Annual report [Section 13 and 15(d), not S-K Item 405]

Notes Payable, Net

v3.25.0.1
Notes Payable, Net
 12 Months Ended
Dec. 31, 2024
Debt Disclosure [Abstract]  
Notes Payable, Net
17. Notes Payable, Net
Senior Notes
Exchange
On November 5, 2020, FOAF issued $350 million aggregate principal amount of senior unsecured notes due November 15, 2025 (the “2025 Unsecured Notes”). On October 31, 2024 (the “Issue Date”), FOAF completed an exchange with certain existing noteholders of the 2025 Unsecured Notes. Existing noteholders, representing 97.892% of the aggregate principal amount outstanding of the 2025 Unsecured Notes, exchanged their respective 2025 Unsecured Notes in consideration for (i) the issuance of (a) $195,783,947 of FOAF’s new 7.875% Senior Secured Notes due November 30, 2026 (the “Senior Secured Notes”), with FOAF’s option to extend until November 30, 2027, (b) $146,793,000 of FOAF’s new 10.000% Exchangeable Senior Secured Notes due November 30, 2029 (the “Exchangeable Secured Notes”) (collectively, the “Secured Notes”), and (ii) cash consideration of $856,555.
We concluded that the exchanged 2025 Unsecured Notes and Secured Notes had substantially different terms, and accordingly, we accounted for the exchange as an extinguishment of the 2025 Unsecured Notes and the issuance of the Secured Notes. As a result, the Company initially recorded the Secured Notes at fair value and recognized an extinguishment gain of $56.2 million for the year ended December 31, 2024, which is included in Gain on extinguishment of debt in the Consolidated Statements of Operations. The Secured Notes are subsequently being carried at amortized cost.
Senior Secured Notes
FOAF issued the Senior Secured Notes pursuant to an indenture (the “Senior Secured Notes Indenture”) among FOAF, FOA Equity and certain of its respective direct and indirect subsidiaries who act as guarantors (the “Guarantors”), and the Company and U.S. Bank Trust Company, National Association, as trustee (the “Senior Secured Notes Trustee”) and collateral trustee (the “Collateral Trustee”). The Senior Secured Notes are fully and unconditionally guaranteed on a senior basis by the Guarantors and are secured by the collateral as described below.
The Senior Secured Notes will mature on November 30, 2026 (the “Scheduled Maturity Date”), provided that such Scheduled Maturity Date may be extended at the election of FOAF until November 30, 2027 (the “Extended Maturity Date”), subject to an increase in the applicable interest rate as described below, payment of a fee to the holders of the Senior Secured Notes equal to 0.25% of the principal amount of the Senior Secured Notes prior to the effectiveness of any such extension, and other customary provisions as described in the Senior Secured Notes Indenture.
The Senior Secured Notes bear interest at a rate of 7.875% per year until the first anniversary of the Issue Date and 8.875% per year from the first anniversary of the Issue Date to the Scheduled Maturity Date. If FOAF elects the extension, the Senior Secured Notes will bear interest at a rate of 9.875% per year from the Scheduled Maturity Date until the Extended Maturity Date. FOAF will pay interest semi-annually in arrears on May 30 and November 30 of each year, beginning on November 30, 2024.
FOAF is required to partially prepay in cash, by means of a redemption, a portion of the outstanding principal amount of the Senior Secured Notes on November 15, 2025 in an amount equal to $0.23 per $1.00 principal amount of Senior Secured Notes outstanding.
After the two Revolving Working Capital Promissory Note Agreements (the “Working Capital Promissory Notes”) are paid off and terminated (refer to Note 27 - Related Party Transactions for additional detail), FOAF will be required to partially or fully redeem the Senior Secured Notes at a redemption price of par plus accrued and unpaid interest, upon the occurrence of certain specified events including, but not limited to (i) if amounts on deposit in a specified controlled account at month end and certain other additional determination dates, exceed, by at least $10.0 million, the amount of interest expected to be due and payable on the Secured Notes on the next two scheduled interest payment dates (based on the then outstanding principal amount of the Secured Notes and the then applicable interest rate) and (ii) there are excess net cash proceeds from certain collateral dispositions to the extent not applied in accordance with the collateral disposition requirements of the Senior Secured Notes Indenture, in an amount equal to such net cash proceeds. The Senior Secured Notes will not be redeemable at FOAF’s option at any time.
If certain events constituting a Change of Control occur, as defined in the Senior Secured Notes Indenture, FOAF will be required to make an offer to repurchase all of the Senior Secured Notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.
The Senior Secured Notes Indenture contains restrictive covenants that limit, among other things, the ability of FOAF and certain of its subsidiaries, including the Guarantors, to incur additional indebtedness, repay indebtedness before its respective stated maturity, make restricted payments (including investments), sell or dispose of assets, incur liens, and enter into certain transactions with affiliates. These incurrence-based covenants are subject to exceptions and qualifications. The Company was in compliance with all required covenants related to the Senior Secured Notes as of December 31, 2024.
Exchangeable Secured Notes
FOAF issued the Exchangeable Secured Notes pursuant to an indenture (the “Exchangeable Secured Notes Indenture”) among FOAF, the Company, the Guarantors, and U.S. Bank Trust Company, National Association, as trustee (the “Exchangeable Notes Trustee”) and Collateral Trustee. The Exchangeable Secured Notes are fully and unconditionally guaranteed on a senior basis by the Guarantors and are secured by the collateral as described below.
