Note 11 — Debt Obligations

Credit Facilities and Repurchase Agreements

The following table outlines borrowings under our credit facilities and repurchase agreements:

				September 30, 2017						December 31, 2016
	Current Maturity	Extended Maturity	Note Rate	Debt Carrying Value (1)		Collateral Carrying Value		Wtd. Avg. Note Rate		Debt Carrying Value (1)		Collateral Carrying Value		Wtd. Avg. Note Rate

Structured Business
$150 million repurchase facility	Oct. 2018	Oct. 2019	L + 2.25% to 3.50%	$	149,157,816	$	253,150,000	3.63	%	$	106,051,080	$	183,827,574	3.12	%

$100 million repurchase facility	June 2019	N/A	L + 2.00%	2,407,564		6,600,000		3.28	%	21,598,322		34,850,000		2.96	%

$75 million credit facility	Dec. 2017	N/A	L + 2.125% to 2.50%	12,096,267		28,088,500		3.40	%	38,703,886		63,158,500		2.94	%

$75 million credit facility	June 2018	N/A	L + 2.00%	16,206,619		42,300,000		3.28	%	23,276,773		31,725,000		2.81	%

$50 million credit facility	Feb. 2018	Feb. 2019	L + 2.00%	25,000,000		31,250,000		3.28	%	46,373,641		58,000,000		2.81	%

$50 million credit facility	Sept. 2019	Sept. 2021	L + 2.50% to 3.25%	3,563,565		4,625,000		4.54	%	7,956,000		9,885,000		4.08	%

$25.5 million credit facility	Oct. 2019	N/A	L + 2.50%	13,909,625		18,753,364		3.78	%	—		—		—

$10 million credit facility	Mar. 2018	N/A	L + 2.50%	10,000,000		—		3.78	%	—		—		—

$3 million master security agreement	Oct. 2020	N/A	2.96% to 3.42%	1,997,894		—		3.21	%	2,532,966		—		3.21	%


Total				$	234,339,350	$	384,766,864	3.58	%	$	246,492,668	$	381,446,074	3.02	%


Agency Business

$500 million ASAP agreement	N/A	N/A	L + 1.05%	$	49,508,743	$	49,508,743	2.28	%	$	142,556,962	$	142,556,962	1.65	%

$150 million credit facility (2)	Jan. 2018	N/A	L + 1.40%	80,709,289		80,786,203		2.63	%	268,530,211		268,571,797		2.05	%

$150 million credit facility (3)	July 2018	N/A	L + 1.35%	131,409,000		131,559,000		2.64	%	210,009,449		210,138,900		2.05	%

$100 million credit facility (4)	June 2018	N/A	L + 1.30%	64,881,000		64,881,000		2.53	%	39,047,500		39,047,500		1.95	%

$100 million repurchase facility	Aug. 2018	N/A	L + 1.35%	1,479,155		1,542,000		2.58	%	—		—		—


Total				$	327,987,187	$	328,276,946	2.56	%	$	660,144,122	$	660,315,159	1.96	%


Consolidated total				$	562,326,537	$	713,043,810	2.99	%	$	906,636,790	$	1,041,761,233	2.25	%

(1)

The debt carrying value for the Structured Business at September 30, 2017 and December 31, 2016 was net of unamortized deferred finance costs of $1.6 million and $1.9 million, respectively. The debt carrying value for the Agency Business at both September 30, 2017 and December 31, 2016 was net of unamortized deferred finance costs of $0.3 million.

(2)

The committed amount under the facility was temporarily increased to $200.0 million, which expired in April 2017, and again to $225.0 million, which expired in August 2017.

(3)

The committed amount under the facility was temporarily increased to $350.0 million, which expired in February 2017.

(4)

The committed amount under the facility was temporarily increased to $250.0 million, which expires in January 2018.

