Item 1.01 Entry into a Material Definitive Agreement.
As previously reported, on
April 2, 2023 Sunlight Financial LLC (“Sunlight”), a wholly owned subsidiary of Sunlight Financial Holdings Inc.
(the “Company”), the Company and Cross River Bank (“CRB”),
entered into a Commitment and Transaction Support Agreement (the “Commitment & Transaction Support Agreement”) pursuant
to which the parties agreed to undertake the transactions contemplated under the Commitment & Transaction Support Agreement pursuant
to definitive documents that remained subject to negotiation and completion (“Definitive Documents”). On April 25, 2023 (the
“Closing Date”), the parties and certain of their affiliates agreed to and executed the Definitive Documents and closed the
transactions contemplated by the Commitment & Transaction Support Agreement as described below.
Loan Program Agreements with Cross River Bank
Sunlight previously entered into the following
agreements with CRB:
| · | a First Amended and Restated
Loan Program Agreement, dated as of February 12, 2018 (as amended, the “Existing Solar Loan Program Agreement”); |
| · | an Amended and Restated
Loan Sale Agreement dated as of February 12, 2018 (as amended, the “Existing Solar Loan Sale Agreement”); |
| · | a Home Improvement Loan
Program Agreement dated as of January 29, 2019 (as amended, the “Existing HI Loan Program Agreement”); and |
| · | a Loan Sale Agreement dated
as of November 19, 2020 (as amended, the “Existing HI Loan Sale Agreement” and together with the Existing Solar Loan Program
Agreement, Existing Solar Loan Sale Agreement and Existing HI Loan Program Agreement, the “CRB Agreements”). |
On the
Closing Date, Sunlight and CRB entered in the following agreements:
| · | a
Second Amended and Restated Loan Program Agreement amending and restating the Existing Solar Loan Program Agreement (the “Amended
Solar Loan Program Agreement”); |
| · | a Second Amended and Restated
Loan Sale Agreement amending and restating the Existing Solar Loan Sale Agreement (the “Amended Solar Loan Sale Agreement”); |
| · | an
Amended and Restated Home Improvement Loan Program Agreement amending and restating the Existing HI Loan Program Agreement (the “Amended
HI Loan Program Agreement”); and |
| · | an Amended and
Restated Home Improvement Loan Sale Agreement amending and restating the Existing HI Loan Sale Agreement (the “Amended HI Loan
Sale Agreement,” together with the Amended Solar Loan Program Agreement, the Amended Solar Loan Sale Agreement, and the
Amended HI Loan Program Agreement, the “Amended CRB Agreements”). |
The Amended CRB Agreements provide, among
other things:
| · | a
requirement that Sunlight establish a pricing and capital markets committee responsible for setting dealer discounts, interest rates,
capital markets activity, policies relating to hedging, and other terms related to Sunlight’s loan products and executing any
sales of loans held by CRB pursuant to the Amended CRB Agreements, and to provide CRB with observer rights and a right to attend all meetings
held by the committee, subject to exclusions where CRB is the loan purchaser; |
| · | modifications to the procedures
for submitting credit approvals; |
| · | a
modification to the cap on the total loans held by CRB at any time as provided below, measured on the last day of the calendar month,
with a grace period election for loan sales executed during the seven (7) business days following the last day of a calendar month.
Sunlight will be entitled to six (6) grace period elections in any twelve-month period: |
| Period |
Bank Cap |
| Months ending April 30, 2023 and May 31, 2023 |
Waived |
| Months ending June 30, 2023 and July 31, 2023 |
$550,000,000 |
| Months ending August 31, 2023, September 30, 2023 and October 31, 2023 |
$500,000,000 |
| Month ending November 30, 2023 and each month thereafter |
$400,000,000 (plus the Additional Capacity, if any). Additional Capacity is the lesser of (i) the Cash Collateral Amount divided by 5% and (ii) $100,000,000. |
| · | modifications
to the “Loan Purchase Trigger Date” (as defined in the Amended
Solar Loan Sale Agreement) related to each loan held on CRB’s balance sheet; |
| · | a
revised tiered fee structure and provision for certain fees accrued through June 30, 2023 to be payable in additional Tranche 1 Loans
(as defined below); |
| · | Sunlight will use best efforts to amend the Master Services Agreement, dated January 13, 2020, between CRB, Sunlight, and Turnstile
Capital Management, LLC (the “Servicer”) on or before July 1, 2023 to cause the Servicer to remit various cash payments
associated with loans into an account held by CRB; |
| · | effective
on the Closing Date and continuing until full repayment to CRB of all outstanding obligations, Sunlight will provide CRB with a pari
passu first lien security interest in all assets of the Company as defined in the Secured Term Loan; and |
| · | waiver
by CRB of any defaults known by CRB to be existing under the CRB Agreements. |
Secured Term Loan with CRB
On the Closing Date, Sunlight, as borrower,
entered into a Loan and Security Agreement with CRB, and with SL Financial Holdings Inc., (“SL Financial”) as guarantor (the
“Secured Term Loan”). The Secured Term Loan consists of loan commitments for two tranches
of loans providing for Tranche 1 Loans and Tranche 2 Loans (each as defined below). The Secured Term Loan, and all other obligations of
Sunlight to CRB are secured by a first lien perfected security interest in all Sunlight’s and SL Financial’s assets. The
Secured Term Loan matures on October 25, 2025 (the “Maturity Date”).
