Cv Holdings Stock Price, News & Analysis

CV Holdings, Inc. (OTC Pink Limited: CVHL) is a finance company whose primary operating business is conducted through its subsidiary Centra Funding, LLC ("Centra"). According to the company’s public updates, Centra functions as the principal business of CV Holdings and is focused on commercial equipment finance contracts. CV Holdings is classified in the "Other Financial Vehicles" industry within the broader finance and insurance sector.

Business focus and operating model

CV Holdings’ consolidated results and liquidity disclosures state that its main sources of cash flow consist of interest and other income earned on equipment finance contracts held by Centra. Over time, the company has wound down or liquidated other business lines, including venture loan and lease activities, non-performing residential mortgage operations and most commercial real estate lending, and has generally allocated capital from asset sales and business winddowns to Centra. As a result, Centra’s equipment finance activities are described as the company’s core business.

Centra’s business is described as being focused on commercial "small ticket" equipment leases or finance contracts. Originations utilize a vendor-based model, employing direct vendor- and broker-focused sales staff. Company disclosures note that Centra’s business is nationwide and spans multiple industries, with typical leases or finance contracts subject to size limits specified in those disclosures. CV Holdings reports its consolidated income from operations, net loss, interest expense on lines of credit and securitized debt, and credit loss expenses largely in the context of Centra’s performance and funding costs.

Centra Funding, LLC and equipment finance activities

CV Holdings reports that it acquired Centra Leasing, Inc. through a newly formed subsidiary, Centra Funding, LLC, on November 28, 2016. Since that acquisition, Centra has been developed as the company’s equipment finance business. Public updates describe Centra as a nationwide independent equipment finance company that finances businesses in many industry sectors through commercial equipment leases or finance contracts.

Centra’s originations are described as using a vendor-based model, with direct vendor- and broker-focused sales staff. The company has discussed Centra’s portfolio growth, net contracts receivable, and the performance of loans originated in different periods. It has also highlighted changes in Centra’s cost of funds, securitized debt, and lines of credit, as well as the impact of credit loss provisions and allowances on consolidated results. In recent updates, CV Holdings has indicated that Centra expanded and simplified its range of credit offerings and that loans originated in certain later periods appeared, in management’s view, to perform differently from those originated in earlier periods.

Historical diversification and winddown of other businesses

In addition to Centra, CV Holdings historically operated other finance-related businesses. Public disclosures refer to a commercial real estate bridge lending business conducted through CV Capital Funding, LLC ("CVCF"), a venture loan and lease business under VenSource Holdings, LLC ("VenSource"), and a non-performing residential mortgage business referred to as LongVue. Over several reporting periods, the company has described substantial progress in reducing the size of its commercial real estate loan portfolio, selling remaining directly held loans, and winding down the VenSource and LongVue portfolios.

CV Holdings has also reported participation in a commercial real estate loan joint venture through CVCF. In later updates, the company noted that it had written down its remaining investment in that joint venture and completed the liquidation of its other businesses, emphasizing that capital from these winddowns has generally been allocated to Centra.

Capital structure and Colborne Preferred Stock

A significant element of CV Holdings’ capital structure is the preferred equity held by Colborne Brighton, LLC ("Colborne"). Company updates state that since its first investment in 2015, Colborne has funded a total of $50,000,000 in capital, consisting of a $20,000,000 investment in Senior Non-Convertible Preferred Stock and a $30,000,000 investment in Senior Perpetual Preferred Stock, collectively referred to as the "Colborne Preferred Stock." The company has disclosed that the Senior Perpetual Preferred Stock was converted automatically to Senior Non-Convertible Preferred Stock pursuant to its terms.

CV Holdings has reported that it was required to begin redeeming the outstanding shares of Senior Non-Convertible Preferred Stock in equal quarterly installments over a two-year period beginning in June 2020, but informed Colborne that it did not have sufficient legally available funds to complete these redemptions. In response, Colborne agreed to toll the mandatory redemption for an initial period and then to defer the obligation in a series of six-month increments, with the deferral described as being at Colborne’s sole discretion.

