HCP can vary significantly (from a few days to over a year based upon the type
and size of loans in the pool). Net cash for the year ended December 31, 1995
was positively affected by the collection of accounts receivable, accrued
revenue on contracts in progress and asset management fees.
Net cash provided by (used in) investing activities for the six months
ended June 30, 1997, and the years ended December 31, 1996, 1995 and 1994 was
($21,000), $(72,000), $118,000 and $379,000, respectively. The net cash was
favorably impacted in the years ended December 31, 1995 and 1994 from sales and
transfers of mortgage servicing rights. Sales and transfers of mortgage
servicing rights were generally initiated at the request of the master mortgage
loan servicer and not by HCMC. Net cash for the six months ended June 30, 1997
and the year ended December 31, 1996 was negatively impacted primarily by the
purchase of fixed assets.
During the six months ended June 30, 1997, and the years ended December 31,
1996, 1995 and 1994, net cash provided by (used in) financing activities was
$1,027,000, ($396,000), ($176,000) and $450,000, respectively. The factors
affecting the repayment of the line of credit and proceeds from the line of
credit are dependent on cash flows generated from operating activities (dictated
mainly by the collection of receivables), and to a lesser extent, cash flows
from investing activities, subject to the limits of the bank line of credit. As
a result of such factors, borrowings on the bank line of credit can and do
fluctuate substantially during the year. During 1996 and during the first six
months of 1997, the Company also used $66,000 and $42,599, respectively, as a
partial payment on the redemption of Class A Common Stock.
The Company has had preliminary discussions with third party lenders to
provide up to $500 million of committed or non-committed reverse repurchase
facilities to finance the Company's businesses and expects to finalize such
negotiations shortly after the closing of the Offering. However, there can be no
assurance that the Company will be able to obtain such facilities. The Company
expects to have the ability to borrow against the collateral as a percentage of
the original principal balance. The borrowing rates quoted vary from 50 basis
points to 600 basis points over comparable maturity LIBOR depending on the type
of collateral provided by the Company. The margins on the reverse repurchase
agreements are all based on the type of mortgage collateral used and generally
range from 85% to 97% of the fair market value of the collateral.
The only significant long-term liability that existed at June 30, 1997 was
a $2,115,000 (note payable) borrowing pursuant to a $2,000,000 Line of Credit
Facility Agreement (the "Credit Agreement") with Fleet Bank. The maximum
borrowing capacity under the terms of the Credit Agreement is reduced every six
(6) months, beginning June 30, 1997, by $150,000. This borrowing, which bears
interest at the prime rate plus 1 1/2%, is payable in full at the expiration
date, December 31, 1999, is collateralized by all of the assets of HCP and is
guaranteed by John A. Burchett and all of the wholly-owned subsidiaries of HCP.
The Credit Agreement requires HCP to meet three covenants on an annual basis at
December 31: (i) a maximum debt to net worth ratio of 3.0, (ii) a minimum debt
service coverage ratio of 1.25 and (iii) HCP is limited to advancing no more
than $100,000 to its affiliates. In June 1997, HCP entered in a Modification
Agreement with Fleet Bank to temporarily increase the borrowing capacity on the
Credit Agreement from $2,000,000 to $2,300,000. The Credit Agreement reverts to
the original $1,850,000 borrowing capacity at September 1, 1997.
The Company has no long-term material capital expenditures or other
significant liquidity needs other than the required reductions pursuant to the
The Company anticipates utilizing substantially all of the net proceeds of
the Offering to provide funding for the Investment Portfolio and Due Diligence
Operations, if necessary.
Management believes that cash flow from operations and the aforementioned
potential financing arrangements will be sufficient to meet the current
liquidity needs of the businesses.