Structured Business

At September 30, 2017 and December 31, 2016, the weighted average interest rate for the credit facilities and repurchase agreements of our Structured Business, noted in the above table, was 3.58% and 3.02%, respectively. Including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, the weighted average interest rate was 4.06% and 3.42% at September 30, 2017 and December 31, 2016, respectively. The leverage on our loans and investment portfolio financed through our credit facilities and repurchase agreements, excluding the $10.0 million working capital line of credit and the $3.0 million master security agreement used to finance leasehold improvements at our corporate office, was 58% and 64% at September 30, 2017 and December 31, 2016, respectively.

In October 2017, we amended our $150.0 million repurchase facility increasing the committed amount by $75.0 million to $225.0 million.

In September 2017, we entered into a $25.5 million credit facility to finance a multifamily bridge loan. The facility bears interest at a rate of 250 basis points over LIBOR and matures in October 2019.

In June 2017, we replaced a $100.0 million credit facility with a $100.0 million repurchase facility with the same financial institution which matures in June 2019 and bears interest at 200 basis points over LIBOR, representing a 15 basis point rate decrease. The facility has a maximum advance rate of 75%.

In June 2017, we extended the maturity date of our $75.0 million credit facility that bears interest at a rate of 200 basis points over LIBOR to June 2018.

In March 2017, we entered into a $10.0 million unsecured working capital line of credit that bears interest at a rate of 250 basis points over LIBOR. This line of credit is scheduled to mature in March 2018 and is renewable annually.

Agency Business

In July 2017, we amended one of our $150.0 million credit facilities to provide a short term extension to the maturity date and reduce the interest rate 5 basis points to 135 basis points over LIBOR. In September 2017, we extended the maturity date to July 2018.

In August 2017, we entered into a $100.0 million repurchase facility that bears interest at a rate of 135 basis points over LIBOR and matures in August 2018. The financial institution that provided this facility has a security interest in the underlying mortgage notes that serve as collateral for this facility.

In June 2017, we amended our $100.0 million credit facility to extend the maturity date to June 2018 and reduced the interest rate 5 basis points to 130 basis points over LIBOR. The amended agreement also provided us with the option of temporarily increasing the committed amount to $250.0 million subject to prior written notice. In July 2017, we exercised our option and increased the committed amount to $250.0 million, which expires in January 2018.

We have a $500.0 million Multifamily As Soon as Pooled ® Plus (“ASAP”) agreement with Fannie Mae, which, in March 2017, was increased from $400.0 million. The ASAP agreement is not a committed line, has no expiration date and bears interest at a rate of 105 basis points over LIBOR (with a LIBOR Floor of 0.35%). ASAP provides us with a warehousing credit facility for mortgage loans that are to be sold to Fannie Mae and serviced under the Fannie Mae DUS program.

In September 2017, we simultaneously terminated our then existing $30.0 million letter of credit facility and entered into a new $50.0 million letter of credit facility with a different financial institution. The new facility bears interest at a fixed rate of 2.875%, representing a 12.5 basis point decrease from the prior facility, matures in September 2020 and is primarily collateralized by our servicing revenue as approved by Fannie Mae and Freddie Mac. The letter of credit facility includes a $5.0 million sublimit for an obligation under the Freddie Mac SBL Program. At September 30, 2017, the letters of credit outstanding include $42.0 million for the Fannie Mae DUS program and $5.0 million for the Freddie Mac SBL Program.

