December 24, 2020 – The Court hearing the Renovate America cases issued an order authorizing the Debtors to (i) access $18.0mn of what is in total $50.0mn of requested debtor-in-possession (“DIP”) financing on an interim basis and (ii) use cash collateral [Docket No. 41]. Access to the balance of the DIP financing, which is being provided by Finance of America Mortgage LLC ("FAM"  or the “DIP Lender”) is to be considered at a hearing scheduled for January 22, 2021.

FAM has also agreed to serve as stalking horse in a section 363 auction/sale process and has executed an asset purchase agreement further to which it will pace bidding with consideration comprised of $5.0mn in cash and amounts outstanding under the DIP financing facility (see "Asset Sale" below).

The Debtors' requesting motion [Docket No. 13] noted, “The Debtors and DIP Lender have also negotiated the terms of the DIP Lender’s potential acquisition of substantially all of the Debtors’ assets pursuant to a court-approved sale process in accordance with section 363 of the Bankruptcy Code. The Debtors have filed a motion to approve the bidding procedures and sale process with respect to that transaction simultaneously with the filing of this Motion. The DIP Facility will allow the Debtors to continue operating and preserve their value as a going concern until a sale can be approved and completed.

Absent approval of the DIP Facility, the Debtors may be left with no alternative but to cease operating and convert these cases to cases under chapter 7 of the Bankruptcy Code. The liquidity provided by the DIP Facility will ensure the Debtors can continue operating and will provide the Debtors with sufficient time to bridge to a sale of substantially all the Debtors’ assets.

The DIP Facility was the product of extensive, arm’s-length negotiations with the DIP Lender. As discussed herein and in the Powell Declaration, the DIP Facility was preceded by a competitive process designed to find and secure post-petition financing on the best available terms, albeit in a limited market for such financing.

The extensive negotiations between the Debtors and the DIP Lender resulted in an agreement on the terms of a $50 million revolving DIP Facility that will provide the Debtors with sufficient capital to administer these chapter 11 cases and to continue their operations uninterrupted, including the continued origination, purchase, and subsequent sale of retail instalment sale contracts and other loans or financing agreements constituting Eligible Contracts (as defined in the DIP Agreement) in the ordinary course of their business. The proposed DIP Facility includes an initial budget (the ‘Budget,’ attached as Exhibit C to this Motion) with respect to amounts expected to be utilized by the Debtors for operational expenses and activities, as well as certain milestones and covenants, including delivery of financial statements and weekly reports of receipts and budgeted cash usage.

The DIP Facility does not contemplate priming the liens or security interests of the Debtors’ existing prepetition secured lenders or the use of such lenders’ cash collateral. Rather, the Debtors intend to satisfy any remaining obligations owing to their prepetition lenders either through the ultimate sale of such lenders’ collateral or by utilizing the proceeds of the DIP Facility to satisfy such secured claims in full.”

Key Terms of the DIP Facility:

• Borrowers: Personal Energy Finance, Inc. and Renovate America, Inc.
• DIP Lender: Finance of America Mortgage LLC
• Term: “Maturity Date” means the earliest of (i) the date that is ninety (90) days after the closing date of the DIP Facility; (ii) the effective date of a Chapter 11 plan of the Borrower; (iii) the consummation of the transactions contemplated by the Stalking Horse APA; (iv) the date on which the Auction closes or the Borrower files a notice with the Court identifying a successful Auction bidder or bidders other than the Stalking Horse Bidder, whichever is earlier, or the date on which the Borrower shall otherwise agree (other than pursuant to the Auction) to sell all or substantially all of the Purchased Assets to any party other than the Stalking Horse Bidder; and (v) the acceleration of the Indebtedness, including, without limitation, as a result of the delivery of a Default Notice.
• Commitment: The Maximum Program Amount available for revolving loans under the DIP Facility is up to $50.0mn, as limited by the Maximum Loan Amount available at any time, which equals the sum of (i) ninety percent (90%) of the Aggregate Principal Balance plus accrued interest under the Contracts as of such date and (ii) the Fixed Commitment Amount as of such date. The Initial Program Amount to be borrowed prior to entry of the Final DIP Order is $18.0mn.
• Interest Rate: 7% per annum, compounded monthly.
• Default Interest Rate: 9% per annum, compounded monthly
• Use of Proceeds: Borrower shall use each Draw solely for purposes of financing Eligible Contracts, the payment of the Origination Fee and Agent Fees and Expenses (including certain fees and expenses of the Lender Professionals), the repayment in full of all outstanding obligations under the PEFI/ING Facility ($2.8mn), or for general corporate purposes as contemplated by and in accordance in all material respects with the terms of the DIP Budget (subject to the Permitted Variances).
• Fees: Origination Fee is $175k. Borrower is also obligated to pay certain fees and expenses of the DIP Lender, including reasonable costs and expenses of the DIP Lender’s professionals in connection with the financing and the chapter 11 cases.
• Case and Sale Milestones:
  • Deadline to file Bidding Procedures motion: A Day after the Petition date
  • Deadline for interim DIP order: Three days after the Petition date
  • Deadline for Bid Procedures order: Fifteen days after the Petition date
  • Deadline for Final DIP order: Thirty-five days after the Petition date
  • Deadline to object Sale order: Thirty-five days after the Bid Procedure order
  • Deadline to conduct Auction: Forty days after the Bid Procedure order
  • Deadline to object auction: Forty-five days after the Bid Procedure order
  • Deadline for sale hearing and sale order: Fifty day after the Bid Procedure order
  • Deadline to close sale: Fifteen days after the Sale order

