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Subsequent Events | 3 Months Ended
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Mar. 31, 2020
Subsequent Events [Abstract] |
Subsequent Events | Subsequent Events Forbearance Agreements On March 24, 2020, the Company announced that due to turmoil in the financial markets resulting from the spread of the novel coronavirus and the global COVID-19 pandemic, the Company and its subsidiaries had received an unusually high number of margin calls starting approximately in mid-March. The Company’s announcement indicated that on March 23, 2020, the Company did not meet its margin calls and had notified its financing counterparties that it did not expect to be in a position to fund the anticipated volume of margin calls under its financing arrangements in the near term. In its announcement the Company also indicated that it was engaged in discussions with its financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under its applicable financing arrangement(s) with the Company for an agreed upon period, including refraining from selling collateral to enforce margin calls. At the time of this announcement the Company’s obligations under its repurchase agreement financing arrangements were approximately $9.5 billion. On April 10, 2020, the Company announced that it had entered into a Forbearance Agreement (“Initial FBA”) with repurchase agreement counterparties holding a significant majority of its outstanding repurchase obligations. At the date of that announcement, the Company’s obligations under its repurchase agreement financing arrangements had decreased to approximately $5.8 billion. Significant details regarding the Initial FBA were as follows:
• | Participating counterparties to the Initial FBA represented repurchase obligations of an aggregate of $4.8 billion, or 83% of repurchase agreement obligations outstanding as of the date of the Initial FBA;
• | In connection with the Initial FBA, the Company also granted the participating counterparties a security interest in Company assets that were unencumbered prior to the Initial FBA, including residential whole loans, real estate owned (REO), unrestricted cash and other assets, with an estimated aggregate market value as of the date of the Initial FBA of approximately $1.3 billion; and
• | Counterparties agreed to forbear from exercising any rights or remedies through the close of business on April 27, 2020s (unless terminated sooner upon the occurrence of certain events) under their respective repurchase agreements, including refraining from selling collateral to enforce margin calls.
Extended Forbearance Agreement (“Second FBA”) On April 27, 2020, the Company entered into a Second FBA with certain counterparties holding a significant majority of its outstanding repurchase obligations. Similar to the Initial FBA, the counterparties that were party to the Second FBA agreed to forbear from exercising any rights or remedies under their respective repurchase agreements with the Company, including refraining from selling collateral to enforce margin calls, through June 1, 2020 (unless terminated sooner upon the occurrence of certain events). The Second FBA essentially extended the forbearance period agreed to under the Initial FBA. Significant details regarding the Second FBA are as follows:
• | The terms and conditions of the Second FBA were substantially similar to those under the Initial FBA.
• | Participating counterparties to the Second FBA represented repurchase obligations of an aggregate of $4.4 billion, which represented approximately 84% of the Company’s $5.3 billion repurchase obligations outstanding as of April 24, 2020.
• | Under the terms of the Second FBA, the Company also agreed to make a cash payment to the participating counterparties of $150 million, which was applied to reduce the Company’s outstanding repurchase obligation balances with counterparties participating in the Second FBA.
Additional Extended Forbearance Agreement (“Third FBA”) On June 1, 2020, the Company entered into the Third FBA with counterparties to its repurchase agreement financings, further extending the period of forbearance. Under the Third FBA, the Company’s repurchase agreement counterparties continued to forbear from exercising any rights or remedies under their respective repurchase agreements with the Company, including refraining from selling collateral to enforce margin calls, through June 26, 2020 (unless terminated sooner upon the occurrence of certain events). All of the Company’s remaining repurchase agreement counterparties agreed to participate in the Third FBA. Agreement to enter into a senior secured term loan and commitment to enter into an asset level debt facility On June 15, 2020, the Company and certain of its wholly owned subsidiaries entered into a credit agreement for a $500 million senior secured term loan facility (the “Term Loan Facility”) to be funded by certain funds and accounts managed by subsidiaries of Apollo Global Management, Inc. (together with such funds and accounts, “Apollo”), including subsidiaries of Athene Holding Ltd. (“Athene”), to which Apollo provides asset management and advisory services. The loans under the Term Loan Facility are expected to be funded on or about June 26, 2020 (the “Funding Date”). The term loans will be issued with original issue discount of 1%. Interest on the outstanding principal amount of the term loans will accrue at a rate of 11% per annum until the third anniversary of the Funding Date. Prior to the third anniversary of the Funding Date, a portion of such interest, in an amount equal to up to 3% per annum, may be capitalized, compounded and added to the unpaid principal amount of the term loans. The interest rate on the term loans will increase by 1% per annum on the third anniversary of the Funding Date and by an additional 1% per annum on each subsequent anniversary of the Funding Date. Upon the occurrence and during the continuance of an event of default under the Term Loan Facility, the principal amount of all loans outstanding and, to the extent permitted by applicable law, any interest payments on such term loans or any fees or other amounts owing under the Term Loan Facility that, in either case, are then overdue, would thereafter bear interest at a rate that is 2% per annum in excess of the interest rate otherwise payable on the term loans. Under the Term Loan Facility, the Company will be permitted to voluntarily prepay the term loans without premium or penalty at any time; provided, however, that the Company may prepay the term loans in