Collateralized Loan Obligations (“CLOs”)

The following table outlines borrowings and the corresponding collateral under our CLOs:

							Collateral (3)
	Debt						Loans				Cash
September 30, 2017	Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		Unpaid Principal		Carrying Value		Restricted Cash (4)

CLO VIII	$	282,874,000	$	278,296,193	2.58	%	$	324,190,963	$	322,527,190	$	40,809,037
CLO VII	279,000,000		275,035,774		3.27	%	313,857,643		312,693,431		35,142,358
CLO VI	250,250,000		247,207,545		3.76	%	303,821,532		302,750,497		21,178,468
CLO V	267,750,000		265,690,976		3.72	%	312,933,082		311,904,481		37,066,918

Total CLOs	$	1,079,874,000	$	1,066,230,488	3.32	%	$	1,254,803,220	$	1,249,875,599	$	134,196,781

December 31, 2016	Face Value		Carrying Value (1)		Wtd. Avg. Rate		Unpaid Principal		Carrying Value		Restricted Cash (3)

CLO VI	$	250,250,000	$	246,442,883	3.30	%	$	324,569,105	$	323,350,928	$	430,895
CLO V	267,750,000		264,864,114		3.26	%	344,679,286		343,747,570		5,320,715
CLO IV	219,000,000		217,134,112		3.06	%	291,319,123		290,429,019		8,680,878

Total CLOs	$	737,000,000	$	728,441,109	3.21	%	$	960,567,514	$	957,527,517	$	14,432,488

(1)

Debt carrying value is net of $13.6 million and $8.6 million of deferred financing fees at September 30, 2017 and December 31, 2016, respectively.

(2)

At September 30, 2017 and December 31, 2016, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 3.88% and 3.71%, respectively.

(3)

As of September 30, 2017 and December 31, 2016, there was no collateral at risk of default or deemed to be a “credit risk” as defined by the CLO indenture.

(4)

Represents restricted cash held for principal repayments as well as for reinvestment in the CLOs. Does not include restricted cash related to interest payments, delayed fundings and expenses.

CLO VIII — In August 2017, we completed a collateralized securitization vehicle (“CLO VIII”), issuing six tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $312.1 million. Of the total CLO notes issued, $282.9 million were investment grade notes issued to third party investors and $29.2 million were below investment grade notes retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $293.7 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has a three-year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $71.3 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date. Subsequently, the issuer will own loan obligations with a face value of $365.0 million. We retained a residual interest in the portfolio with a notional amount of $82.1 million, including the $29.2 million below investment grade notes. The notes had an initial weighted average interest rate of 1.31% plus one-month LIBOR and interest payments on the notes are payable monthly.

CLO VII — In April 2017, we completed CLO VII, issuing to third party investors three tranches of investment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $279.0 million. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $296.2 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has a three-year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $63.8 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date, which were subsequently utilized prior to the end of the second quarter of 2017 resulting in the issuer owning loan obligations with a face value of $360.0 million. We retained a residual interest in the portfolio with a notional amount of $81.0 million. The notes had an initial weighted average interest rate of 1.99% plus one-month LIBOR and interest payments on the notes are payable monthly.

CLO IV — In September 2017, we completed the unwind of CLO IV, redeeming $219.0 million of our outstanding notes which were repaid primarily from the refinancing of the remaining assets within our existing financing facilities (including CLO VIII), as well as with cash held by CLO IV, and expensed $1.1 million of deferred financing fees into interest expense on the consolidated statements of income.

We account for our CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us.

Senior Unsecured Notes

The debt carrying value of our senior unsecured notes at September 30, 2017 and December 31, 2016 were $95.1 million and $94.5 million, respectively, which were net of $2.8 million and $3.3 million, respectively, of deferred financing fees. The notes are due in 2021; however, they became eligible for redemption by us on May 16, 2017. Including certain fees and costs, the weighted average note rate was 8.16% and 8.15% at September 30, 2017 and December 31, 2016, respectively.

Convertible Senior Unsecured Notes

In October 2016, we issued $86.3 million aggregate principal amount of 6.50% convertible senior unsecured notes, including the underwriter’s over-allotment option of $11.3 million, and, in January 2017, we issued an additional $13.8 million, which brought the aggregate outstanding principal amount of the notes to $100.0 million. The additional issuance in January 2017 is fully fungible with, and ranks equally in right of payment with, the initial issuance. The notes pay interest semiannually in arrears. We received total proceeds of $95.8 million from the offerings, net of deferred financing fees, which are being amortized through interest expense over the life of the notes. The notes mature on October 1, 2019, unless earlier converted or repurchased by the holders pursuant to their terms, and are not redeemable by us prior to maturity.

