2 (b) and (c) showing that such adjustment is
appropriate (except that with respect to any Adjusted LIBOR Rate
or Competitive Bid Loan then in effect, such change shall occur
at the end of the applicable Interest Period or maturity as to
the related Advance, LIBOR Rate Portion or Competitive Bid Loan).
3.Increase in Applicable Rate. Notwithstanding anything to the contrary in
this Schedule II, the Agreement or any other Loan Document, (i) if and to
the extent that the value of retained interests in securitizations
(including without limitation interest only strips, residuals and other
similar items) is equal to or greater than thirty percent (30%), but less
than or equal to thirty-five percent (35%), of the aggregate asset values
used in determining the Asset Coverage Requirement, and any such excess
value is a necessary component of the Asset Coverage Requirement to
support the aggregate outstanding principal balances of the Credit
Facilities and the Letter of Credit Exposure (less "Cash and Equivalents"
securing the "Credit Facilities" in the amount shown in the Pledged
Assets column on the monthly report delivered pursuant to
Section 7.1(f)), then the Applicable Rate shall automatically be
increased by one quarter of one percent (.25%), and (ii) if and to the
extent that the value of retained interests in securitizations (including
without limitation interest only strips, residuals and other similar
items) is greater than thirty-five percent (35%) of the aggregate asset
values used in determining the Asset Coverage Requirement, and any such
excess value is a necessary component of the Asset Coverage Requirement
to support the aggregate outstanding principal balances of the Credit
Facilities and the Letter of Credit Exposure (less "Cash and Equivalents"
securing the "Credit Facilities" in the amount shown in the Pledged
Assets column on the monthly report delivered pursuant to
Section 7.1(f)), then the Applicable Rate shall automatically be
increased by an additional one quarter of one percent (.25%) (for a total
increase of one-half of one percent (.50%)), in each case such adjustment
to remain in effect until such time as the monthly report calculating the
Asset Coverage Requirement delivered pursuant to Section 7.1(f) indicates
that such circumstances no longer exist.
EXHIBIT E
[As of August 12, 1999]
SCHEDULE V
List of Excluded Subsidiaries
Subsidiary Type Net Total Total
Worth Capital Assets
Invested
AMRESCO Leasing Corporation PO $ $ $
AMRESCO Residential
Securities Corporation SPV
AMRESCO Securities Inc. Broker/
Dealer
AMRESCO Advisors, Inc. Invest-
ment Ad.
AMRESCO - MBS III, Inc. SPV
AFBT - I, LLC PO
AFBT - II, LLC PO
AMRESCO Builders Funding Corp. SPV
11 South LaSalle, LLC PO
Noble Building Investors, LLC PO
Oakmont Land Three, L.P. PO
ACLC Funding Corp. SPV
CLC Funding Corp. SPV
AMRESCO Securitized Net
Interest Margin Trust 1999-1 SPV
AMRESCO Funding Trust I SPV
Independence Funding Holding
Corporation SPV
Independence Funding Holding
Company, L.L.C. SPV
AMRESCO Commercial Mortgage
Funding I Corporation SPV
AMRESCO Bureaus Investors, L.P. PO
AMRESCO RMBS I, Inc. SPV
AMRESCO LTD Investors, L.P. PO
AMRESCO Builders Financing Corp. SPV
ACFI Funding Corp. SPV ________ _________ _________
Total $ $ $
PO - Partially Owned
SPV - Bankruptcy Remote Special Purpose Entity
FIFTH MODIFICATION OF CREDIT AGREEMENT
THIS FIFTH MODIFICATION OF CREDIT AGREEMENT (this "Modification
Agreement") is entered into as of September 29, 1999, by and between
AMRESCO, INC., a Delaware corporation ("Borrower"), and BANK OF
AMERICA, N.A., formerly NationsBank, N.A., a national banking
association, as Administrative Agent ("Administrative Agent"), for and
on behalf of the Lenders (defined below).