The Secured Term Loan provides loan commitments
under two sub- facilities. The $38.8 million Tranche 1 facility (the “Tranche 1 Loans”) will be used to repay all outstanding
borrowings under the SVB Revolver, pay fees and accrued interest due under the Loan Program Agreements and for general corporate purposes.
The $49.8 million Tranche 2 facility (the “Tranche 2 Loans” and, collectively with the “Tranche 1 Loans” the “Facility
Loans”) will be used for deferred loan sale proceeds and to pay fees and capitalized interest.
No scheduled principal payments are due until
the first anniversary of the Closing Date. Commencing with the first full month after the first anniversary of the Closing Date, Sunlight
is required to make equal monthly principal payments in an amount equal to 4% of the aggregate amount of the Facility Loans funded or
deemed funded through the first anniversary of the Closing Date. On the Maturity Date, all remaining unpaid amounts of principal and interest
must be repaid in full.
An upfront fee equal to $2,658,000, payable
upon the closing date of the Secured Term Loan will be paid in kind and added to the outstanding amount the Facility Loans. An unused
fee equal to 14% per annum of the difference between (a) the Maximum Covered Loan Sale Amount (as defined in the Secured Term Loan) minus
any commitment reductions with respect to Tranche 2 Term Loans since the Closing Date and (b) the aggregate principal amount of Tranche
2 Term Loans then outstanding will be payable monthly in kind and added to the outstanding amount of Tranche 2 Loans.
The aggregate principal outstanding amount
of loans under the Secured Term Loan (including capitalized or accrued and unpaid interest and any fees, the upfront fee and the unused
fee) shall not exceed $100 million.
The Secured Term Loan is subject to mandatory
prepayment under certain conditions, which prepayments may be allocated to Tranche 1 or Tranche 2 loans at the option of the Company and
Sunlight. Additionally, the Company and Sunlight will be required to prepay the Secured Term Loan in full upon a liquidation, winding
up, change of control, merger, sale of all or substantially all of the assets of the Sunlight, or a transaction that results in the Company
becoming privately held. Sunlight may, at its option, prepay the Secured Term Loan and/or permanently reduce and terminate unused loan
commitments, in each case, in part or full at any time prior to the maturity date with no penalties; which prepayments and/or commitment
reductions may be allocated to Tranche 1 Loans and/or Tranche 2 loans at the option of Sunlight.
The
Secured Term Loan contains customary restrictive covenants for facilities of its type, which include, among other things, limitations
on use of proceeds, dispositions, changes in business, management or business locations, change of control, mergers or acquisitions, indebtedness,
liens, restricted payments, dividends or any other payments to equity, investments, transactions with affiliates, and capital expenditures,
subject to certain customary baskets and exceptions. The Secured Term Loan also includes a financial covenant requiring minimum
liquidity (unrestricted and unencumbered cash and cash equivalents held by Sunlight) in deposit accounts or securities accounts in an
amount equal to or greater than $20 million, measured as of the end of each calendar month and requires that Sunlight maintain unrestricted
cash in an aggregate amount of not less than (a) during the two-week period after the Closing Date, $20 million, and (b) thereafter, the
greater of (x) $20 million and (y) 75% of Sunlight’s cash, in accounts with CRB or its affiliates.
The Secured Term Loan also contains customary
events of default that would permit the lenders to accelerate the loans, including, among other things, the failure to make timely payments
when due under the Secured Term Loan or other material indebtedness as described in the Secured Term Loan, the failure to satisfy
covenants contained in the Secured Term Loan, specified events of bankruptcy and insolvency, a material event of default under the Amended
Loan Program Documents or any other agreement with CRB.
Warrants
On the Closing Date the Company entered into
a Warrant Purchase Agreement (the “Purchase Agreement”) with CRB Group, Inc. (“Purchaser”), pursuant to which
the Company issued to Purchaser a stock purchase warrant (the “Warrant”) exercisable for up to 25,944,541 shares (“Warrant
Shares”) subject to certain adjustments, of Class A common stock, par value $0.0001 per share, of the Company (the “Common
Stock”) at a per share price of $0.01, subject to certain adjustments and vesting as described below.
On the Closing Date,
the Warrant vested and became exercisable with respect to 12,907,080 Warrant Shares. The remaining portion of the Warrant with
respect to 13,037,461 Warrant Shares, subject to certain adjustments, will vest and become exercisable on April 27, 2024; provided,
however, that if the Secured Term Loan is paid in full prior to such date or a Change of Control (as defined in the Secured Term
Loan) occurs prior to such date (the date of either such event, the “Acceleration Date”), such number of Warrant Shares
equal to the product of the following equation shall immediately vest and become exercisable and the remainder of the unvested
Warrant Shares shall be forfeited and not be exercisable: (i) (A) the number of days that elapsed between the Closing Date and the
Acceleration Date (inclusive of the Acceleration Date) divided by (B) 366, multiplied
by (ii) 13,037,461.
Pursuant to the Purchase Agreement, the Company
and Purchaser have agreed to negotiate in good faith to enter into a registration rights agreement within 45 days after the Closing Date.
The foregoing descriptions in this Item 1.01
are qualified in their entirety by reference to the full text of the actual agreements filed as exhibits with this Current Report on Form
8-K, which agreements are incorporated herein by reference.