Prepetition Indebtedness

• PEFI Credit Agreement: Debtor Personal Energy Finance, Inc. (“PEFI”) is the borrower under a December 2019 loan and security agreement (the “PEFI Credit Agreement”) with ING Capital, LLC, as administrative agent and the initial lender (in such capacity, the “PEFI Agent”), TMF Group New York, LLC, as collateral agent, and the lenders from time to time party thereto (collectively, the “PEFI Lenders”). 

The PEFI Credit Agreement provides for a senior secured warehouse credit facility with a maximum amount of $35.0mn (the “PEFI Warehouse Facility”), of which $25.0mn is committed and $10.0mn is uncommitted. Immediately prior to the Petition date, (1) the aggregate principal amount outstanding under the PEFI Warehouse Facility was $6,000,000, of which approximately $2.8mn has been used to purchase certain contracts constituting the PEFI Lenders’ collateral, and the remainder of which remains unused and in escrow (such amounts owed to the PEFI Lenders, together with any accrued and unpaid interest, fees, expenses and disbursements payable under the PEFI Credit Agreement the “Prepetition PEFI Warehouse Obligations”).

The DIP Facility requires that upon entry of the Interim DIP Order, proceeds of the first draw on the DIP Facility in the approximate amount of $2.8mn will be used to pay and satisfy in full all Prepetition PEFI Warehouse Obligations owed under the PEFI Warehouse Facility.

• RAI Credit Agreement: Debtor Renovate America, Inc. (“RAI”) is the borrower under an August 2017 credit agreement (the “RAI Credit Agreement”) with ING Capital LLC, as administrative agent and the initial lender (in such capacity, the “RAI Agent”), Cortland Capital Market Services LLC, as collateral agent, and the lenders from time to time party thereto (collectively, the “RAI Lenders”). The RAI Credit Agreement provides for a senior secured warehouse credit facility with a maximum commitment of approximately $1.3mn (the “RAI Warehouse Facility”). 

Immediately prior to the Petition Date, the aggregate principal amount outstanding under the RAI Warehouse Facility was approximately $1,252,944 (such amount owed to the RAI Lenders, together with any accrued and unpaid interest, fees, expenses and disbursements payable under the RAI Credit Agreement, the “Prepetition RAI Warehouse Obligations”).

Asset Sale

Following several aborted efforts at selling assets (COVID-19 resulting in "reduced liquidity for home improvement lending… [and]… a  significant dislocation in the M&A market for consumer lending companies"), and with one of their two main lines of business now effectively closed to new business, the Debtors have entered into a stalking horse asset purchase agreement (the "APA") with Finance of America Mortgage LLC ("FAM" or the “Stalking Horse Purchaser”) in respect of the Debtors' remaining, or "Benji" assets. Further to the terms of the APA [Docket No. 10, Exhibit C], the Stalking Horse Bidder will purchase the Debtors' Benji business for $5.0mn in cash and amounts outstanding under the DIP financing facility.

The Debtors' bidding procedures motion provides: ”Historically, the Debtors maintained two business divisions: HERO and Benji. The Debtors’ HERO business, which ceased accepting homeowner’s applications in October of 2020…Benji, the Debtors’ remaining business division, provides home improvement financing to contractors and homeowners. Pursuant to this Motion, the Debtors are seeking approval of the Bidding Procedures to establish a clear and open process for the solicitation, receipt, and evaluation of third-party bids for the purchase of certain of the Debtors’ remaining Assets—comprised of their Benji business—a process that began prepetition and will continue postpetition.

Specifically, the Debtors and Finance of America Mortgage LLC (the 'Stalking Horse Purchaser') entered into an Asset Purchase Agreement, dated as of December 21, 2020…whereby the Stalking Horse Purchaser proposes to purchase substantially all of the Assets for, among other things, cash consideration of $5 million (the Purchase Price'), which will serve as a competitive baseline of recovery for the Debtors’ stakeholders. The proposed transaction, if approved, will generate significant value for the Debtors’ estates, and among other things, satisfy a significant portion of the prepetition claims against the Debtors and pave the way for confirmation of a chapter 11 plan."

Initial DIP Budget (see Exhibit D of Interim Order)

About the Debtors

According to the Debtors: “Renovate America offers a financing platform that helps Americans improve their homes while giving contractors the tools they need to grow their business. In addition to financing home improvements through a traditional lending product, Benji, Renovate America also offers participating communities HERO financing. HERO is a leading residential Property Assessed Clean Energy (PACE) program in the U.S. and has been used by the owners of over 130,000 homes to make upgrades that can save energy and water, generate renewable energy, or protect against storm damage. HERO-financed upgrades are projected to save homeowners billions of dollars in energy and water bills, and are estimated to have created over 25,000 local trade jobs that cannot be offshored or automated.

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