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Financing Agreements | 9 Months Ended
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Sep. 30, 2020
Disclosure of Repurchase Agreements [Abstract] |
Financing Agreements | Financing Agreements The following tables present the components of the Company’s Financing agreements at September 30, 2020 and December 31, 2019:
|  | September 30, 2020
(In Thousands) |  | Unpaid Principal Balance |  | Amortized Cost Balance |  | Fair Value/Carrying Value(1)
Financing agreements, at fair value |  |  |  |  |  |
Agreements with non-mark-to-market collateral provisions |  | $ | 1,723,959 |  |  | $ | 1,723,959 |  |  | $ | 1,727,407 |
Agreements with mark-to-market collateral provisions |  | 1,489,097 |  |  | 1,489,097 |  |  | 1,490,271 |
Senior secured credit agreement |  | 481,250 |  |  | 462,923 |  |  | 473,993 |
Securitized debt |  | 389,051 |  |  | 380,407 |  |  | 388,790 |
Total Financing agreements, at fair value |  | $ | 4,083,357 |  |  | $ | 4,056,386 |  |  | $ | 4,080,461 |
Other financing agreements |  |  |  |  |  |
Securitized debt |  | $ | 451,197 |  |  |  |  | $ | 448,893 |
Convertible senior notes |  | 230,000 |  |  |  |  | 224,867 |
Senior notes |  | 100,000 |  |  |  |  | 96,900 |
Total Financing agreements at carrying value |  | $ | 781,197 |  |  |  |  | $ | 770,660 |
Total Financing agreements |  | $ | 4,864,554 |  |  |  |  | $ | 4,851,121 |
(1) Financing agreements at fair value are reported at estimated fair value each period as a result of the Company’s fair value option election. Other financing arrangements are reported at their carrying value (amortized cost basis) as the fair value option was not elected on these liabilities. Consequently, Total Financing agreements as presented reflects a summation of balances reported at fair value and carrying value. Set out below is information about the Company’s Financing agreements that existed as of December 31, 2019. During the second quarter of 2020, outstanding repurchase agreement transactions at that time were renegotiated as part of a reinstatement agreement that was entered into by the Company. The Company elected to account for these reinstated transactions under the fair value option from the time these repurchase agreements were reinstated. Accordingly, as of September 30, 2020, such liabilities are reported as Financing agreements at fair value.
|  | December 31, 2019
(In Thousands) |  | Unpaid Principal Balance |  | Carrying Value
Repurchase agreements |  | $ | 9,140,944 |  |  | $ | 9,139,821 |
Securitized debt |  | 573,900 |  |  | 570,952 |
Convertible senior notes |  | 230,000 |  |  | 223,971 |
Senior notes |  | 100,000 |  |  | 96,862 |
Total Financing agreements at carrying value |  | $ | 10,044,844 |  |  | $ | 10,031,606 |
(a) Financing Agreements, at Fair Value During the second quarter of 2020, the Company entered into a $500 million senior secured credit agreement. In addition, in conjunction with its exit from forbearance arrangements, the Company entered into several new asset backed financing arrangements and renegotiated financing arrangements for certain assets with existing lenders, that resulted in the Company essentially refinancing the majority of its investment portfolio. The Company elected the fair value option on these financing arrangements, primarily to simplify the accounting associated with costs incurred to establish the new facilities or renegotiate existing facilities. The Company considers that the most relevant feature that distinguishes between the various asset backed financing arrangements is how the financing arrangement is collateralized, including the ability of the lender to make margin calls on the Company based on changes in value of the underlying collateral securing the financing. Accordingly, further details are provided below regarding assets that are financed with agreements that have non-mark-to-market collateral provisions and assets that are financed with agreements that have mark-to-market collateral provisions. Agreements with non-mark-to-market collateral provisions The Company and certain of its subsidiaries entered into a non-mark-to-market term loan facility with certain lenders to finance an aggregate amount of up to $1.65 billion. The Company’s borrowing subsidiaries have pledged, as collateral security for the facility, certain of their residential whole loans (excluding Rehabilitation loans), as well as the equity in subsidiaries that own the loans. The facility has an initial term of two years, which may be extended for up to an additional three years, subject to certain conditions, including the payment of an extension fee and provided that no events of default have occurred. For the initial two year term, the financing cost for the facility will be calculated at a spread over the lender’s financing cost, which, depending on the lender, is expected to be based