ITEM 1A. RISK FACTORS
You should carefully review and consider the risks and uncertainties described below, which are risks and uncertainties that could materially adversely affect our business, prospects, financial condition, cash flows, liquidity and results of operations, our ability to pay dividends to our stockholders and/or our stock price. In addition, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking information, the risk factors set forth below are cautionary statements identifying important factors that could cause our actual results for various financial reporting periods to differ materially from those expressed in any forward-looking statements made by or on our behalf.
Risks Related to the DHCP Restructuring
We are subject to risks and uncertainties associated with the DHCP Chapter 11 Cases filed with the Bankruptcy Court on February 11, 2019.
Our operations, our ability to develop and execute our business plan and our continuation as a going concern are subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate the DHCP Plan or another plan of reorganization with respect to the Chapter 11 proceedings; the high costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our originations and servicing operations in the ordinary course; our ability to maintain our relationships with our lenders, counterparties, employees and other third parties; our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to seek and obtain court approval to convert the Chapter 11 proceedings to Chapter 7 proceedings; and the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 proceedings that may be inconsistent with our operational and strategic plans.
Delays in our Chapter 11 proceedings increase the risks of our being unable to emerge from bankruptcy and may increase our costs associated with the bankruptcy process. These risks and uncertainties could affect our business and operations in various ways. For example, negative events associated with our Chapter 11 proceedings could adversely affect our relationships with our lenders, counterparties, employees and other third parties, which in turn could adversely affect our operations and financial condition. Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with our Chapter 11 proceedings, we cannot accurately predict or quantify the ultimate impact of events that occur during our Chapter 11 proceedings that may be inconsistent with our plans.
The DHCP RSA is subject to significant conditions and milestones that may be beyond our control and may be difficult for us to satisfy. If the DHCP RSA is terminated, our ability to confirm and consummate the DHCP Plan, and our ability to consummate any restructuring of our debt, could be materially and adversely affected.
The DHCP RSA sets forth certain conditions we must satisfy, including the timely satisfaction of conditions and milestones to consummate a Chapter 11 plan. Our ability to timely satisfy such conditions and milestones is subject to risks and uncertainties that, in certain instances, are beyond our control. The DHCP RSA gives the Requisite Term Lenders the ability to terminate the DHCP RSA under certain circumstances, including the failure of certain conditions or milestones being satisfied. Should the DHCP RSA be terminated, all obligations of the parties to the DHCP RSA will terminate (except as expressly provided in the DHCP RSA). A termination of the DHCP RSA may result in the loss of support for the DHCP Plan, which could adversely affect our ability to confirm and consummate the DHCP Plan and our ability to emerge from Chapter 11. In addition, termination of the DHCP RSA is an “Event of Default” under our post-petition debtor-in-possession financing. If the DHCP Plan is not consummated, there can be no assurance that any new plan would be as favorable to holders of claims or interests as the DHCP Plan, and our Chapter 11 proceedings could become protracted, which could significantly and detrimentally impact our relationships with GSEs, regulators, government agencies, vendors, suppliers, employees and major customers.
There can be no assurance that the solicited class of claims will vote to accept the DHCP Plan.
There can be no assurance that the DHCP Plan will receive the necessary level of support to be implemented or will be approved by the Bankruptcy Court. The success of the DHCP Restructuring will depend on the willingness of certain existing creditors to agree to the exchange or modification of their claims and approval by the Bankruptcy Court, and there can be no guarantee of success with respect to those matters. The Term Loan Claims are impaired under the DHCP Plan and entitled to vote to accept or reject the DHCP Plan. Although certain Term Lenders are bound to vote for the DHCP Plan pursuant to the DHCP RSA, if the DHCP RSA is terminated they will not be so bound and any vote or consent given by such Term Lenders prior to such termination will be deemed null and void ab initio.