IOU Financial Announces Loan Purchase Agreement with Neuberger Berman Fund, Private Placement and Appointment of New Director

·8 min read
  • Loan Purchase Agreement of up to US$150 million per year with Neuberger Berman fund enables IOU to capitalize on the economic recovery

  • Neuberger Berman managed fund will also lead non-brokered private placement of up to $2.1 million

  • Neil Wolfson to join IOU Financial Inc.'s Board of Directors

MONTREAL, Nov. 4, 2020 /CNW Telbec/ - IOU FINANCIAL INC. ("IOU" or "the Company") (TSXV: IOU), a leading online lender to small businesses (IOUFinancial.com), IOU announces that it has closed a loan purchase agreement (the "Loan Purchase Agreement") with a fund managed by Neuberger Berman ("the Fund") for up to US$150 million per year over the next two years. Neuberger Berman is a private, independent, employee-owned investment manager with US$374 billion in assets under management.

Further to the Loan Purchase Agreement, IOU also announces that it intends to complete a non-brokered private placement of 18,009,806 common shares of the Company at a price of $0.1157 per common share (the "Purchase Price") for gross proceeds of up to $2.1 million (the "Offering"). As a part of the Offering, the Fund has agreed to make an investment of $1,812,565 to acquire 15,665,839 common shares. After the completion of the Offering, the Fund will own 15% of the Company's issued and outstanding common shares.

"This investment by a Neuberger Berman managed fund represents a strong vote of confidence in the fundamental, long-term value of our business, and is a testament to IOU's loan origination and servicing capabilities in addition to its capital markets capabilities" said Phil Marleau, CEO of IOU.

The Purchase Price represents a 37.5% premium to the 5-trading-day volume-weighted average price (the "VWAP") of the common shares on the TSX-V, as of the close of trading on November 4, 2020. The net proceeds of the Offering will strengthen the Company's financial position and be used for general corporate purposes. The Offering is subject to regulatory approval, including the approval of the TSX-V.

IOU's strategy has consistently been to maintain diversified sources of capital to fund both its loan portfolio and servicing portfolio (loans being serviced on behalf of third parties). Although the Company has previously guided to growing its loan portfolio, the COVID-19 pandemic and its impact on IOU's financial position has dictated an adjustment to the Company's funding strategy to reduce the loan portfolio in favour of the servicing portfolio.

Return to profitability

In 2019, IOU reported adjusted net earnings of approximately $1.8 million. Despite the setback caused by the COVID-19 pandemic, the Company is working to bring its loan origination volumes back to pre-pandemic levels. The Loan Purchase Agreement significantly bolsters IOU's funding capabilities, facilitating a clear path to returning to pre-pandemic loan origination volumes and a return to profitability. The Loan Purchase Agreement also puts the Company in an excellent position to capitalize on an eventual economic recovery.

Appointment of new director

IOU is pleased to announce that it intends to appoint Neil Wolfson to its Board of Directors upon closing of the Offering. Mr. Wolfson will also be appointed as a member of the Company's Audit Committee. Mr. Wolfson brings significant industry-specific corporate governance experience to IOU, as he was the longest serving board director for On Deck Capital, Inc., a recently acquired competitor to IOU. He is currently an active investor in, and board member for, numerous fintech companies.

In addition to his corporate governance experience, Mr. Wolfson brings over twenty-five years of corporate leadership and investment management experience to IOU as a former President and Chief Investment Officer at both SF Capital Group, a multi-generational single-family office, and Wilmington Trust Investment Management, a US$40 billion investment manager. Mr. Wolfson was also previously a Partner at KPMG LLP and National Partner in Charge of KPMG's investment consulting practice. Prior thereto, he spent over a decade at Kidder, Peabody & Co.

Other material items

As part of the Offering, an insider of IOU, FinTech Ventures Fund, LLLP ("FinTech"), will subscribe for a total of 2,343,967 common shares for total gross proceeds of approximately $271,201 on a non-brokered basis (the "Insider Subscription"). FinTech currently beneficially owns or controls 11,248,704 common shares, representing approximately 13% of the Company's issued and outstanding common shares. After the completion of the Offering, FinTech will beneficially own or control 13,592,671 common shares, representing approximately 13% of the Company's issued and outstanding common shares.

The issuance of securities to FinTech may be considered a related party transaction within the meaning of Regulation 61-101 – Protection of Minority Security Holders in Special Transactions. However, the Offering is exempt from the valuation and minority approval requirements provided under such regulation since the fair market value of the Insider Subscription is less than 25 per cent of the market capitalization of IOU. The Company's board of directors has approved the Offering. Lucas Timberlake, a member of IOU's board of directors and a Partner at FinTech, declared his interest prior to the approval by the board of directors of IOU and abstained from voting.

In total, the Company will issue 18,009,806 common shares to the Fund and FinTech, for total gross proceeds of $2,083,766.

This news release shall not constitute an offer to sell nor the solicitation of an offer to buy nor shall there be any securities of IOU offered in any jurisdiction in which such offer, solicitation or sale would be unlawful. The common shares will be offered on a private placement basis in Canada and only to "accredited investors", as such term is defined under applicable Canadian securities laws.

THE SECURITIES BEING OFFERED HAVE NOT BEEN, NOR WILL THEY BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.

About IOU Financial Inc.

IOU Financial Inc. provides small businesses throughout the U.S. and Canada access to the capital they need to seize growth opportunities quickly. In a unique approach to lending, IOU Financial's advanced, automated application and approval system accurately assesses applicants' financial realities, with an emphasis on day-to-day cash flow trends. IOU Financial allows these businesses to apply for six, nine, twelve, fifteen and eighteen-month term loans of up to US$500,000 to qualified U.S. applicants ($150,000 in Canada) within a few business days, with affordable charges favorable to cash-flow management. Its speed and transparency make IOU Financial a trusted alternative to banks. As of June 30, 2020, IOU had originated US$836 million in loans to small businesses. To learn more visit: IOUFinancial.com.

Forward Looking Statements

Certain information set forth in this news release may contain forward-looking statements. Forward looking statements are statements, other than statements of historical fact, that address or discuss activities, events or developments that IOU expects or anticipates may occur in the future. These forward looking statements can be identified by the use of words and phrases such as "anticipates", "believes", "estimates", "expects", "may", "plans", "projects", "should", "will", "intends", "seeks", "allows", "creates a path for", "puts in a position to" or the negative thereof or other variations thereon. In particular, this news release contains forward-looking statements including, without limitation, with respect to the closing of the Offering and the Company's future profitability. These forward-looking statements are subject to and involve substantial known and unknown risks and uncertainties, certain of which are beyond the control of IOU, including, but not limited to, the impact of general economic conditions, industry conditions, dependence upon regulatory and shareholder approvals, the execution of definitive documentation and the obtaining of the regulatory approval relating to the Offering, the uncertainty of obtaining additional financing, risks related to the Company's incapacity to execute on its business plan, dependence on third-party service providers, competition, dependence on key personnel, security and confidentiality risk, technological development risk, IT disruptions, maintenance of client relationships, and litigation risk. No assurance can be given that any of the events anticipated by such statements will occur or, if they do occur, what benefit IOU will derive from them. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. IOU does not assume any obligation to update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise. Additional information concerning these and other factors can be found beginning on page 21 under the heading "Risks and Uncertainties" in IOU's management's discussion and analysis dated August 26, 2020, which is available under IOU's profile on SEDAR at www.sedar.com.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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SOURCE IOU Financial Inc.

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