SecProbe.io

CORRESP
1
filename1.htm

Document

VIA EDGAR

                    June 20, 2023

U.S. Securities and Exchange Commission

Division of Corporation Finance

Office of Finance

Attention: Madeleine Mateo and Tonya Aldave

100 F Street, N.E.

Washington, D.C. 20549

Re:    NewtekOne, Inc.

    Amendment No. 3 to Registration Statement on Form S-3

    Filed: April 21, 2023

    File No. 333-269452

Ladies and Gentlemen:

On behalf of NewtekOne, Inc. (the “Company”), set forth below are the Company’s responses to the written comments provided by the Staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) regarding Amendment No. 3 to the Company’s Registration Statement on Form S-3, filed April 21, 2023 (“Amendment No. 3”). The Staff’s comments are set forth below in bold italics and are followed by the Company’s responses.

1.The staff remains unable to determine the specific basis, if any, for your position that you are now excluded from the definition of an “investment company” under the Investment Company Act of 1940 (the “Act”). We note that as recently as November 8, 2022, in your Form 10-Q filed for the quarter ended September 30, 2022, you were described in your public reports as an “internally managed non-diversified closed-end management investment company.” We also note that, in your Form N-54C, you represented that you “inten[d] to conduct [your] activities in such a way that [you] will be excepted from the definition of an ‘investment company’ provided under the Act.” Please specifically describe when and why you stopped being an “internally managed non-diversified closed-end management investment company” and more fully describe the nature of the change in your business that caused you to no longer be an investment company and/or be able to rely on an exception from the definition of an investment company. To the extent that the change of your business was the acquisition of Newtek Bank, please specifically explain why this acquisition had this effect, given (i) your response appears to indicate that Newtek Bank represents only approximately 17.46% of your total assets on an unconsolidated basis and (ii) while you have indicated that “a critical element of your strategic plan is the transitioning to Newtek Bank of the SBA7(A) lending activities…”, it does not appear that you have yet effected such a transition. Alternatively, to the extent you believe that your “plans to operate as a financial holding company” caused you to no longer be an investment company, please explain why this affects your legal analysis under section 3 of the Act.

Response: The Company respectfully advises the Staff that the specific bases for the Company’s position that it is not an investment company under the Act are that the Company is neither holding itself out as an investment company under Section 3(a)(1)(A), nor does the value of its investment securities exceed forty percent of the Company’s total assets on an unconsolidated basis. As described in further detail below, over the past nearly two years, the Company has taken numerous steps to transition – both from operational and regulatory standpoints – to a financial holding company, and has frequently and consistently stated its intention to do so in its periodic filings and public statements. As a result, the Company does not believe that it is “holding itself out” as anything other than a financial holding company. Additionally, as explained previously and in further detail below, the subsidiary through which the Company conducted its SBA 7(a) lending activities – Newtek Small Business Finance (“NSBF”) – is not an investment company, and its securities are, therefore, not “investment securities” for purposes of Section 3(a)(1)(C). Specifically, NSBF is not an investment company because: (1) its wholly owned securitization trusts are exempt from the definition of “investment company” under  Rule 3a-7, and accordingly the equity interests in the trusts owned by NSBF are not investment securities; (2) the non-guaranteed SBA 7(a) loans NSBF holds directly represent less than 40% of NSBF’s total assets (after deduction of cash, cash items, and guaranteed SBA 7(a) loans);  and (3) the sum total of the value of the equity in NSBF’s securitization trusts and NSBF’s other assets that are not securities exceeds sixty percent of the value of NSBF’s total assets (after deduction of cash items and guaranteed SBA 7(a) loans).

1

As of March 31, 2023, NSBF’s value represented approximately 66.5%1 of the Company’s total assets on an unconsolidated basis. As described in further detail below, NSBF’s wholly-owned securitization trusts are exempt from the definition of investment company under Rule 3a-7. Additionally, Newtek Bank’s assets represented approximately 16.0%2 of the Company’s total assets on an unconsolidated basis as of March 31, 2023. As described in prior correspondence, Newtek Bank is exempted from the definition of investment company by Section 3(c)(3). The Company’s remaining assets, which consist primarily of wholly owned operating subsidiaries that provide insurance services, webhosting, and payment processing, represent approximately 17.5% of the value of the Company’s total assets on an unconsolidated basis.3  Neither NSBF, Newtek Bank, nor the Company’s other operating subsidiaries is an investment company and the Company’s interests in such entities are not investment securities.

The Company has attached Appendix A, a description of the Company’s history, and Appendix B, an organizational chart that includes values for each of the Company’s subsidiaries (on an unconsolidated basis), for the Staff’s reference.

