Shares of National Financial Partners Corp., the troubled amalgamator of financial planning firms, climbed more than 40% today after the New York-based company said its banks agreed to an amended credit agreement.
The new agreement reduces the credit facility available to NFP and raises its borrowing rate and fees, but also temporarily allows the company to increase its ratio of debt to equity.
Without such an increase, the company was in danger of defaulting on its debt agreement and could have been forced into bankruptcy, according to some principals at the insurance, planning and brokerage firms affiliated with NFP.
“The continued strong support of our banks demonstrates their confidence in NFP’s ongoing business,” Jessica Bibliowicz, chairman, president and chief executive of the firm, said in a statement today.
NFP, shares of which have nosedived 92% in the last year, last month suspended its dividend and share buybacks and said it was putting off new acquisitions and focusing instead on helping its affiliates stem losses.
Under the new credit agreement, which is led by Bank of America Corp. of Charlotte, N.C., NFP will be allowed to increase its consolidated leverage ratio (its amount of debt to equity) to as much as 3.5 to 1 during the next year before contracting back to its current ceiling of 2.5 to 1.
That ceiling was raised in the current quarter to 3 to 1.
In a sign of banks’ continuing concerns about expenses rising faster than revenue at many of NFP’s partner firms, the amended credit agreement also requires the company to have a minimum fixed-charge coverage ratio of 2 to 1 on a rolling four-quarter basis.
The cash coverage will be tested the last day of any quarter in which the company seeks to pay a dividend or repurchase stock, options that executives last month said were not being considered in the near future.
NFP also is scheduling a meeting with its principals — the 180 or so firms that sold themselves to NFP for a combination of stock and cash in return for remitting, in most cases, more than 50% of their profit to the company, said one principal who asked for anonymity.
The firm had previously pledged 100% of the equity of the constituent firms as collateral to its banks.
Many of the principals believed that if the credit agreement had not been revised, NFP would have declared bankruptcy.
Some favored a bankruptcy, saying they then buy their debt and stock back from bondholders and the banks at a steep discount and operate their firms as private companies.
Some principals also have been lobbying to replace the company’s executives and take NFP private.
Shares of NFP changed hands at $4.14 in early afternoon trading, up 43.6%, from its Tuesday night close of $2.88.
A spokeswoman for NFP had no immediate comment.
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