Dolla Financial Services Limited is seeking to raise $1-$1.5 billion in the coming days through a secured bond to fund its growing loan portfolio.

The four-year bond will initially seek $1 billion and can be upsized by an additional $500 million if demand is greater than expected. The security package of this bond is a charge over all the new assets, property and undertaking created using the proceeds from this bond raise. While this bond is expected to be listed on the Jamaica Stock Exchange’s (JSE) Bond Market, the offer is not open to the general retail investor.

Under the terms of the bond, Dolla has defined two categories of investors, accredited and non-accredited. The accredited investors are defined as those with a minimum net worth of $50 million or have earned at least $10 million per year for the last two years. They will be able to purchase at least $1 million worth of bonds and can buy additional amounts in increments of $100,000. For the purpose of the bonds, the non-accredited investor category encompasses everyone else, and these investors can subscribe for a higher amount of the bond, $10 million, and buy more in increments of $100,000.

The bond will pay interest quarterly at the end of March, June, September and December with the interest rate fixed at 12 per cent over four years. The first interest payment would be on December 29 with principal repaid at maturity of the bond in September 2028.

Although 12 per cent might seem like a steep interest rate when the Bank of Jamaica (BOJ) just began rate cuts, an e-mail to Mayberry Investments clients noted that Dolla’s average lending rate is 40 per cent per annum which translated to a 28 per cent spread. Also, Dolla cannot do an early redemption on the bond within the first 12 months and will pay a penalty on the principal amount if it’s redeemed before the third anniversary of the bond or before September 2027.

Dolla’s financial covenants will include a minimum interest coverage ratio or EBITDA (earnings before interest, tax, depreciation and amortisation) to interest expense not being less than 1.5 times. There is also a maximum leverage ratio or net debt to total EBITDA of 4.5 times and a maximum debt to equity ratio of 2.5 times.

Dolla had announced at its May annual general meeting (AGM) that it was seeking up to $2 billion in new financing this year to fuel its continued growth. The methodology of that fund-raise wasn’t disclosed at the time on whether it would be all debt or a mix of debt and equity.

Nearly three months later, it was announced that its wholly owned subsidiary called Ultra Financier Limited was considering an initial public offering (IPO) and that it would be shifting its image from being an asset-based lender for the rich to a private credit lender. Ultra also adjusted its minimum loan disbursement amount from $500,000 to $5 million and had removed the loan ceiling cap of $150 million. This meant that loans below the new threshold would go towards Dolla, whose loan book is largely secured versus Ultra, whose loans are all secured.

While Ultra has the option of going public on either the Main or Junior Market, the Junior Market carries a 10-year tax incentive which would be beneficial to the company whose tax bill will likely rocket as it continues to grow its loan book, which has grown to $1 billion in its near two years of operation. However, the Junior Market share capital limit is currently capped at $500 million and the new $750 million threshold has yet to be signed into law by Finance Minister Dr Nigel Clarke who heads to the International Monetary Fund (IMF) as its deputy managing director on October 31. Raising new equity capital at the $500 million threshold translates to a $2.50 billion valuation versus the $3.38 billion valuation with the new threshold. Ultra’s share capital is currently at $1 million.

Dolla’s consolidated interest income for the six months rose 26 per cent to $743.77 million with its total operating revenue climbing 22 per cent to $612.94 million. Despite a 15 per cent rise in operating expenses to $309.49 million and a slightly higher tax bill, Dolla’s net profit 25 per cent to $284.05 million.

Dolla’s consolidated asset base also grew by a tenth to $3.28 billion with its net loan portfolio to $2.99 billion. Total liabilities increased six per cent to $2.12 billion with shareholder’s equity rose 18 per cent to $1.16 billion which was also influenced by a $100 million dividend on April 5.

Dolla previously issued a $1.17 billion in two tranches in October 2022 which were both listed on the JSE Private Market which is restricted to accredited investors. That bond had base interest rates of 10.50-11.75 per cent and was secured by a hypothecation over 100 per cent of Dolla’s loan portfolio to cover the principal of the bond, a debenture over the present and future fixed floating assets of Dolla and a guarantee by Dequity Capital Management Limited and FirstRock Global Holdings Limited trading as Premier Private Equity (formerly FirstRock Private Equity Limited). Tranche 1 of this bond is worth $572.12 million and matures in October 2025.

If Dolla’s bond does list on the Jamaican dollar JSE Bond Market, it would be the only non-Mayberry Group affiliated bond to join the other five listed securities.

Dolla’s stock price closed at $3.17 on Wednesday, which left it up 17 per cent year-to-date with a market capitalisation of $7.92 billion. Dolla had a 100 million share trade at $2.37 on July 19 which translates to four per cent of the company’s shares trading that day. Only the top five shareholders own that many shares and there has been no subsequent disclosure on the transaction.

Xesus Johnston, CEO of Supreme Ventures Games Limited, and Walter Scott, KC, former chairman of McKayla Financial Services Limited, appointments to Dolla’s board of directors was recently confirmed by the BOJ who approved them as fit and proper. This increases Dolla’s board size to eight with Alison Taffe being the latest director to join the company which is chaired by Ryan Reid.