The company’s disclosures emphasize that it remains unable to redeem the Senior Non-Convertible Preferred Stock as required and may never be able to do so. They further state that if CV Holdings is unsuccessful in negotiating continued forbearance or a restructuring of these obligations, Colborne may require that all outstanding shares of Colborne Preferred Stock be redeemed or otherwise pursue remedies. The company notes that if Colborne were to pursue remedies, CV Holdings could be required to take drastic measures, including the liquidation and winding down of its operations, and that it is unclear how much, if any, value would be allocated to the company’s common stock in such a scenario. The company characterizes an investment in its common stock as highly risky and speculative.

Ownership, dilution and control considerations

CV Holdings reports that Colborne has received common shares related to the Colborne Preferred Stock and has also made open-market purchases of common stock that were approved by the company. The company’s updates provide figures for Colborne’s ownership of issued and outstanding common shares and discuss Colborne’s entitlement to additional common shares in connection with the remaining preferred equity. On a pro forma basis, assuming the full amount of common stock associated with the Colborne Preferred Stock is issued, the company has presented scenarios under which Colborne would own a majority of the company’s fully diluted common stock.

The company notes that the continued growth of the amount owed on the Colborne Preferred Stock, which is senior to the common shares, has created a dilutive effect for common stockholders. It also states that additional dilution is likely if Colborne ceases to forbear and this leads to a restructuring.

Tax attributes and ownership restrictions

CV Holdings discloses that its primary deferred tax asset consists of net operating losses ("NOLs") for federal and state tax purposes, generated over earlier periods. To protect these tax benefits, the company’s Articles of Incorporation and Bylaws (collectively, the "Charter") impose restrictions on beneficial and constructive ownership and transfer of the company’s common stock.

Among other provisions, the Charter generally restricts any person from beneficially or constructively owning more than 4.9 percent of the outstanding common stock (by value or number of shares, whichever is more restrictive), unless that person is designated as an excepted holder with a different limit approved by the board of directors. The company describes procedures requiring notice to the company if a person’s ownership would exceed the applicable limit and notes that attempted transfers in violation of these restrictions may be void. It further explains that shares acquired in violation of the Charter’s limits may be automatically transferred to a trust for the benefit of charitable beneficiaries, and that the company may take additional actions, such as refusing to give effect to transfers or instituting proceedings to enjoin them.

Risk profile and trading market

CV Holdings’ common stock is quoted on the OTC Markets under the ticker symbol CVHL. In its public updates, the company repeatedly states that it has incurred net losses and that interest expense on preferred equity, credit loss expenses, and interest on lines of credit and securitized debt are significant components of those losses. The company explicitly cautions that, given its inability to redeem the Senior Non-Convertible Preferred Stock and the seniority of that preferred equity, an investment in its common stock is highly risky and speculative.

The company’s disclosures also highlight that, if Colborne were to pursue remedies related to the preferred stock, CV Holdings could be required to liquidate and wind down its operations, and the allocation of any residual value to common stockholders in such a case is uncertain. These statements form a central part of the company’s description of its risk profile.

Relationship to Centra Funding and sector context

Centra Funding, LLC is described as a subsidiary of CV Holdings and as its principal business. Public information about Centra notes that it is a nationwide equipment finance company based in Texas with offices across the United States, and that it focuses on providing finance solutions to small- and medium-sized businesses seeking to acquire equipment. Centra’s activities, including its vendor-based origination model and its role as a direct lender in equipment finance, are central to CV Holdings’ consolidated financial reporting.

Within the finance and insurance sector, CV Holdings’ focus on equipment finance contracts through Centra and its historical involvement in commercial real estate bridge lending, venture leasing and non-performing residential mortgage investments place it among specialty finance companies. However, the company’s own descriptions emphasize that its other businesses have been substantially liquidated and that its current focus is on growing Centra.