Conn’s, Inc. Provides Update on Securitization Transaction and Announces Authorization of Securities Repurchases and Termination of Stockholders’ Rights Plan

THE WOODLANDS, Texas–(BUSINESS WIRE)–Conn’s, Inc. (NASDAQ:CONN), disclosed earlier today that it has
entered into an agreement to securitize $1.4 billion of retail
installment contract receivables, with closing expected on or about
September 10, 2015. This transaction represents the successful outcome
of the Company’s previously announced exploration of strategic
alternatives to enhance value for stockholders. In addition, and as part
of Conn’s ongoing commitment to returning value to stockholders, the
Company’s Board of Directors has authorized the repurchase of up to
$75.0 million of its outstanding common stock or senior notes. Conn’s
will also terminate the Company’s stockholder rights plan, which was put
in place upon the initiation of the strategic review in October 2014,
effective upon the closing of the securitization.

Update on Sale of Retail Installment Contract Receivables

Theodore M. Wright, Conn’s Executive Chairman, commented, “We are
pleased to have entered into this transaction. The advance rate we
received is a compelling indicator of the value of our loan portfolio.
This transaction represents a significant milestone in diversifying the
Company’s capital structure to improve access to capital and is a
critical step in our progression to an asset-light business model.”

The securitization transaction which was disclosed today did not include
sale of the residual equity in the securitization portfolio. Conn’s is
engaged in a process to sell the residual equity of the securitized
portfolio. The Company may elect to retain all or a portion of the
residual equity in the securitized portfolio if that is determined to be
in the best interest of its stockholders.

In October 2014, the Company announced that its Board of Directors
authorized management to explore a full range of strategic alternatives
to enhance value for stockholders. In March 2015, it announced that the
Board authorized management to actively pursue the sale of all or a
portion of the loan portfolio, or other refinancing of the loan
portfolio. This transaction represents the completion of the initial
sale process and Conn’s intends to execute periodic securitizations of
future originated loans including the sale of any remaining residual
equity. This approach creates a diversified capital structure that
provides the Company with access to multiple debt markets by maintaining
its existing asset-based revolving credit facility and its outstanding
senior notes.

Under the terms of this transaction, the loan principal and interest
payment cash flows will go first to the holders of the securitization
bonds, and then to the residual equity holders. Conn’s will retain the
servicing of the securitized loan portfolio and will collect a monthly
fee of 4.75% (annualized) based on the outstanding balance of the
securitized receivables. For the month ended August 31, 2015, the
resulting servicing revenue to Conn’s is expected to be approximately
$5.7 million. This amount will decline over time as the loan balances
are paid off. In addition, Conn’s will retain all credit insurance
income together with certain recoveries related to credit insurance and
repair service agreements on charged-off accounts.

Conn’s expects that the securitized customer receivables will be
derecognized from its balance sheet if it executes a sale of all or a
significant portion of the residual equity, subject to meeting certain
accounting requirements. If a significant portion of the residual equity
is not sold, the debt and securitized portfolio will remain on the
Company’s balance sheet. The receivables and the debt will be held in a
legally isolated, bankruptcy remote entity. As a result, the debt is
non-recourse to Conn’s and the financial risk to the Company is limited
to the net book value of the residual equity retained (which is the net
book value of the receivables, plus the cash reserve, minus the
securitized debt).

The Company anticipates that the financial terms (advance rates and
interest rates) of future securitization transactions will improve based
on the following factors:

  • Future pools are expected to be recently originated receivables, which
    have traditionally had lower net losses as a percentage of the pool,
    than a seasoned pool;
  • There are higher amounts of anticipated future interest earnings to be
    realized from accounts which will ultimately be repaid;
  • Repeat issuers typically receive improved financial terms after their
    first transaction in the securitization market; and
  • The Company anticipates obtaining ratings for its future transactions.

When the securitization transaction closes, the significant proceeds
made available to Conn’s will enable the Company to pay down its
asset-based credit line and have approximately $380.0 million in cash on
the balance sheet. The Company intends to initially use cash proceeds
from the transaction to pay off the outstanding balance on the Company’s
asset-based revolving credit facility. Considering cash on hand, the
immediate impact of this transaction will be leverage neutral.

Authorization of Securities Repurchases

The Board of Directors authorized an aggregate repurchase program of up
to $75.0 million (the maximum amount permitted under the Company’s
credit facility and senior note indenture) consisting of (i) shares of
the Company’s outstanding common stock; (ii) 7.250% Senior Notes Due
2022; or (iii) a combination thereof. Common stock and senior note
repurchases may be made from time to time on the open market or through
privately negotiated transactions, at management’s discretion, based on
market and business conditions. The Company has no obligation to
repurchase shares or senior notes under the authorization, and the
timing and value of the shares and notes that are repurchased will be at
the discretion of management and will depend on a number of factors,
including the price of the Company’s common stock and the senior notes.
The Company may suspend or discontinue repurchases at any time without
notice.