W I T N E S S E T H:
WHEREAS, reference is made to the credit facilities made pursuant
to and governed by that certain Credit Agreement (as amended, the
"Credit Agreement") dated as of August 12, 1998, executed by and among
Borrower, Administrative Agent, Credit Suisse First Boston, as
Syndication Agent, and the financial institutions, funds and other
entities from time to time designated as "Lenders" therein (the
"Lenders"), as amended by (i) First Modification of Credit Agreement
dated as of September 17, 1998, (ii) Second Modification of Credit
Agreement dated as of November 30, 1998, (iii) Third Modification of
Credit Agreement and Consent (the "Third Modification") dated as of
February 28, 1999, and (iv) Fourth Modification of Credit Agreement
and Consent dated as of August 12, 1999 (each capitalized term used
but not otherwise defined herein shall be defined as set forth in the
Credit Agreement); and
WHEREAS, Borrower has requested certain modifications to the
Credit Agreement; and
WHEREAS, the Lenders, acting through Administrative Agent
pursuant to the Credit Agreement, have agreed to the requested
modifications, subject to and upon the terms and conditions contained
herein.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that, for and in
consideration of the terms, and conditions and agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Administrative Agent, for
and on behalf of the Lenders, and Borrower hereby agree as follows:
1. Definition of Consolidated EBITDA. The definition of
Consolidated EBITDA shall be amended to read in its entirety as
follows:
"Consolidated EBITDA means, for any period, determined
in accordance with GAAP on a consolidated basis for Borrower
and its Subsidiaries, an amount equal to (a) the sum of
consolidated net income before taxes and extraordinary gains
or losses (as determined in accordance with GAAP), plus
depreciation, plus amortization, plus interest expense, each
as deducted in determining such consolidated net income
before taxes, less (b) write downs of retained interests in
securitizations (which includes, without limitation,
interest only strips, servicing rights and other similar
assets) for prior years to the extent prior year financial
statements are restated in the period of determination to
reflect such write downs and such write downs are not
included in calculating net income for the period of
determination, and less (c) non-cash income (created by gain
on sale accounting) included in consolidated net income
before taxes and extraordinary gains or losses as used in
clause (a) of this calculation of Consolidated EBITDA;
provided, however, that for all purposes hereunder, (i) the
losses related to the commercial mortgage banking and home
equity lending activities of Borrower and its Subsidiaries
(in an aggregate amount not to exceed $220,500,000) that
were reported in year-end 1998 Financial Statements of
Borrower shall not be included in calculating Consolidated
EBITDA and (ii) the following amounts shall be adjusted or
added back in the calculation of Consolidated EBITDA (but
without duplication), provided that no matter how such
adjustments are made they shall be subject to the stated
limitations: (A) write-downs of retained interests in home
equity securitizations up to a maximum amount of
$110,000,000; (B) the write-down of goodwill associated with
the acquisitions of the businesses that now consist of
Borrower's Subsidiary Holliday Fenoglio Fowler, L.P. up to a
maximum amount of $20,000,000; (C) the write-down of
goodwill associated with MIC up to a maximum amount of
$60,000,000; and (D) the write-down of goodwill associated
with Borrower's home equity lending division up to a maximum
amount of $10,000,000; provided, further, that the aggregate
amount added back in the calculation of Consolidated EBITDA
under clauses (A) through (D) shall not exceed
$187,500,000."
2. Covenant Amendments. The following amendments are made to
the referenced covenants contained in the Credit Agreement:
(a) Monthly Compliance Certificates. Section 7.1(c) of the
Credit Agreement is hereby amended to require Borrower to deliver the
certificate of an Authorized Officer, in substantially the form
attached as Exhibit C to the Credit Agreement as approved as to form
by Administrative Agent, on or before the twenty-fifth day of each
month (provided that if the twenty-fifth day is not a Business Day,
then such certificate shall be due on the next Business Day),
commencing on October 25, 1999, and continuing thereafter during the
terms of the Credit Facilities, unless otherwise provided in writing
by Administrative Agent (provided, that, such certificates may be
based on a modified GAAP basis reasonably acceptable to Administrative
Agent). Prior to January 31, 2000, the monthly compliance certificate
herein required shall contain an express statement that Borrower is
continuing to pursue the Lend-Lease Sale (as herein defined) or such
other actions disclosed to the Lenders which are reasonably
anticipated to enable Borrower to satisfy the financial covenants
contained in Sections 8.1 and 8.3 (as modified hereby) up to, and at,
January 31, 2000. The delivery of the certificates herein required is
in addition to, and not in lieu of, the required delivery of
certificates contained in Section 7.1(c). The failure of Borrower to
deliver the monthly compliance certificates herein required shall
constitute an Event of Default.
(b) Minimum Consolidated Net Worth: Section 8.1 of the Credit
Agreement, as previously amended in Third Modification, is hereby
amended to read in its entirety as follows:
"Section 8.1. Minimum Consolidated Tangible Net Worth.
Borrower shall not permit Consolidated Tangible Net Worth to
be less than (a) $215,000,000 during the period from
September 30, 1999, to (but not including) the date (the
"Change Date") that is the earlier to occur of (i) January
31, 2000, or (ii) the last day of the month in which
Borrower consummates the sale (the "Lend-Lease Sale") to
Lend Lease Real Estate Corporation and/or its affiliated
entity(ies) of the asset management, commercial mortgage
banking and servicing (Holliday Fenoglio Fowler, L.P.,
AMRESCO Services, L.P. and AMRESCO Capital, L.P.) and real
estate structured finance business platforms through the
sale of stock, partnership interests and/or some or all of
the assets of the applicable operating entities, as
disclosed by Borrower to the Lenders, (b) from and after the
Change Date to (but not including) January 31, 2000,
$330,000,000, and (c) from January 31, 2000 and thereafter,
an amount equal to the sum of the greater of (i)
$330,000,000, or (ii) 85% of actual Consolidated Tangible
Net Worth on January 31, 2000, plus (A) eighty-five percent
(85%) of the cumulative Consolidated Net Income (exclusive
of gains and losses resulting from the Lend-Lease Sale) for
each calendar quarter commencing on January 1, 2000, through
the quarter ending immediately prior to, or on, the date as
of which compliance with this covenant is being measured,
plus (B) ninety percent (90%) of the amount of any proceeds
(less reasonable and customary transaction costs) received
by Borrower or its Subsidiaries from the issuance of any
additional shares of stock or other equity interests from
and after January 1, 2000."