The Staff has asked that we explain the relevance of Newtek Bank’s acquisition to our analysis under Section 3(a). The Company believes that its acquisition of Newtek Bank is important to its analysis under Section 3(a) because such acquisition, including the frequent and consistent statement from the Company about its intent to convert to a financial holding company, and the numerous shareholder and regulatory approvals preceding the acquisition, clearly evidence the Company’s intention to hold itself out as a financial holding company rather than an investment company.  The Company believes that this intention is supported by the fact that, as discussed above, the Company has transitioned substantially all of its lending activities to Newtek Bank. Currently, NSBF has one employee and NSBF’s loan portfolio – the loans in its securitization trusts – is being serviced by the Newtek Bank’s subsidiary, Small Business Lending (“SBL”).  See Notes to Consolidated Financial Statements – Note 1 – Description of Business and Basis of Presentation in the Company’s Quarterly Report on Form 10-Q (filed May 11, 2023) (“In connection with the April 13, 2023 wind-down agreement between NSBF and the SBA, NSBF has begun to wind-down its operations and NSBF will continue to own the SBA 7(a) loans in its SBA loan portfolio to maturity, liquidation, charge-off, or (subject to SBA’s prior written approval), sale or transfer. NSBF will continue to service and liquidate its SBA loan portfolio, pursuant to an SBA approved lender service provider agreement with SBL. (See NOTE 20—SUBSEQUENT EVENTS: NSBF Wind-down Agreement)”).

2.Your Form S-3/A indicates that loans are transferred to special purpose vehicles in order to effect your securitizations, and goes on to note circumstances under which securitizations were accomplished by trusts, including by, for example, Newtek Small Business Loan Trust, Series 2022-1. Accordingly, it would appear that, to the extent that issuers are engaged in securitization activities described in rule 3a-7 under the Act, it would be these securitization trusts. Please clarify whether, in discussing NSBF’s securitization activities, including for example, the issuance of securities as described in rule 3a-7 and the appointment of trustees, you are actually describing the activities of specific securitization trusts. For example, with respect to the September 2022 securitization, it appears that Newtek Small Business Loan Trust, Series 2022-1 was the issuer of securitization notes. Please revise your conclusion that NSBF may rely on rule 3a-7 as necessary. Alternatively, to the extent you believe NSBF can rely on rule 3a-7 notwithstanding that it is not, for example, itself an issuer of securities described in rule 3a-7(a)(1), please explain. In addition, please also clarify the relation of the securitization trusts to NSBF, including whether these trusts are subsidiaries of NSBF.

1 At March 31, 2023, NSBF’s value was approximately $360.91 million, and the Company held total assets of approximately $548.28 million (less approximately $5.22 million in cash and cash items) on an unconsolidated basis. The Company previously valued the assets of this entity on a consolidated basis, as if it held the assets of the Securitization Trusts directly. However, each of the Securitization Trusts is a Delaware trust with a separate legal existence, and the Company has revalued NSBF on that basis.

2 At March 31, 2023, Newtek Bank’s value was approximately $77.95 million, and the Company held total assets of approximately $486.89 million (less approximately $5.22 million in cash and cash items) on an unconsolidated basis.

3 As discussed previously, the Company owns various operating companies. Among other things, these subsidiaries include: (1) NMS and Mobile Money – credit and debit card processing, (2) PMT – payroll processing, (3) NTS – webhosting, web design, etc., (4) SIDCO – consulting and technology solutions, (5) NIA – insurance brokerage services, and (6) POS – cloud-based point of sale systems.

2

Response: The Company clarifies that it was describing the securitization activities undertaken by the Securitization Trusts, and that it is the Securitization Trusts that rely upon Rule 3a-7. As such, NSBF’s interests in the Securitization Trusts would not constitute “investment securities” for purposes of Section 3(a)(1)(C).

From 2010 through March 31, 2023, NSBF undertook twelve securitization transactions, and four securitization trusts remained outstanding as of that date.4 On June 8, 2023, the Company closed on a thirteenth securitization transaction (the “2023-1 Trust,” and, together with the 2018-1 Trust, 2019-1 Trust, 2021-1, and Trust, 2022-1 Trust, the “Securitization Trusts”). See the Company’s Current Report on Form 8-K (filed June 14, 2023). NSBF owns 100% of beneficial ownership interest in Securitization Trusts, each of which is organized as a Delaware statutory trust, and the Securitization Trusts are wholly owned consolidated subsidiaries of NSBF. Under Section 3(a)(2), majority-owned subsidiaries are not considered “investment securities” if the subsidiary is neither (a) an investment company, nor (b) a company that would be an investment company but for the exemptions under either Section 3(c)(1) or Section 3(c)(7). Since the Securitization Trusts rely on Rule 3a-7, and they are neither investment companies nor companies that are exempt under Sections 3(c)(1) or Section 3(c)(7), NSBF’s equity interest in those companies are not considered “investment securities” when analyzing NSBF’s status under Section 3(a)(1)(C).