part on only one occasion prior to the maturity date of the Term Loan Facility and in an amount of not less than $250 million. Installment payments of principal equal to 3.75% of the initial principal amount for the first three years of the Term Loan Facility and 4.50% of the initial principal amount thereafter, together with accrued and unpaid interest on such principal amount, will be required to be made on the last business day of each March, June, September and December beginning on September 30, 2020. Mandatory prepayments of the term loans will be required to be made from net cash proceeds received in connection with certain events, that are set out in the credit agreement. Upon the event of a change in control as defined in the credit agreement, the Company is also required to make an offer to repay the loan at par, plus unpaid accrued interest, plus a specified redemption premium. In addition, the Company will be required to comply with certain affirmative and negative covenants as specified in the credit agreement that, among other things, impose certain limitations on the Company to incur liens or indebtedness, to make certain non-permitted investments or enter into new businesses, to modify or waive terms on certain of the Company’s existing debt or to prepay such debt, or to pay dividends in certain circumstances. The Company must also maintain a minimum level of liquidity as defined in the agreement. In connection with, and conditioned on, the funding of the Term Loan Facility, the Company also executed on June 15, 2020, a letter with Barclays and affiliates of Athene (the “Asset Level Lenders”), pursuant to which the Asset Level Lenders have committed, subject to satisfaction of customary conditions precedent, to a non-mark-to-market term loan facility with one or more subsidiaries of the Company to provide, severally and not jointly, financing in an aggregate amount of up to $1,650,000,000 (the “Asset Level Debt Facility”). The Company’s borrowing subsidiaries will pledge, as collateral security for the Asset Level Debt Facility, certain of their residential whole loans, as well as the equity in subsidiaries that own the loans. The Asset Level Debt Facility is also expected to close on or about June 26, 2020. In connection with these transactions, the Company also entered into an Investment Agreement with Apollo and Athene (together the “Purchasers”), under which. the Company agreed to issue to the Purchasers warrants (the “Warrants”) to purchase, in the aggregate, 37,039,106 shares (subject to adjustment in accordance with their terms) of the Company’s common stock. In addition, the Purchasers or one or more of their affiliates have agreed to purchase, prior to the first anniversary date of the Investment Agreement, in one or a series of open market or privately negotiated transactions, a number of shares of the Company’s common stock equal to the lesser of (a) such number of shares representing 4.9% of the outstanding shares of common stock as of the Funding Date or (b) such number of shares as the Purchasers may purchase for an aggregate gross purchase price of $50 million. The issuance of the Warrants is subject to satisfaction of certain terms and conditions set forth in the Investment Agreement, but is expected to occur on the Funding Date. The completion of the transactions contemplated by the Term Loan Facility, the Asset Level Debt Facility and the Investment Agreement are subject to and conditioned on, among other things, the completion of definitive documentation relating to the Asset Level Debt Facility, completion of documentation relating to the Company’s exit from the Third FBA and other customary closing conditions. Portfolio sales and composition changes and impact on Company liquidity Since the end of the first quarter through May 31, 2020, the Company has taken further steps to reduce the leverage on its portfolio, generate liquidity and reduce repurchase agreement balances with its counterparties. Actions taken by the Company include the sale of residential mortgage assets, generating proceeds of approximately $3.2 billion, which along with portfolio run-off and other payments to counterparties has resulted in an overall reduction in repurchase agreement balances of approximately $3.9 billion. Details of sales that have occurred in the second quarter through May 31, 2020 include:
• | The Company has disposed of approximately $2.4 billion of residential mortgage securities, including $533.1 million of Agency MBS, $1.1 billion of Non-Agency MBS and $207.4 million of CRT securities. In addition, the Company sold $574.9 million of term notes backed by MSR-related collateral and $15.6 million of other interest earning assets. Improvement in market pricing since the end of the first quarter resulted in the Company recording realized gains of approximately $177.5 million to date in the second quarter. In addition, the Company has recorded $57.0 million of unrealized gains on securities (primarily CRT securities) on which it had previously elected the fair value option.
• | The Company also disposed of approximately $845.2 million of residential whole loans, resulting in realized losses of approximately $128.4 million. However, after the reversal of the valuation allowance associated with loans that were designated as held-for-sale at the end of the first quarter, the net impact on second quarter results is a loss of approximately $58.2 million.
The Company has now sold substantially all of its Agency MBS and Legacy Non-Agency MBS portfolios and greatly reduced its holdings of MSR-related assets and CRT securities. As of May 31, 2020, the Company’s $6.6 billion residential mortgage asset portfolio was comprised of $6.2 billion of residential whole loans and REO, approximately $235.4 million of MSR-related assets and $136.4 million of residential mortgage securities. These investments are financed with approximately $3.8 billion of repurchase agreements. Total debt was approximately 1.9 times stockholders’ equity at May 31, 2020. As of June 19, 2020, the Company had total cash balances of $343.6 million, including cash on deposit with repurchase agreement counterparties totaling $103.5 million. Since entering into forbearance agreements with its lenders in April, unpaid margins calls have been substantially reduced and were $29.1 million as of June 19, 2020.

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- Definition The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 855 -URI http://asc.fasb.org/topic&trid=2122774 + Details
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