In a move to bolster its financial flexibility, Robinhood (NASDAQ:HOOD) Securities, LLC, a subsidiary of the popular trading platform Robinhood (NASDAQ: HOOD), has amended its existing credit agreement, increasing its borrowing capacity to $2.25 billion.
The updated arrangement, finalized today with JPMorgan Chase (NYSE:JPM) Bank, N.A. acting as the administrative agent, allows for an additional increase up to $1.125 billion under certain conditions, potentially bringing the total to $3.375 billion.
This credit facility, which is secured and revolves annually, is structured into three tranches, each earmarked for specific financial obligations. Tranche A is backed by margin-purchased securities and primarily finances margin loans.
Tranche B is secured by potential returns from the National Securities Clearing Corporation (NSCC) margin deposits and specific collateral accounts, aiding in meeting NSCC deposit requirements. Tranche C, similarly backed by eligible funds and collateral accounts, is designated to fulfill reserve requirements under the Securities Exchange Act of 1934’s Rule 15c3-3.
Interest rates on borrowings will be determined by the highest of the Daily Simple SOFR, the Federal Funds Effective Rate, or the Overnight Bank Funding Rate, with an additional margin rate of 1.25% for Tranche A loans, and 2.50% for Tranche B and C loans. Unutilized lines will incur a fee of 0.50% per annum.
The credit agreement mandates that Robinhood Securities maintain a minimum level of tangible net worth and excess net capital. It also imposes a cap on the minimum net capital relative to aggregate debit items.
The agreement includes standard affirmative and negative covenants, placing restrictions on debt, liens, major corporate changes, asset sales, restricted payments, investments, and affiliate transactions, albeit with specific exceptions.
Should Robinhood Securities default, as defined by the agreement, the lenders may accelerate the repayment of the funds. Such defaults could include non-payment, covenant breaches, misrepresentation, or insolvency events, with some circumstances allowing for rectification periods.
As of today, Robinhood Securities has not drawn on this credit facility, leaving the full $2.25 billion available for use. The details of this credit agreement are outlined in Exhibit 10.1 of the Form 8-K filed with the SEC, which serves as the basis for this report.
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