Velocity Financial, Inc. Announces Issuance of $75 Million of Senior Secured Notes

Rhea-AI Summary

Velocity Financial, Inc. (NYSE: VEL) announced the issuance of $75 million in senior secured notes by its subsidiary, Velocity Commercial Capital, LLC. The notes will bear interest at 9.875% per annum, mature on February 15, 2029, and will be used for new investments and general corporate purposes. The company's CFO highlighted the strong financial performance and growth, aiming to attain a $5 billion portfolio by 2025.

Insights

Financial Analyst

Velocity Financial, Inc.'s issuance of $75 million in senior secured notes is a strategic move to bolster its lending capabilities and achieve its '5x25' goal. The 9.875% interest rate, significantly higher than current average corporate bond yields, indicates a potentially higher risk profile or a strategic premium to attract investors. This could suggest that Velocity is confident in its financial health and growth trajectory, justifying the higher cost of capital.

Investors should note that the senior secured status of the notes means they have priority over unsecured debt in the event of default, which could be a reassuring factor. However, the interest rate comparison with the company's existing 7.125% notes might raise questions regarding the increased cost of debt and its impact on long-term profitability. The use of proceeds for new investments and general corporate purposes indicates an aggressive growth stance, which could lead to increased earnings if managed effectively.

Market Research Analyst

The business purpose loan sector, where Velocity operates, is subject to market demand fluctuations and regulatory changes. Velocity's approach to creating a laddered corporate debt maturity schedule through flexible note structures is a prudent risk management strategy. It suggests a forward-looking approach to debt management, potentially reducing refinancing risk and smoothing out cash flow requirements over time.

Velocity's partnership with Piper Sandler & Co. as a placement agent reflects the importance of leveraging established financial networks for capital raising initiatives. The success of such transactions can be indicative of investor confidence and market sentiment towards the company. The focus on achieving the '5x25' goal reflects an ambitious growth plan, which could have substantial impacts on the company's market position and stock performance if achieved.

Legal Expert

The legal stipulation that the Notes have not been registered under the Securities Act of 1933 necessitates attention to the limitations on their sale and distribution. This could limit the liquidity of the notes, as they can only be sold to qualified institutional buyers or under certain exemptions. Potential investors must be aware of these restrictions and their implications on the ease of transferring these securities.

The announcement also serves as a reminder of the regulatory compliance required in the issuance of securities. The fact that the offering does not constitute a public solicitation emphasizes the targeted nature of the placement, which aims to circumvent the registration process for a more efficient transaction. However, this also means that the offering is not subject to the same level of scrutiny as a public offering, which could impact investor perception of transparency and due diligence.

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)-- Velocity Financial, Inc. (NYSE: VEL), (“Velocity” or the “Company”), a leader in business purpose loans, today announced the issuance of $75 million principal amount of five-year senior secured notes (the ”Notes”) by Velocity Commercial Capital, LLC, a wholly-owned subsidiary of Velocity. The Notes will bear interest at 9.875% per annum and will mature on February 15, 2029. Interest on the notes will be payable semi-annually on May 15 and November 15 of each year, beginning on May 15, 2024. The Notes are secured on a pari passu basis with Velocity’s $215,000,000 outstanding principal amount of 7.125% Senior Secured Notes due 2027.

The Notes settled on February 5, 2024, and the net proceeds will be used to originate new investments and for general corporate and other working capital purposes.

Piper Sandler & Co. acted as placement agent for the offering.

Mark R. Szczepaniak, CFO, stated, “This transaction marks another successful corporate debt offering, made possible by the Company’s continued strong financial performance and growth in our investment portfolio. We expect this capital to be accretive to earnings as we work to attain our '5x25' goal ($5 billion portfolio by 2025). The Notes are structured with flexibility to continue issuing additional series of similar notes, allowing us to continue building a laddered corporate debt maturity schedule. I would like to thank the Piper Sandler team for leading another successful transaction for Velocity.”

The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (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. This news release does not constitute an offer to sell, or a solicitation of an offer to buy, any securities of the Company in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Forward-Looking Statements

Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to anticipated results, expectations, projections, plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions, and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to, (1) the continued course and severity of the COVID-19 pandemic and its direct and indirect impacts, (2) general economic and real estate market conditions, including the risk of recession, (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our future securitizations, (6) the continued conflict in Ukraine and (7) changes in federal government fiscal and monetary policies.

Additional information relating to these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements can be found in the section titled ‘‘Risk Factors” in our Form 10-Q filed with the SEC on May 14, 2020, as well as other cautionary statements we make in our current and periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.

About Velocity Financial, Inc.

Based in Westlake Village, California, Velocity is a vertically integrated real estate finance company that primarily originates and manages investor loans secured by 1-4 unit residential rental and commercial properties. Velocity originates loans nationwide across an extensive network of independent mortgage brokers built and refined over 20 years.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240206491942/en/

Investors and Media:

Chris Oltmann

(818) 532-3708

Source: Velocity Financial, Inc.

FAQ

What is the ticker symbol for Velocity Financial, Inc.?

NYSE: VEL

What is the interest rate on the senior secured notes issued by Velocity Commercial Capital, LLC?

The notes will bear interest at 9.875% per annum.

When will the senior secured notes mature?

The notes will mature on February 15, 2029.

What will the net proceeds from the notes issuance be used for?

The net proceeds will be used to originate new investments and for general corporate and other working capital purposes.

Who acted as the placement agent for the offering?

Piper Sandler & Co. acted as the placement agent for the offering.

Under which act were the notes registered?

The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the 'Securities Act').