4 The outstanding securitization trusts are Newtek Small Business Loan Trust, Series 2018-1 (“2018-1 Trust”), Newtek Small Business Loan Trust, Series 2019-1 (“2019-1 Trust”), Newtek Small Business Loan Trust, Series 2021-1 (“2021-1 Trust”), Newtek Small Business Loan Trust, Series 2022-1 (“2022-1 Trust”).

3

The values of the assets held by NSBF, on an unconsolidated basis,5 are as follows:

Description Value (millions)

(as of March 31, 2023)

  Percentage of NSBF’s Adjusted Total Assets6

2018-1 Trust $ 26.93    6.05%

2019-1 Trust 34.03  7.65%

2021-1 Trust 24.49  5.50%

2022-1 Trust 27.14  6.10%

Subtotal: Total Equity Held in Securitization Trusts $ 112.59    25.29%

SBA Unguaranteed Loans (held prior to transfer to the 2023-1 Trust on June 8, 2023) 7

 $ 128.59    28.89%

Loans not pledged to a trust  8

 39.48  8.87%

Broker Receivable 41.44  9.31%

Servicing Asset 33.35  7.49%

Due From Related Parties 59.64  13.40%

SBA Receivable 12.60  2.83%

Prepaid Expenses and Other Assets 11.10  2.49%

Accrued Interest Receivables, net 6.34  1.43%

Cash and Cash items 67.58  —

Guaranteed portions of loans held for sale 9

 9.99  —

NSBF’s Total Assets $ 522.71    —

NSBF’s Total Assets, Less Cash Items and Government Securities $ 445.13    100%

5 The Company notes that, pursuant to ASC Topic 860, the Company has consolidated the assets of the Securitization Trusts on NSBF’s and the Company’s balance sheets. See Notes to Consolidated Financial Statements – Note 2 – Significant Accounting Policies, in the Company’s Quarterly Report on Form 10-Q (filed May 11, 2023). The table above presents NSBF’s assets on an unconsolidated basis.

6 “Adjusted total assets” refers to the NSBF’s total assets, excluding cash, cash items, and government securities.

7 The Company notes that, on June 8, 2023, the Company transferred these loans to the 2023-1 Trust, which then securitized the loans. As a result, these loans are currently assets held by the 2023-1 Trust.

8 This entry represents mostly non-accrual loans that will not be pledged to a securitization trust.

9 Section 2(a)(16) define a “government security,” in relevant part, as ‘‘any security issued or guaranteed as to principal or interest by the United States, or by a person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States. . . .” As the guaranteed portions of the SBA 7(a) loans are guaranteed by the SBA, an independent agency of the United States government, the guaranteed portions of the SBA 7(a) loans constitute “government securities” for purposes of Section 3(a)(1)(C).

4

The Company confirms that each of the Securitization Trusts meets the relevant conditions specified in Rule 3a-7(a)(1) through (a)(4), and, thus, are exempt from the definition of an “investment security” under the Act.10 As of March 31, 2023, the combined value of the Securitization Trusts represented approximately 25.29% of NSBF’s total assets (excluding cash, cash items, and government securities). Additionally, the Company has previously described why the unguaranteed portions of the Company’s SBA 7(a) loans do not constitute “securities” applying the Reves family resemblance test. See Reves v. Ernst & Young, 494 U.S. 56 (1990).11 However, even if the Staff determines that the SBA 7(a) loans held directly by NSBF are “investment securities,” as of March 31, 2023, the combined values of those assets represented 37.76%12 of NSBF’s total assets (excluding cash and cash items). The Company does not believe that any of NSBF’s remaining assets may reasonably be considered “investment securities.” As a result, as of March 31, 2023, at least 62.24% of the value of NSBF’s total assets were not “investment securities.”13

In addition to the analysis above, the Company notes that, on June 8, 2023, the Company transferred $128.56 million in SBA 7(a) unguaranteed loans to the 2023-1 Trust, and the 2023-1 Trust securitized those loans. See Current Report on Form 8-K (filed June 14, 2023). This is NSBF’s final securitization as it no longer originates SBA 7(a) loans. As a result, as of the date of this letter, the Company estimates that approximately 43.5%14 of the value of NSBF’s total assets are based on the combined value of the Securitization Trusts, and approximately 87.5%15 of the value of NSBF’s assets are not considered “investment securities.” The Company currently holds approximately $39.5 million in “loans not pledged to a trust,” which the Company estimates represents approximately 12.5% of its total assets.

3.Plea