Harbinger Group Inc.
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SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
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Asset-based Loans
As of September 30, 2016 and 2015, the Company’s portfolio of asset-based loans receivable originated by Salus and its co-lender Front Street consisted of the following:
 
September 30,
 
2016
 
2015
Asset-based loans, net of deferred fees, by major industry:
 
 
 
Apparel
$
18.8

 
$
66.0

Manufacturing
10.9

 
32.7

Jewelry
7.2

 
36.9

Electronics
3.1

 
45.9

Other
6.0

 
93.1

Total asset-based loans
46.0

 
274.6

Less: Allowance for credit losses
11.0

 
47.9

Total asset-based loans, net
$
35.0

 
$
226.7


The Company establishes its allowance for credit losses through a provision for credit losses based on Salus’ evaluation of the credit quality of its loan portfolio. The following table presents the activity in its allowance for credit losses for Fiscal 2016, 2015 and 2014:
 
Fiscal
 
2016
 
2015
 
2014
Allowance for credit losses:
 
 
 
 
 
Balance at beginning of year
$
47.9

 
$
5.5

 
$
4.0

Provision for credit losses
12.8

 
93.5

 
1.5

Charge-offs
(52.6
)
 
(51.1
)
 

Recoveries
2.9

 

 

Balance at end of year
$
11.0

 
$
47.9

 
$
5.5

Credit Quality Indicators
Salus monitors credit quality as indicated by various factors and utilizes such information in its evaluation of the adequacy of the allowance for credit losses. As of September 30, 2016 and 2015, loans with a net carrying value of $30.1 and $79.8, respectively, were considered delinquent by Salus and placed on non-accrual status. It is Salus’ policy to discontinue accruing interest on its loans when there is a reasonable doubt as to collectability in the normal course of business. Nonaccrual loans are considered impaired for reporting purposes and are individually evaluated for impairment.
Salus has assessed the adequacy of its allowance for credit losses and believes the level of allowance for credit losses to be adequate to mitigate inherent losses in the portfolio. During Fiscal 2014, there were no outstanding loans that had been individually considered impaired.
During Fiscal 2015, the bankruptcy court overseeing the Chapter 11 proceedings of RadioShack approved the sale of 1,743 of the company’s stores to General Wireless Inc., an affiliate of Standard General LP. Salus was the lender under RadioShack’s $250.0 term loan placed in December 2013 with a net exposure to Salus and Front Street of $93.0 and $7.0, respectively, after giving effect to a $50.0 participation by FGL and a non-qualifying participation of $100.0 held by a third party. During Fiscal 2015, the $100.0 held by a third party was repaid in full because this third party had the right of first payment in the case of a bankruptcy under an intercreditor agreement with Salus. During Fiscal 2015, the Company recognized charge-offs of $51.1, excluding any charge-offs related to FGL’s participations which are included in(Loss) income from discontinued operations, net of tax” in the accompanying Consolidated Statements of Operations; and an additional net increase in the provision of credit losses of $19.2 related to the loan with RadioShack.
During Fiscal 2016, Salus and Front Street received a partial repayment on the loan to RadioShack of $45.4, excluding $22.7 repayment on FGL’s participation on the loan. At September 30, 2016, the Company expects an additional $3.0 of future recoveries of the loan to RadioShack, excluding $1.5 related to FGL’s participation on the loan that is included in “Assets of business held for sale” in the accompanying Consolidated Balance Sheets. As a result of the higher than expected recovery rates during Fiscal 2016, the Company reversed $18.0 of previously recorded allowance for credit losses, excluding $9.0 of realized gains by FGL recorded in(Loss) income from discontinued operations, net of tax” in the accompanying Consolidated Statements of Operations.
During Fiscal 2016, Salus recorded provision of credit losses of $30.8 related to delinquent loans unrelated to RadioShack where the underlying collateral was underperforming.

S-85

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