(c) Interest/Dividend Coverage Ratio: Section 8.3 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Section 8.3. Interest/Dividend Coverage Ratio.
Borrower shall not permit the Interest/Dividend Coverage
Ratio to be less than (a) 1.50 to 1.00 from the Closing Date
through September 29, 1999, (b) 1.02 to 1.00 from September
30, 1999, through January 30, 2000, (c) 1.55 to 1.00 from
January 31, 2000 through March 30, 2000, and (d) 1.35 to
1.00 from and after March 31, 2000."
(d) Asset Coverage Requirement: Section 8.4 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Section 8.4. Capital Adequacy; Asset Coverage.
Borrower shall not permit an amount equal to Total
Consolidated Debt less fifty percent (50%) of the face value
of all Approved Subordinated Debt as of the last day of any
fiscal quarter of Borrower to exceed the Adjusted Asset
Amount at such time. In addition, Borrower shall not permit
the Asset Coverage Ratio to be less than 1.20 to 1.00 (the
"Asset Coverage Requirement"); provided, however, that
Borrower shall not be in violation of the Asset Coverage
Requirement if for no more than two months in any twelve
month period (which two months cannot be consecutive
months), the Asset Coverage Ratio is less than 1.20 to 1.00,
but is greater than 1.10 to 1.00, and Borrower has paid the
applicable Asset Coverage Variance Fee due to any such
occurrence."
(e) Eligible Assignees and Participations: The definition of
"Eligible Assignee" and Section 11.10(d) of the Credit Agreement are
hereby amended so that Borrower's approval shall not be required with
respect to any Eligible Assignee or participation, whether before or
after a Default or an Event of Default.
3. Foreign Subsidiary Guarantors. Notwithstanding anything to
the contrary in the Credit Agreement or any of the other Loan
Documents, from and after the date hereof all of the wholly-owned
direct Foreign Subsidiaries of Borrower and AMRESCO de Mexico
Equities, S.A. de C.V. (collectively, "Direct Foreign Subsidiaries")
shall be Guarantors; provided that any other Foreign Subsidiary,
whether or not directly owned by Borrower, may be added as a Guarantor
at the direction of Administrative Agent in its sole and absolute
discretion. In connection therewith, on or before November 15, 1999,
each Direct Foreign Subsidiary shall execute a Guaranty Agreement (or
a supplement to the existing Guaranty Agreement), a contribution and
indemnification agreement, a pledge agreement (or supplement to the
existing pledge agreement), any applicable financing statements, and a
power of attorney in favor of Borrower, together with all other
agreements, instruments, certificates, and other documents requested
by Administrative Agent, and shall deliver to Administrative Agent all
corporate certificates and resolutions, officer's certificates, legal
opinions and other items reasonably requested by Administrative Agent
to establish and evidence such guaranty by each of the Direct Foreign
Subsidiaries and to evidence and assure to the Lenders the proper
authorization for and enforceability of each such Guaranty Agreement
and related documents. Additionally, and without in any way limiting
the provisions of Section 5.1 of the Credit Agreement, upon the
request of Administrative Agent made any time and from time to time,
in Administrative Agent's sole and absolute discretion, Borrower shall
cause to be granted to Administrative Agent, on behalf of the Lenders,
a first priority lien, security interest or "fixed charge" on all
assets of any one or more Foreign Subsidiaries except to the extent
that they are precluded from doing so pursuant to an agreement
permitted by Section 8.12, and in connection therewith Borrower shall
cause to be delivered to Administrative Agent all agreements,
documents, instruments, legal opinions, and certificates of any kind
reasonably requested by Administrative Agent to establish and evidence
such security interest and lien and the authorization and
enforceability of the documentation related thereto. Accordingly,
Section 2.4 of the Credit Agreement is hereby amended such that it
shall apply for all purposes to Foreign Subsidiaries, and the words
"and Foreign Subsidiaries" shall be deleted from the parenthetical in
the third printed line thereof, except that the requirements for
execution of a Guaranty and related documents of Foreign Subsidiaries
that are not Direct Foreign Subsidiaries, and the execution of a
Security Agreement and Collateral Assignment by Foreign Subsidiaries
shall only apply to the extent required by Administrative Agent as
provided hereinabove. All parties hereto acknowledge and agree that
the provisions and covenants of this Paragraph 3 are a material
inducement to the Lenders' agreement to enter into this Modification
Agreement, and that Administrative Agent's execution of this
Modification Agreement, and the making of advances under the Credit
Agreement, directly benefits the Foreign Subsidiaries.
