| Item 1.01 | Entry into a Material Definitive Agreement. |
| Item 2.03 | Creation of a Direct Financial Obligation. |
On February 5, 2024, we entered into note purchase agreements (collectively, the “2029 Note Purchase Agreement”) for the issuance of an aggregate $75,000,000 principal amount of 9.875% Senior Secured Notes due 2029 (the “2029 Notes”). The 2029 Note Purchase Agreement was entered into among Velocity Financial, Inc., as the guarantor of the 2029 Notes (the “Guarantor”), our wholly owned subsidiary Velocity Commercial Capital, LLC, as the issuer of the 2029 Notes (the “Issuer”), U.S. Bank Trust Company, National Association, as collateral agent (the “Collateral Agent”) and the several respective purchasers of the 2029 Notes.
The Issuer issued the 2029 Notes on February 5, 2024. The 2029 Notes are guaranteed by Velocity Financial, Inc. The 2029 Notes will mature on February 15, 2029, subject to earlier prepayment, redemption or repurchase. Interest on the 2029 Notes is payable semi-annually on May 15 and November 15 of each year, beginning on May 15, 2024. The terms of the 2029 Notes provide for optional redemption prior to their maturity, on the terms and conditions and at the prices specified in the 2029 Note Purchase Agreement. Upon a change of control, as defined in the 2029 Note Purchase Agreement, the holders of the 2029 Notes may require the Issuer to repurchase the 2029 Notes at 101% of outstanding principal amount plus accrued but unpaid interest. The 2029 Notes and related guarantee are senior obligations of the Issuer and the Guarantor, respectively, and secured by liens on substantially all assets of the obligors, other than assets subject to securitization and warehouse financings and other customary exceptions and limitations.
Net proceeds from the issuance of the 2029 Notes will be used to originate new investments and for general corporate and other working capital purposes.
The 2029 Notes are secured on a pari passu basis with the Issuer’s $215,000,000 outstanding principal amount of 7.125% Senior Secured Notes due 2027, pursuant to the terms of an intercreditor agreement entered into in connection with the issuance of the 2029 Notes.
The 2029 Note Purchase Agreement contains affirmative and negative covenants, including financial covenants regarding minimum net asset value, net non-securitization debt to equity ratio, collateral value, total collateral value and non-securitization senior debt service coverage ratio requirements.
The offer and sale of the 2029 Notes were made solely in private placement transactions exempted from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The 2029 Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.
The foregoing descriptions of the 2029 Notes, related guarantee, 2029 Note Purchase Agreement and related security agreement and intercreditor agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the 2029 Note Purchase Agreement and related security agreement filed as Exhibits 4.1, 10.1, 10.2 and 10.3 and incorporated herein by reference.
The representations, warranties and covenants contained in the above-mentioned agreements were made only for purposes of those agreements and solely for the benefit of the parties to those agreements. The representations, warranties and covenants are a means of allocating contractual risk between parties and are not necessarily intended to establish particular matters as facts, may be subject to standards of materiality or other qualifications applicable to the agreements that differ from those applicable to investors and are not promises or guarantees of accuracy or of future actions or events. Investors should not rely on these representations, warranties or covenants.
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