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DITECH HOLDING CORP filed this Form 10-K on 04/16/2019
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requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
exposing us to the risk of increased interest rates as certain of our indebtedness is unhedged and at a variable rate of interest;
limiting our ability to make strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to pursue strategic and operational goals;
exposing us to the risk of not being able to refinance our indebtedness on terms that are commercially acceptable to us, or at all;
limiting our ability to obtain additional financing for working capital, capital expenditures, product or service line development, debt service requirements, acquisitions and general corporate or other purposes; and
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors with lower debt levels.
We may not be able to generate sufficient cash to meet all of our obligations or service all of our indebtedness and may not be able to extend or refinance our indebtedness. If we are unable to do so, we may be forced to take other actions to satisfy our obligations, which may not be successful.
Our ability to make required payments on our debt and other obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control, including the risk factors set forth herein. We have recorded significant losses in the year ended December 31, 2017 and for the period from February 10, 2018 through December 31, 2018. We cannot assure you we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness or to meet our other obligations such as our obligations to repurchase HECM loans.
In addition, we conduct a substantial part of our operations through our subsidiaries. Accordingly, our ability to repay our indebtedness depends on the generation of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness.
Much of our debt is short-term so we regularly seek to extend or refinance our existing indebtedness. Our ability to extend, renew or refinance our indebtedness on favorable terms, or at all, is uncertain and may be affected by global economic and financial conditions and other factors outside our control. In addition, our ability to incur secured indebtedness (which would generally enable us to achieve better pricing than the incurrence of unsecured indebtedness) depends in part on the value of our assets, which depends, in turn, on the strength of our cash flows and results of operations, and on economic and market conditions and other factors. From time to time in the recent past, we have obtained waivers or amendments of covenants in our pre-WIMC Effective Date debt agreements. In addition, in May 2018, August 2018, and November 2018, we obtained amendments to certain facilities and the 2018 Credit Agreement to, among other things, extend the deadline for providing certain financial statements and increase operational flexibility with respect to certain financial covenants. On February 14, 2019, certain facilities were repaid and refinanced or otherwise replaced with the DHCP DIP Warehouse Facilities. See the Liquidity and Capital Resources section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information. If we are unable to obtain needed waivers or amendments in the future, we could experience material adverse consequences.
If our cash flows and capital resources are insufficient to fund our debt service and other obligations or we are unable to extend or refinance our indebtedness, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
Our debt agreements contain covenants that restrict our operations and may inhibit flexibility in operating our business and increasing revenues.
Our 2018 Credit Agreement and Second Lien Notes Indenture entered into in February 2018 contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and certain of our subsidiaries' ability to, among other things:
incur additional indebtedness or issue certain preferred shares;
pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;
make certain investments;