4. Collateral. Borrower shall take all actions and execute all
documents requested by Administrative Agent to continue, preserve and
protect Lender's perfected pledge of and security interest in all
Collateral, including without limitation, the Lockbox Accounts and the
deposit accounts of Borrower and its Subsidiaries.
5. Definition of Loan Documents. The definition of "Loan
Documents", as defined in the Credit Agreement and as used in the
Credit Agreement, the other Loan Documents and herein, shall be, and
is hereby, modified to include this Modification Agreement and any and
all documents executed in connection herewith.
6. Conditions Precedent to this Modification Agreement. As
conditions precedent to this Modification Agreement and the
modifications to the Credit Agreement pursuant hereto and the consents
granted hereunder, all of the following shall have been satisfied:
(a) Borrower and the Guarantors shall have executed and
delivered to Administrative Agent this Modification Agreement;
(b) Borrower shall have delivered to Administrative Agent all
corporate resolutions, consents, powers of attorney, certificates or
documents as Administrative Agent may request relating to (i) the
existence of Borrower, and (ii) the corporate and partnership
authority for the execution and validity of this Modification
Agreement, together with all other documents, instruments and
agreements and any other matters relevant hereto or thereto, all in
form and content satisfactory to Administrative Agent;
(c) Borrower shall have paid all applicable amendment,
administration and other fees as agreed in connection with this
Modification Agreement; and
(d) If applicable, Borrower shall have caused to be executed and
delivered to Administrative Agent a Supplement to the Loan Documents
to add any additional Subsidiaries of Borrower required pursuant to
Section 2.4 of the Credit Agreement as modified herein (but excluding
certain Foreign Subsidiaries as provided herein) as Guarantors under
the Guaranty Agreement, and as assigning or pledging parties under the
Collateral Assignment, the Security Agreement and the Pledge
Agreement, and Administrative Agent shall have received all such
corporate existence and authority documentation, resolutions and other
agreements, stock certificates and other equity ownership
certificates, stock powers, financing statements, instruments and
certificates as Administrative Agent shall reasonably require with
respect to such additional Guarantors. Borrower shall also have
caused to be executed and/or delivered to Administrative Agent such
modifications to the Stock Pledge Agreement and such stock
certificates of, or other evidences of equity interests in, the
Excluded Subsidiaries (with stock powers as applicable) to effectively
evidence and perfect the Lenders' security interests therein.
7. Reaffirmation of Debt and Liens. Borrower acknowledges and
agrees that it is well and truly indebted to the Lenders pursuant to
the terms of the Notes, the Credit Agreement and the other Loan
Documents, as modified hereby, and that all liens and security
interests securing the Obligations are and remain in full force and
effect.
8. No Implied Waivers. None of the amendments or modifications
provided for herein shall be deemed a consent to or waiver of any
breach of the same or any other covenant, condition or duty. Borrower
and the Guarantors acknowledge and understand that Administrative
Agent and the Lenders have no obligation to further amend or modify
the Credit Agreement, any of the other Loan Documents or any of the
terms, provisions or covenants thereof, and that Administrative Agent
and the Lenders have made no representations regarding any such
amendments or modifications. No failure or delay on the part of
Administrative Agent or any Lender in exercising, and no course of
dealing with respect to, any right, power or privilege under this
Modification Agreement, the Credit Agreement or any other Loan
Document shall operate as a waiver thereof or of the exercise of any
other right, power or privilege. Without limitation of the foregoing,
Borrower acknowledges and agrees that neither Administrative Agent nor
any Lender has consented to, or hereby consents to, the Lend-Lease
Sale, and that any release of Collateral or other actions required by
Administrative Agent and Lenders in connection with the Lend-Lease
Sale shall require the necessary approvals and actions of
Administrative Agent and Lenders as set forth in the Loan Documents.
9. Representations and Warranties. Borrower hereby represents
and warrants to Administrative Agent and the Lenders that (a) the
execution, delivery, and performance by the Borrower and the
Guarantors of this Modification Agreement and compliance with the
terms and provisions hereof (i) have been duly authorized by all
requisite action on the part of each such Person and do not, and (ii)
will not violate or conflict with, or result in a breach of, or
require any consent under (A) the articles of incorporation,
certificate of incorporation, bylaws, partnership agreement or other
organizational documents of any such Person, (B) any applicable law,
rule, or regulation or any order, writ, injunction, or decree of any
Governmental Authority or arbitrator, or (C) any material agreement or
instrument to which any such Person is a party or by which any of them
or any of their property is bound or subject, (b) the representations
and warranties contained in the Agreement, as amended hereby, and any
other Loan Document are true and correct in all material respects on
and as of the date hereof as though made on and as of the date hereof,
and (c) no Default has occurred and is continuing.