Mr. Wright added, “We will continue to invest in our business and
believe the repurchase programs underscore our confidence in our
long-term growth prospects, consistent with our overall commitment to
generate continued profitable growth and enhanced long-term shareholder
value.”

The Company is considering alternatives for further use of the net
proceeds from the securitization transaction, including funding the
growth of the business and potentially providing additional returns of
capital to stockholders or additional repurchases of senior notes.
Conn’s has entered into an amendment of its credit facility with its
lenders to permit the securitization transaction and to allow for the
repurchase program. Additional repurchases of Conn’s common stock or
senior notes above the $75.0 million would require further amendment to
the Company’s credit agreement and indenture governing its senior notes.

Termination of Stockholders’ Rights Plan

In connection with the completion of the Company’s strategic review, the
Board of Directors has approved the termination of the Company’s
stockholders’ rights plan, effective at the close of the securitization
transaction, currently anticipated to take place on or about September
10, 2015. The Company adopted its stockholders’ rights plan in October
2014 to enable management and the Board to explore strategic
alternatives while reducing the likelihood that any person or group
would gain control of Conn’s through open market accumulation or
otherwise without appropriately compensating all of the Company’s
stockholders.

None of the securities described in this press release have been
registered under the Securities Act of 1933, as amended, or applicable
state securities laws, and may not be offered or sold in the United
States except pursuant to an exemption from the registration
requirements of the Securities Act and applicable state securities laws.
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy these securities, and there shall not be
any offer or sale of these securities in any state in which such offer,
solicitation or sale would be unlawful.

About Conn’s, Inc.

Conn’s is a specialty retailer currently operating approximately 95
retail locations in Arizona, Colorado, Georgia, Louisiana, Mississippi,
Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee
and Texas. The Company’s primary product categories include:

  • Furniture and mattress, including furniture and related accessories
    for the living room, dining room and bedroom, as well as both
    traditional and specialty mattresses;
  • Home appliance, including refrigerators, freezers, washers, dryers,
    dishwashers and ranges;
  • Consumer electronics, including LCD, LED, 3-D and Ultra HD
    televisions, Blu-ray players, home theater and portable audio
    equipment; and
  • Home office, including computers, printers and accessories.

Additionally, Conn’s offers a variety of products on a seasonal basis.
Unlike many of its competitors, Conn’s provides flexible in-house credit
options for its customers in addition to third-party financing programs
and third-party rent-to-own payment plans.

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. Such forward-looking statements include
information concerning the Company’s future financial performance,
business strategy, plans, goals and objectives. Statements containing
the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project,” “should,” or the negative of such
terms or other similar expressions are generally forward-looking in
nature and not historical facts. Although we believe that the
expectations, opinions, projections, and comments reflected in these
forward-looking statements are reasonable, we can give no assurance that
such statements will prove to be correct, and actual results may differ
materially. A wide variety of potential risks, uncertainties, and other
factors could materially affect the Company’s ability to achieve the
results either expressed or implied by the Company’s forward-looking
statements including, but not limited to: general economic conditions
impacting the Company’s customers or potential customers; the Company’s
ability to close the securitization of its loan portfolio or to sell the
residual equity on favorable terms; the Company’s ability to execute
periodic securitizations of future originated loans including the sale
of any residual equity on favorable terms; the Company’s ability to
continue existing customer financing programs or to offer new customer
financing programs; changes in the delinquency status of the Company’s
credit portfolio; unfavorable developments in ongoing litigation;
increased regulatory oversight; higher than anticipated net charge-offs
in the credit portfolio; the success of the Company’s planned opening of
new stores; technological and market developments and sales trends for
the Company’s major product offerings; the Company’s ability to protect
against cyber-attacks or data security breaches and to protect the
integrity and security of individually identifiable data of the
Company’s customers and employees; the Company’s ability to fund its
operations, capital expenditures, debt repayment and expansion from cash
flows from operations, borrowings from the Company’s revolving credit
facility, and proceeds from accessing debt or equity markets; and the
other risks detailed in the Company’s most recent SEC reports, including
but not limited to, the Company’s Annual Report on Form 10-K and the
Company’s Quarterly Reports on Form 10-Q and Current Reports on Form
8-K. If one or more of these or other risks or uncertainties materialize
(or the consequences of such a development changes), or should our
underlying assumptions prove incorrect, actual outcomes may vary
materially from those reflected in our forward-looking statements. You
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. We
disclaim any intention or obligation to update publicly or revise such
statements, whether as a result of new information, future events or
otherwise. All forward-looking statements attributable to us, or to
persons acting on our behalf, are expressly qualified in their entirety
by these cautionary statements.

CONN-G

Contacts

S.M. Berger & Company
Andrew Berger, (216) 464-6400