The notes are convertible into, at our election, cash, shares of our common stock or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion rate is subject to adjustment upon the occurrence of certain specified events and the holders may require us to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if we undergo a fundamental change as specified in the agreement. The initial conversion rate was 119.3033 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $8.38 per share of common stock. At September 30, 3017, the notes had a conversion rate of 120.0428 shares of common stock per $1,000 principal amount of notes, which represented a conversion price of $8.33 per share of common stock.

Accounting guidance requires that convertible debt instruments with cash settlement features, including partial cash settlement, account for the liability component and equity component (conversion feature) of the instrument separately. The initial value of the liability component reflects the present value of the discounted cash flows using the nonconvertible debt borrowing rate of 7.50% at the time of issuance. The debt discount represents the difference between the proceeds received from the issuance and the initial carrying value of the liability component, which is being accreted back to the notes principal amount through interest expense over the term of the notes, which was 2.00 years and 2.75 years at September 30, 2017 and December 31, 2016, respectively.

The principal balance, unamortized discount and net carrying value of the liability and equity components of the notes were as follows:

	Liability								Equity
	Component								Component
Period	Principal Balance		Unamortized Debt Discount		Unamortized Deferred Financing Fees		Net Carrying Value		Net Carrying Value
September 30, 2017	$	100,000,000	$	1,809,470	$	2,809,409	$	95,381,121	$	2,531,926


December 31, 2016	$	86,250,000	$	2,119,436	$	3,470,526	$	80,660,038	$	2,178,647

During the three months ended September 30, 2017, we incurred total interest expense on the notes of $2.2 million, of which $1.6 million, $0.4 million and $0.2 million related to the 6.50% cash coupon, accretion of the deferred financing fees and of the debt discount, respectively. During the nine months ended September 30, 2017, we incurred total interest expense on the notes of $6.6 million, of which $4.8 million, $1.1 million and $0.7 million related to the 6.50% cash coupon, accretion of the deferred financing fees and of the debt discount, respectively. Including the amortization of the deferred financing fees and debt discount, our total cost of the notes is 8.68% per annum.

The average price of our common stock during the second quarter of 2017 exceeded the conversion price, as calculated in accordance with the terms of the indenture. Therefore, the notes impacted our diluted earnings per share for the nine months ended September 30, 2017. Diluted earnings per share was not impacted for any other period presented. See Note 18 — Equity for details.

Junior Subordinated Notes

In the first quarter of 2017, we purchased, at a discount, $20.9 million of our junior subordinated notes with a carrying value of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million. As a result, we settled our related equity investment and extinguished $21.5 million of notes. The carrying value of borrowings under our junior subordinated notes was $139.4 million and $157.9 million at September 30, 2017 and December 31, 2016, respectively, which is net of a deferred amount of $12.7 million and $14.9 million, respectively, (which is being amortized into interest expense over the life of the notes) and $2.2 million and $3.1 million, respectively, of deferred financing fees. These notes have maturities ranging from March 2034 through April 2037 and pay interest quarterly at a fixed or floating rate of interest based on three-month LIBOR. The current weighted average note rate was 4.17% and 3.82% at September 30, 2017 and December 31, 2016, respectively. Including certain fees and costs, the weighted average note rate was 4.27% and 3.94% at September 30, 2017 and December 31, 2016, respectively.

