Wednesday, July 16, 2014

LIBOR Plus ?!?!

When United Development Funding IV (UDF) listed on NASDAQ in early June it offered to repurchase up to $35 million of shares at a price of $20.50 per share.  The tender offer was oversubscribed by about three times, which was not unexpected.  UDF, in a filing last week, disclosed that it is financing the entire share repurchase with a $35 million loan from an entity called Waterfall Finance 4, LLC.  The loan has a one-year term and is due July 2, 2015.  UDF is paying LIBOR plus 9.0%, and interest is due monthly.  LIBOR is currently around .25%, so UDF is paying about 9.25% for the money.  I am snarkless.

1 comment:

Anonymous said...

I suppose that UDF executives are trying to over-signal to the market that they are confident in future cash flows by borrowing, and want to reward their long-term equity holders with some capital gains. I'm just curious to know who provided the bridge.