Some AFC Gamma Clients Having Trouble Making Payments

AFC Gamma, Inc. (Nasdaq: AFCG) announced its results for the first quarter ended March 31, 2023, with a net income of $10 million or $0.49 per basic weighted average common share and distributable earnings of $11.6 million or $0.57 per basic weighted average common share.

This is down from last year’s $11.9 million and $0.62 per share and slightly less than last year’s net income of $10.1 million. The basic earnings per share also fell to $0.49 from last year’s $0.53.

“Since mid-2022, given the market and interest rate volatility, AFC Gamma has taken a conservative view to deploying and managing our capital. During the first quarter of 2023 we maintained an ample level of liquidity, which we believe will prove valuable in this environment as we look to capitalize on investment opportunities as they arise,” Chairman and Chief Executive Officer Leonard M. Tannenbaum saif.

Problem Clients

The company’s filing noted several loans that experienced changes and, in particular, one customer’s challenges that could affect the company’s payout to investors.

In April 2023, the credit facility with a subsidiary of Private Company G was amended to:

• Change certain cash equity capital contribution requirements
• Add an additional real property to the collateral
• Extend the draw period
• Permit 75% of accrued cash interest due and owing to instead be paid in kind until and including the payment due May 1, 2023, subject to a monthly fee
• Modify the excess cash flow sweep.

Due to challenges raising equity capital in this current market environment, the subsidiary of Private Company G said it intended to sell certain collateral assets to pay down the outstanding principal and non-core, non-collateral assets to generate additional capital for its operations.

“If the borrower is unable to return to full cash payment of interest in connection with the payment due June 1, 2023, it would have an adverse impact on our Distributable Earnings for the near-term future and reduce our ability to pay dividends during such period,” AFC noted.

In addition, AFC Agent LLC delivered a notice of an event of default based on Private Company I failing to pay its full principal and interest payments due May 1. The lenders opted to not accelerate the obligations under the credit agreement at this time, however, they required that the borrower sell certain assets to repay its obligations under the credit facility.

In January 2023, TRS1 agreed with Private Company I to defer an upcoming principal payment. In March 2023, TRS1 agreed, subject to certain terms and conditions, to defer an upcoming principal payment and permit a portion of an upcoming cash interest payment to instead be paid in kind.

In March 2023, AFC Gamma said it entered into a forbearance and modification agreement with Private Company B, to which the company agreed, subject to an additional 4% capitalized PIK interest, to forbear any default actions allowed under the credit agreement until the earlier of April 30; certain refinancing or cash equity contribution events; or any new event of default thereunder.

In connection with the forbearance and modification agreement, AFC Gamma also agreed to, subject to certain terms and conditions, waive compliance with certain covenants for one fiscal quarter and defer specified principal payments.

In May 2023, AFC Agent received $5.1 million in total loan principal repayments from Private Company A, relating to the sale of certain non-core assets, of which approximately $3.6 million was allocated to AFC Gamma.

Balance Sheet

During the quarter AFC Gamma repurchased $10 million in the 2027 Senior Notes at 77.4% of par value, plus accrued interest. This resulted in a gain on extinguishment of debt of approximately $2 million, recorded within the unaudited interim consolidated statements of operations.

Following this transaction, as of March 31, 2023, the company had $90 million in principal amount of the 2027 Senior Notes outstanding.