MRU affiliate defaults on $200 million warehouse loan facility

By Caroline Salls

Pittsburgh, Dec. 19 - MRU Holdings, Inc. affiliate Education Empowerment SPV, LLC is in default on a $200 million warehouse loan facility, according to an 8-K filed Friday with the Securities and Exchange Commission.

MRU said Education Empowerment is required to calculate default and delinquency ratios for its various portfolios of student loans under the terms of the warehouse facility.

As a result of calculations made on Dec. 15, the company determined that the prime private student loan pool slightly exceeded the annualized default rate for loans in repayment permitted under the facility.

Specifically, the company said the loan pool was 2.3%, versus a limit of 2%. MRU said the 2.3% annualized default rate was caused by the default of three loans.

Additionally, Education Empowerment's PrePrime student loan pool exceeded the permitted delinquency ratios, with the pool calculated at 19.7% actual versus a limit of 18% for delinquencies greater than 30 days for loans in repayment and 14.85% actual versus a limit of 12.0% for delinquencies greater than 60 days for loans in repayment.

In addition to the default, MRU said the non-compliant default/delinquency levels resulted in some early amortization events.

According to the 8-K, the immediate result of the event of default is that the facility's interest rates will be increased by roughly 3%, unless waived by the lenders, and result in an increase of $5.6 million in additional interest payments on an annual basis, $2.9 million of which is attributable to the prime private student loan pool and the remainder of which is attributable to the PrePrime student loan pool that must be funded from the student loan pools.

In addition, as a result of the default, lender agent DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main has the right to terminate any additional lending, meaning Education Empowerment would not be able to use the remaining $13 million in unused committed available funds to fund additional student loans.

Before this event of default, the company said it had not been permitted to fund new loans until it was able to complete a capital raise and reduce the advance rate for the prime private student loans to 89% from 96.5%.

Because of the event of default, MRU said DZ Bank has the right to accelerate the loans under facility and sell the related collateral.

MRU said it plans to negotiate a default waiver.

Also, MRU said director C. David Bushley resigned from the company's board, effective Dec. 17, and vice president and general counsel Yariv Katz resigned, effective Dec. 31.

As a result of the director's resignation, the company said it notified Nasdaq that MRU was not in compliance with a Nasdaq rule that requires the company to maintain a majority of independent directors and a rule that requires that the company maintain an audit committee of not less than three members.

The company is required to regain compliance with the board and audit committee rules by the earlier of its next annual stockholders meeting or one year from the resignation.

However, if the stockholder meeting is held no later than 180 days after the resignation, MRU will have 180 days to regain compliance.

MRU is a New York-based provider of student loans.

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