The Exchangeable Secured Notes will mature on November 30, 2029 and bear interest at a rate of 10.000% per year, payable semi-annually in arrears on May 30 and November 30 of each year, beginning on November 30, 2024.
The Exchangeable Secured Notes are exchangeable on the terms set forth in the Exchangeable Secured Notes Indenture into shares of the Company’s Class A Common Stock. The exchange rate is initially 36.36364 shares of Class A Common Stock per $1,000 principal amount of Exchangeable Secured Notes (the “Exchange Rate”), which is equivalent to an initial exchange price of $27.50 per share of Class A Common Stock. The Exchange Rate will be subject to adjustment as provided in the Exchangeable Secured Notes Indenture. Holders of the Exchangeable Secured Notes have the right to exchange all or any portion of their Exchangeable Secured Notes at their option, at any time prior to the close of business on the second scheduled trading day immediately preceding November 30, 2029, subject to certain limitations as further described in the Exchangeable Secured Notes Indenture. To the extent that the Company, however, determines in good faith that it would be in the best interest of the Company to do so in order to preserve the benefit of tax attributes of the Company and/or its subsidiaries, including net operating losses, FOAF, in its discretion, may elect to settle any exchange in part or in whole by delivering the cash value of the shares of Class A Common Stock otherwise deliverable upon such exchange.
The Exchangeable Secured Notes will not be redeemable at FOAF’s option at any time, except in certain limited circumstances as provided for in the Exchangeable Secured Notes Indenture. In certain circumstances, FOAF may be required to offer to repurchase, partially or fully, the Exchangeable Secured Notes. If the Company or FOAF undergoes a Fundamental Change (as defined in the Exchangeable Secured Notes Indenture), subject to certain conditions, holders of the Exchangeable Secured Notes may require FOAF to repurchase all or part of their Exchangeable Secured Notes at a repurchase price equal to 101% of the principal amount of the Exchangeable Secured Notes to be repurchased, plus the applicable premium and accrued and unpaid interest.
The Exchangeable Secured Notes Indenture contains certain covenants and events of default similar to, but less restrictive than, those contained in the Senior Secured Notes Indenture. The Company was in compliance with all required covenants related to the Exchangeable Secured Notes as of December 31, 2024.
Collateral for the Secured Notes
Prior to the pay off and termination of FOA Equity’s Working Capital Promissory Notes, the Secured Notes will be secured, on a pari passu basis pursuant to the Pledge and Security Agreement (as defined below), and subject to a collateral trust agreement among the grantors party thereto, the Senior Secured Notes Trustee, the Exchangeable Notes Trustee, and the Collateral Trustee (which governs the relative rights among the holders of the Senior Secured Notes and the Exchangeable Secured Notes) (the “Collateral Trust Agreement”), and on a junior basis to the Working Capital Promissory Notes, subject to a junior lien intercreditor agreement among the grantors party thereto, the Collateral Trustee, the administrative agent for the Working Capital Promissory Notes, and the other parties named therein (which governs the relative rights among the holders of the Working Capital Promissory Notes and the Secured Notes), by a second priority lien granted by the grantors in the Initial Collateral (as defined below). From and after the pay off and termination of the Working Capital Promissory Notes, the Secured Notes will be secured on a pari passu basis, pursuant to the Collateral Trust Agreement, by a first priority lien granted by the grantors in the Permanent Collateral (as defined below). The Initial Collateral includes, subject to permitted liens, (i) substantially all of the unencumbered assets owned by FOA Equity and each of the Guarantors (except for FAR and FAM) (collectively, the “All Assets Collateral”), including pledges of the equity interests of each Guarantor and the equity instruments required to be retained by a subsidiary of FOA Equity (presently and in the future) in connection with the issuance of non-agency reverse loan asset-backed securitizations (the “Pledged Risk Retention Securities”), (ii) pledges of the equity interests of the directly owned subsidiaries of FAR and FAM, subject to certain exceptions
(together with the All Assets Collateral, the “Initial Collateral”), and (iii) certain other residual proceeds of FAR. The Permanent Collateral includes, subject to permitted liens, the Pledged Risk Retention Securities and the equity interests in certain subsidiaries of FOA Equity (the “Permanent Collateral” and together with the Initial Collateral, the “Collateral”).
FOAF and the Guarantors, as applicable, are required to enter into certain deposit account and securities account control agreements with respect to the Collateral, including under certain circumstances and threshold amounts with respect to unrestricted cash, subject to certain permitted uses.
On the Issue Date, in connection with the issuance of the Secured Notes, FOAF entered into a pledge and security agreement (the “Pledge and Security Agreement”) with the Collateral Trustee (appointed as such thereunder for purposes of the holding and perfecting the liens securing the Secured Notes) and the grantors party thereto, pursuant to which the Collateral securing the Secured Notes’ obligations was granted.
2025 Unsecured Notes
The 2025 Unsecured Notes bear interest at a rate of 7.875% per year, payable semi-annually in arrears on May 15 and November 15. As of December 31, 2024 and December 31, 2023, the effective interest rate for our 2025 Unsecured Notes was 7.7% and 7.8%, respectively.
Working Capital Promissory Notes
The Company also has related party working capital promissory notes, which are further discussed in Note 27 - Related Party Transactions.
Notes payable, net, consisted of the following (in thousands):