10. Release of Claims. Borrower and the Guarantors each hereby
acknowledge and agree that none of them has any and there are no
claims or offsets against or defenses or counterclaims to the terms
and provisions of or the obligations of Borrower, any Guarantor or any
Subsidiary created or evidenced by the Credit Agreement or any of the
other Loan Documents, and to the extent any such claims, offsets,
defenses or counterclaims exist, Borrower and each Guarantor hereby
waives (to the fullest extent permitted by applicable law), and hereby
releases each of Administrative Agent and each of the Lenders from,
any and all claims, offsets, defenses and counterclaims, whether known
or unknown, such waiver and release being with full knowledge and
understanding of the circumstances and effects of such waiver and
release and after having consulted legal counsel with respect thereto.
11. Ratification. Except as otherwise expressly modified by
this Modification Agreement, all terms and provisions of the Credit
Agreement (as previously modified), the Notes, and the other Loan
Documents shall remain unchanged and hereby are ratified and confirmed
and shall be and shall remain in full force and effect, enforceable in
accordance with their terms.
12. Payment of Expenses. Borrower shall pay to Administrative
Agent, for and on behalf of the Lenders, upon demand, the reasonable
attorneys' fees and expenses of Administrative Agent's counsel and all
filing and recording fees and other reasonable expenses incurred by
Administrative Agent in connection with this Modification Agreement.
13. Current Guarantors and Excluded Subsidiaries. Attached
hereto as Exhibit A is a correct and complete list of each of the
Subsidiaries of Borrower that are required to be "Guarantors" under
the Credit Agreement and related Loan Documents as of the date hereof,
indicating the initial Guarantors that executed the Credit Agreement,
the additional Guarantors added by a Supplement to the Loan Documents,
and the Direct Foreign Subsidiaries to be added as Guarantors pursuant
to Section 3 hereof. Attached hereto as Exhibit B is a replacement
Schedule V to the Credit Agreement which lists all of the Excluded
Subsidiaries as of the date hereof.
14. Further Assurances. Borrower shall execute and deliver to
Administrative Agent such other documents as may be necessary or as
may be required, in the opinion of Administrative Agent and/or counsel
to Administrative Agent, to effect the transactions contemplated
hereby and to create, evidence, perfect and protect the Lenders' Liens
and security interests, and the rights and remedies of Administrative
Agent and/or the Lenders under the Loan Documents.
15. Binding Agreement. This Modification Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto,
and the Lenders, and their respective legal representatives,
successors and assigns.
16. Enforceability. In the event the enforceability or validity
of any portion of this Modification Agreement, the Credit Agreement,
the Notes, or any of the other Loan Documents is challenged or
questioned, such provision shall be construed in accordance with, and
shall be governed by, whichever applicable federal or New York law
would uphold or would enforce such challenged or questioned provision.
17. Choice of Law. THIS MODIFICATION AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT FEDERAL LAWS
PREEMPT THE LAWS OF THE STATE OF NEW YORK.
18. Counterparts. This Modification Agreement may be executed
in multiple counterparts, all of which are identical, each of which
shall be deemed an original, and all of which counterparts together
shall constitute one and the same instrument.
19. Entire Agreement. This Modification Agreement, the Credit
Agreement and the Notes, together with the other Loan Documents,
contain the entire agreements between the parties relating to the
subject matter hereof and thereof and all prior agreements relative
thereto which are not contained herein or therein are terminated.
THIS MODIFICATION AGREEMENT AND THE OTHER WRITTEN INSTRUMENTS,
AGREEMENTS AND DOCUMENTS EXECUTED IN CONNECTION WITH THIS MODIFICATION
AGREEMENT, AND THE CREDIT AGREEMENT, THE NOTES, AND THE OTHER LOAN
DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Modification Agreement is executed
effective as of the date first written above.
BORROWER:
AMRESCO, INC., a Delaware corporation
By:
Name:
Title:
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A., formerly NationsBank, N.A.,
a national banking association, as Administrative
Agent for the Lenders
By:
Elizabeth Kurilecz,
Managing Director
ACKNOWLEDGED AND AGREED TO as of the
29th day of September, 1999, by:
GUARANTORS:
AFC EQUITIES INVESTORS, INC., f/k/a AFC EQUITIES, INC.
AFC EQUITIES MANAGEMENT, INC.
ALPINE, INC.
AMREIT HOLDINGS, INC.
AMREIT MANAGERS GP, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CAPITAL CONDUIT CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CAPITAL, L.P.
AMRESCO CMF, INC.
AMRESCO COMMERCIAL FINANCE, INC.
AMRESCO CONSOLIDATION CORP.
AMRESCO EQUITY INVESTMENTS, INC.