Related Party Financing

In connection with the Acquisition, we entered into a $50.0 million preferred equity interest financing agreement with ACM to finance a portion of the aggregate purchase price. The debt has a five year term with a preferred return of 7% through December 31, 2016, increasing by 1% per annum thereafter, with a maximum rate of 12%. In addition, after eighteen months, the principal balance due is scheduled to increase over time with $62.5 million due if the debt remained outstanding until the end of the five-year term. Interest expense associated with this financing is recorded using the effective yield method. At both September 30, 2017 and December 31, 2016, the outstanding principal balance was $50.0 million. During the three and nine months ended September 30, 2017, we recorded interest expense related to this financing of $1.0 million and $2.9 million, respectively, and $0.8 million during both the three and nine months ended September 30, 2016.

Debt Covenants

Credit Facilities and Repurchase Agreements. The credit facilities and repurchase agreements contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth requirements, as well as certain other debt service coverage ratios, debt to equity ratios and minimum servicing portfolio tests. We were in compliance with all financial covenants and restrictions at September 30, 2017.

CLOs. Our CLO vehicles contain interest coverage and asset overcollateralization covenants that must be met as of the waterfall distribution date in order for us to receive such payments. If we fail these covenants in any CLO, all cash flows from such CLO would be diverted to repay principal and interest on the outstanding CLO bonds and we would not receive any residual payments until that CLO regained compliance with such tests. Our CLOs were in compliance with all such covenants as of September 30, 2017, as well as on the most recent determination dates in October 2017. In the event of a breach of the CLO covenants that could not be cured in the near-term, we would be required to fund our non-CLO expenses, including employee costs, distributions required to maintain our REIT status, debt costs, and other expenses with (i) cash on hand, (ii) income from any CLO not in breach of a covenant test, (iii) income from real property and loan assets, (iv) sale of assets, or (v) accessing the equity or debt capital markets, if available. We have the right to cure covenant breaches which would resume normal residual payments to us by purchasing non-performing loans out of the CLOs. However, we may not have sufficient liquidity available to do so at such time.

A summary of our CLO compliance tests as of the most recent determination dates in October 2017 is as follows:

Cash Flow Triggers	CLO V	CLO VI	CLO VII	CLO VIII

Overcollateralization (1)

Current	130.72%	129.87%	129.03%	129.03%

Limit	129.72%	128.87%	128.03%	128.03%

Pass / Fail	Pass	Pass	Pass	Pass

Interest Coverage (2)

Current	211.97%	240.15%	287.79%	360.90%

Limit	120.00%	120.00%	120.00%	120.00%

Pass / Fail	Pass	Pass	Pass	Pass

(1)

The overcollateralization ratio divides the total principal balance of all collateral in the CLO by the total principal balance of the bonds associated with the applicable ratio. To the extent an asset is considered a defaulted security, the asset’s principal balance for purposes of the overcollateralization test is the lesser of the asset’s market value or the principal balance of the defaulted asset multiplied by the asset’s recovery rate which is determined by the rating agencies. Rating downgrades of CLO collateral will generally not have a direct impact on the principal balance of a CLO asset for purposes of calculating the CLO overcollateralization test unless the rating downgrade is below a significantly low threshold (e.g. CCC-) as defined in each CLO vehicle.

(2)

The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by us.

A summary of our CLO overcollateralization ratios as of the determination dates subsequent to each quarter is as follows:

Determination (1)	CLO V		CLO VI		CLO VII		CLO VIII
October 2017	130.72	%	129.87	%	129.03	%	129.03	%
July 2017	130.72	%	129.87	%	129.03	%	—
April 2017	130.72	%	129.87	%	—		—
January 2017	130.72	%	129.87	%	—		—
October 2016	130.72	%	129.87	%	—		—

(1)

The table above represents the quarterly trend of our overcollateralization ratio, however, the CLO determination dates are monthly and we were in compliance with this test for all periods presented.

The ratio will fluctuate based on the performance of the underlying assets, transfers of assets into the CLOs prior to the expiration of their respective replenishment dates, purchase or disposal of other investments, and loan payoffs. No payment due under the junior subordinated indentures may be paid if there is a default under any senior debt and the senior lender has sent notice to the trustee. The junior subordinated indentures are also cross-defaulted with each other.