Description Maturity Date Interest Rate December 31, 2024 December 31, 2023
Senior Secured Notes
November 2026(1)
7.875% $ 195,784  $ — 
Exchangeable Secured Notes November 2029 10.000% 146,793  — 
Working Capital Notes May 2025 15.000% 85,000  59,130 
2025 Unsecured Notes November 2025 7.875% 7,378  350,000 
Fair value adjustment, net of amortization(2)
—  1,781 
Unamortized debt discount and issuance costs(3)
(60,444) — 
Total notes payable, net $ 374,511  $ 410,911 
(1) At the election of the Company, the maturity date may be extended to November 2027, as discussed in the Senior Secured Notes section above.
(2) In conjunction with a previous business combination, the Company was required to adjust the liabilities assumed to fair value, resulting in a premium on the 2025 Unsecured Notes and the elimination of the previously recognized debt issuance costs.
(3) In conjunction with the exchange of the 2025 Unsecured Notes and Secured Notes, the Company initially recorded the Secured Notes at fair value, which resulted in a debt discount of $56.2 million. As of December 31, 2024, the Senior Secured Notes and Exchangeable Secured Notes, respectively, had $39.7 million and $20.7 million of unamortized debt discount and issuance costs.
Non-funding interest expense consisted of the following (in thousands):
For the year ended December 31, 2024 For the year ended December 31, 2023
Senior secured notes
Contractually stated $ 2,543  $ — 
Amortization of debt discount and issuance costs 2,360  — 
Total senior secured notes 4,903  — 
Exchangeable secured notes
Contractually stated 2,231  — 
Amortization of debt discount and issuance costs 639  — 
Total exchangeable secured notes 2,870  — 
Unsecured notes 22,319  26,731 
Working capital notes 11,319  4,158 
Non-funding interest expense $ 41,411  $ 30,889 

As of December 31, 2024, the effective interest rate for our Senior Secured Notes and Exchangeable Secured Notes was 19.1% and 13.7%, respectively, which includes amortization of debt discount and issuance costs.

As of December 31, 2024, the maturities of notes payable are as follows (in thousands):

Year Ending December 31, Amount
2025 $ 137,408
2026
150,754(1)
2027 —
2028 —
2029 146,793
Less unamortized debt discount and issuance costs (60,444)
Total notes payable, net $ 374,511
(1) At the election of the Company, the maturity date may be extended to November 2027 as discussed in the Senior Secured Notes section above.