AMRESCO EQUITY INVESTMENTS II, INC.
AMRESCO FINANCE AMERICA CORPORATION
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO FUNDING OF GEORGIA, L.P.
AMRESCO FUNDING INVESTORS, INC.
AMRESCO FUNDING MANAGEMENT, INC.
AMRESCO FUNDING MID-ATLANTIC, INC.
AMRESCO FUNDING PACIFIC, INC.
AMRESCO INDEPENDENCE FUNDING, INC.
AMRESCO-INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO MANAGEMENT, INC.
AMRESCO MBS-II, INC.
AMRESCO MORTGAGE CAPITAL LIMITED-I, INC.
AMRESCO MORTGAGE SERVICES LIMITED, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RESIDENTIAL PROPERTIES, INC.
AMRESCO RHODE ISLAND, INC.
AMRESCO SERVICES, L.P.
AMRESCO VENTURES, INC.
AMRESCO 1994-N2, INC.
AMRESCO TEXAS, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
FINANCE AMERICA CORPORATION
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO FOWLER, L.P.
LIFETIME HOMES, INC.
MSPI, INC.
MORTGAGE INVESTORS CORPORATION
OAK CLIFF FINANCIAL, INC.
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
AMRESCO INSURANCE SERVICES, INC.
AFC EQUITIES, L.P.
AMREIT MANAGERS, L.P.
AMRESCO-MBS I, INC.
AMRESCO MORTGAGE CAPITAL, INC.
HF ACQUISITION SUB, INC.
AMRESCO RECEIVABLES MANAGEMENT CORP.
AMRESCO CONSUMER RECEIVABLES CORPORATION
AMRESCO CONSUMER INVESTMENTS, L.P.
AMRESCO CONSUMER ACQUISITIONS CORP.
By: AMRESCO, INC., a Delaware corporation, as agent and attorney-in-fact
By:
Name:
Title:
DIRECT FOREIGN SUBSIDIARIES:
AMRESCO UK HOLDINGS LIMITED
By:
Name:
Title:
AMRESCO CANADA INC.
By:
Name:
Title:
AMRESCO EQUITIES CANADA INC.
By:
Name:
Title:
AMRESCO de MEXICO EQUITIES, S.A., de C.V.
By:
Name:
Title:
AMRESCO JAPAN, INC.
By:
Name:
Title:
EXHIBIT A
GUARANTOR SUBSIDIARIES OF BORROWER
AS OF SEPTEMBER 29, 1999
INITIAL GUARANTORS ON CREDIT AGREEMENT 8/12/98:
AFC EQUITIES INVESTORS, INC., f/k/a AFC EQUITIES, INC.
AFC EQUITIES MANAGEMENT, INC.
ALPINE, INC.
AMREIT HOLDINGS, INC.
AMREIT MANAGERS GP, INC.
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO BUILDERS GROUP, INC.
AMRESCO CAPITAL CONDUIT CORPORATION
AMRESCO CAPITAL LIMITED, INC.
AMRESCO CAPITAL, L.P.
AMRESCO CMF, INC.
AMRESCO COMMERCIAL FINANCE, INC.
AMRESCO CONSOLIDATION CORP.
AMRESCO EQUITY INVESTMENTS, INC.
AMRESCO EQUITY INVESTMENTS II, INC.
AMRESCO FINANCE AMERICA CORPORATION
AMRESCO FINANCIAL I, INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INDEPENDENCE FUNDING, INC.
AMRESCO-INSTITUTIONAL, INC.
AMRESCO INVESTMENTS, INC.
AMRESCO MANAGEMENT, INC.
AMRESCO MBS-II, INC.
AMRESCO MORTGAGE CAPITAL LIMITED-I, INC.
AMRESCO MORTGAGE SERVICES LIMITED, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW ENGLAND, INC.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO OVERSEAS, INC.
AMRESCO PORTFOLIO INVESTMENTS, INC.
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AMRESCO RESIDENTIAL PROPERTIES, INC.
AMRESCO SERVICES, L.P.
AMRESCO VENTURES, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
COMMONWEALTH TRUST DEED SERVICES, INC.
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
EXPRESS FUNDING, INC.
FINANCE AMERICA CORPORATION
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO FOWLER, L.P.
LIFETIME HOMES, INC.
MSPI, INC.
MORTGAGE INVESTORS CORPORATION
OAK CLIFF FINANCIAL, INC.
PRESTON HOLLOW ASSET HOLDINGS, INC.
QUALITY FUNDING, INC.
AMRESCO INSURANCE SERVICES, INC.
ADDITIONAL GUARANTORS BY SUPPLEMENT DATED 2/28/99:
AFC EQUITIES, L.P.
AMREIT MANAGERS, L.P.
AMRESCO-MBS I, INC.
AMRESCO MORTGAGE CAPITAL, INC.
HF ACQUISITION SUB, INC.
ADDITIONAL GUARANTORS BY SUPPLEMENT DATED MAY 31, 1999:
AMRESCO RECEIVABLES MANAGEMENT CORP.
AMRESCO CONSUMER RECEIVABLES CORPORATION
AMRESCO CONSUMER INVESTMENTS, L.P.
AMRESCO CONSUMER ACQUISITIONS CORP.
FOREIGN SUBSIDIARIES TO BE ADDED BY NOVEMBER 15, 1999:
AMRESCO UK HOLDINGS LIMITED
AMRESCO CANADA INC.
AMRESCO EQUITIES CANADA INC.
AMRESCO de MEXICO EQUITIES, S.A., de C.V.
AMRESCO JAPAN, INC.
EXHIBIT B
[As of September 29, 1999]
SCHEDULE V
List of Excluded Subsidiaries
Subsidiary Type Net Total Total
Worth Capital Assets
Invested
AMRESCO Leasing Corporation PO $ $ $
AMRESCO Residential Securities SPV
Corporation
AMRESCO Securities Inc. Broker/
Dealer
AMRESCO Advisors, Inc. Invest-
ment Ad.
AMRESCO - MBS III, Inc. SPV
AFBT - I, LLC PO
AFBT - II, LLC PO
AMRESCO Builders Funding Corp. SPV
11 South LaSalle, LLC PO
Noble Building Investors, LLC PO
Oakmont Land Three, L.P. PO
ACLC Funding Corp. SPV
CLC Funding Corp. SPV
AMRESCO Securitized Net SPV
Interest Margin Trust 1999-1
AMRESCO Funding Trust I SPV
Independence Funding Holding SPV
Corporation
Independence Funding Holding SPV
Company, L.L.C.
AMRESCO Commercial Mortgage SPV
Funding I Corporation
AMRESCO Bureaus Investors, L.P. PO
AMRESCO RMBS I, Inc. SPV
AMRESCO LTD Investors, L.P. PO
AMRESCO Builders Financing Corp. SPV
ACFI Funding Corp. SPV
AMRESCO SBA Holdings, Inc. SPV ________ _________ _________
Total $ $ $
PO - Partially Owned
SPV - Bankruptcy Remote Special Purpose Entity
November 5, 1999
Bank of America, N.A., Administrative Agent
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Elizabeth Kurilecz
Re: Proposed Sale and Release of certain Assigned Loans
owned by AMRESCO Commercial Finance, Inc. ("ACFI")
currently pledged to Bank of America, N.A. (formerly
NationsBank, N.A.), as Administrative Agent
("Administrative Agent"), pursuant to the Credit
Agreement dated as of August 12, 1998, by and among
AMRESCO, INC. ("Borrower "), Administrative Agent,
Credit Suisse First Boston, as Syndication Agent, and
the Lenders party thereto (the "Lenders "), as amended
(the "Credit Agreement")
Ladies and Gentlemen:
This letter sets forth our agreement regarding the
application of proceeds from the sale by Borrower and ACFI
to Goldman Sachs Credit Partners L.P. ("Purchaser") of the
Assigned Loans described on Schedule I attached hereto (the
"Subject Loans"). For valuable consideration, including the
release pursuant to Section 5.7 of the Credit Agreement of
the liens and security interests held by Administrative
Agent, on behalf of the Lenders, with respect to the Subject
Loans, Borrower agrees as follows:
(1) In accordance with the payoff letter from
Administrative Agent to Purchaser dated November 4,
1999, all net proceeds from the sale of the Subject
Collateral, as detailed on Schedule II attached hereto,
in the amount of $131,163,249.44 (the "Total
Payoff")shall be sent by wire transfer directly to the
following account with Administrative Agent:
Bank of America, N.A.
Dallas, Texas
ABA #111000012
Acct #: 1292000883
Agency Services
Attn: AMRESCO
(2) A portion of the Total Payoff, in the aggregate amount
of $10,592,500.00, shall be applied as a prepayment on
the Term Facility, with a pro rata portion of such
amount being paid to each Term Lender as a prepayment
on its respective Term Note, in accordance with the
Term Loan Percentage of each Term Lender.
(3) The balance of the Total Payoff, in an amount equal to
$120,570,749.44, shall be applied to pay the Revolving
Credit Facility, with a pro rata portion of such amount
being paid to each Revolving Lender in accordance with
the Revolving Loan Percentage of each Revolving Lender.
(4) Immediately upon application of the funds from the
Total Payoff to the Revolving Facility as provided in
paragraph (3) above, the total Revolving Commitment
shall be reduced by $84,407,500.00, with such reduction
being applied pro rata to the Revolving Loan Commitment
Amount of each Revolving Lender, whereupon the
Revolving Commitment shall be $448,092,500.00, and the
Revolving Loan Commitment Amount of each Revolving
Lender shall be as set forth on Schedule I hereto.
Such reduction in the Revolving Commitment shall be
permanent and subject in all respects to Section 3.6(c)
of the Credit Agreement, except that this letter shall
satisfy the notice requirements of clause (i) of that
Section, and the reduction amount is acceptable under
clause (ii) of that Section.
Capitalized terms used but not defined herein shall have the
meanings set forth for the same in the Credit Agreement.
This letter agreement is delivered to Administrative Agent
for the benefit of the Lenders. Borrower understands and
acknowledges that the agreements of Borrower contained
herein are a substantial inducement to the Administrative
Agent, on behalf of the Lenders, to approve the release of
the Subject Loans as Collateral under the Credit Agreement.
AMRESCO, INC.
By:
Barry L. Edwards
Executive Vice President and
Chief Financial Officer
AGREED to as of November 5, 1999
BANK OF AMERICA, N.A.,
as Administrative Agent
By:
Name:
Title:
SCHEDULE I
Schedule of Loans originated by AMRESCO Funding Corporation
and/or AMRESCO Commercial Finance, Inc. to the borrowers
identified below:
BORROWER(S) NOTE NUMBERS
1. North County Broadcasting Corporation 50-3100018
Orange Broadcasting Corp. 50-3100122
2. Brunson Communications, Inc. 50-3100098
Amina Communications & Technology, Inc. 50-3100099
50-3100100
3. Davis Broadcasting, Inc. of Columbus 50-3100051
Davis Broadcasting, Inc. of Augusta 50-3100052
Davis Broadcasting Inc. of Evans
4. Davis Broadcasting of Charlotte, Inc. 50-3100053
5. El Dorado Broadcasting II, Inc. 50-3100093
El Dorado Communications, Inc.
El Dorado 108, Inc.
KQQK, Inc.
6. Nassau Broadcasting Partners, L.P. 50-3100112
50-3100113
7. STC Cable Partners I, L.P. 50-3100119
8. Universal Broadcasting of New York, Inc. 50-3100080
50-3100081
9. Bayard H. Walters 50-3100110
50-3100111
50-0000008
50-3100009
50-0000021
<TABLE>
<CAPTION>
SCHEDULE II
CALCULATION OF NET PURCHASE PRICE
<S> <C> <C>
Purchase Price $134,495,361.49
Adjustments
Add: Advances made from the Cut-off Date $2,955,781.61
to the Closing Date (See Exhibit K)
Less: Cash receipts from the Cut-off Date to the (6,935,290.92)
Closing Date (See Exhibit J)
Less: Amount of Borrower's Expense (594,339.08)
Deposit and Interest Reserves Held
by Assignor on the Closing Date (See
Exhibit I)
Add: Interest on the Purchase Price at 1,241,736.34
10% from the Cut-off Date to the
Closing Date ((34 days times the per
diem rate of $36,848.04424) less
($5,000,000 times10%/365 times 35
days.))
Total Adjustments $ (3,332,112.05)
Net Purchase Price $131,163,249.44
</TABLE>
AMRESCO, INC.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Basic:
<S> <C> <C> <C> <C>
Net income (loss) $(82,009,000) $758,000 $(59,667,000) $34,467,000
Weighted average common shares outstanding 48,786,122 44,678,175 48,589,551 42,215,166
Contingently issuable shares 72,965
Restricted shares (855,036) (398,658) (771,179) (366,832)
Total 47,931,086 44,279,517 47,818,372 41,921,299
Earnings (loss) per share $(1.71) $0.02 $(1.25) $0.82
Diluted:
Net income (loss) $(82,009,000) $758,000 $(59,667,000) $34,467,000
Weighted average common shares outstanding 48,786,122 44,678,175 48,589,551 42,215,166
Contingently issuable shares 72,965
Net effect of non-vested restricted stock
based on the Treasury stock method using the
average market price (855,036) (771,179)
Net effect of dilutive stock options based
on the Treasury stock method using the
average market price 765,022 1,009,117
Total 47,931,086 45,443,197 47,818,372 43,297,248
Earnings (loss) per share $(1.71) $0.02 $(1.25) $0.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 93,831
<SECURITIES> 0
<RECEIVABLES> 22,095
<ALLOWANCES> 617
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 38,781
<DEPRECIATION> 18,265
<TOTAL-ASSETS> 2,624,744
<CURRENT-LIABILITIES> 0
<BONDS> 1,455,087
0
0
<COMMON> 2,491
<OTHER-SE> 617,414
<TOTAL-LIABILITY-AND-EQUITY> 2,624,744
<SALES> 0
<TOTAL-REVENUES> 374,330
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 337,440
<LOSS-PROVISION> (18)
<INTEREST-EXPENSE> 124,917
<INCOME-PRETAX> (88,009)
<INCOME-TAX> (28,342)
<INCOME-CONTINUING> (59,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,667)
<EPS-BASIC> (1.25)
<EPS-DILUTED> $ (1.25)
</TABLE>