either on three-month LIBOR, or an index that it expected over time to be closely correlated to changes in three-month LIBOR. At September 30, 2020, the amount financed under this facility was approximately $1.4 billion. In addition, the Company also entered into non-mark-to-market financing facilities on Rehabilitation loans. Under these facilities, Rehabilitation loans, as well as the equity in subsidiaries that own the loans, are pledged as collateral. The facilities have a two year term and the financing cost is calculated at a spread over three-month LIBOR. At September 30, 2020, the amount financed under these facilities was approximately $359.0 million. The following table presents information with respect to the Company’s financing agreements with non-mark-to-market collateral provisions and associated assets pledged as collateral at September 30, 2020 and December 31, 2019:
(Dollars in Thousands) |  | September 30, 2020 |  | December 31, 2019
Non-mark-to-market financing secured by residential whole loans at carrying value |  | $ | 1,471,269 |  |  | $ | — |
Fair value of residential whole loans at carrying value pledged as collateral under financing agreements |  | $ | 2,323,085 |  |  | $ | — |
Weighted average haircut on residential whole loans at carrying value |  | 41.91 | % |  | — | %
Non-mark-to-market financing secured by residential whole loans at fair value |  | $ | 256,138 |  |  | $ | — |
Fair value of residential whole loans at fair value pledged as collateral under financing agreements |  | $ | 435,081 |  |  | $ | — |
Weighted average haircut on residential whole loans at fair value |  | 41.25 | % |  | — | %
Agreements with mark-to-market collateral provisions In addition to entering into the financing arrangements discussed above, the Company also entered into a reinstatement agreement with certain lending counterparties that facilitated its exit from the forbearance arrangements that the Company had previously entered into. In connection with the reinstatement agreement, terms of its prior financing arrangements on certain residential whole loans, residential mortgage securities, and MSR-related assets were renegotiated and those arrangements were reinstated on a go-forward basis. These financing arrangements continue to contain mark-to-market provisions that permit the lending counterparties to make margin calls on the Company should the value of the pledged collateral decline. The Company is also permitted to recover previously posted margin payments, should values of the pledged collateral subsequently increase. These facilities generally have a maturity ranging from one to three months and can be renewed at the discretion of the lending counterparty at financing costs reflecting prevailing market pricing. At September 30, 2020, the amount financed under these agreements was approximately $1.5 billion. The following table presents information with respect to the Company’s financing agreements with mark-to-market collateral provisions and associated assets pledged as collateral at September 30, 2020 and December 31, 2019:
(Dollars in Thousands) |  | September 30, 2020 |  | December 31, 2019
Mark-to-market financing agreements secured by residential whole loans (1) |  | $ | 1,231,734 |  |  | $ | 4,743,094 |
Fair value of residential whole loans pledged as collateral under financing agreements (2) |  | $ | 2,002,903 |  |  | $ | 5,986,267 |
Weighted average haircut on residential whole loans (3) |  | 30.88 | % |  | 20.07 | %
Mark-to-market financing agreement borrowings secured by Agency MBS |  | $ | — |  |  | $ | 1,557,675 |
Fair value of Agency MBS pledged as collateral under financing agreements |  | $ | — |  |  | $ | 1,656,373 |
Weighted average haircut on Agency MBS (3) |  | — | % |  | 4.46 | %
Mark-to-market financing agreement borrowings secured by Legacy Non-Agency MBS |  | $ | 1,282 |  |  | $ | 1,121,802 |
Fair value of Legacy Non-Agency MBS pledged as collateral under financing agreements |  | $ | 2,621 |  |  | $ | 1,420,797 |
Weighted average haircut on Legacy Non-Agency MBS (3) |  | 50.00 | % |  | 20.27 | %
Mark-to-market financing agreement borrowings secured by RPL/NPL MBS |  | $ | 32,950 |  |  | $ | 495,091 |
Fair value of RPL/NPL MBS pledged as collateral under financing agreements |  | $ | 53,809 |  |  | $ | 635,005 |
Weighted average haircut on RPL/NPL MBS (3) |  | 38.75 | % |  | 21.52 | %
Mark-to-market financing agreements secured by CRT securities |  | $ | 54,883 |  |  | $ | 203,569 |
Fair value of CRT securities pledged as collateral under financing agreements |  | $ | 96,336 |  |  | $ | 252,175 |
Weighted average haircut on CRT securities (3) |  | 42.47 | % |  | 18.84 | %
Mark-to-market financing agreements secured by MSR-related assets |  | $ | 135,340 |  |  | $ | 962,515 |
Fair value of MSR-related assets pledged as collateral under financing agreements |  | $ | 252,183 |  |  | $ | 1,217,002 |
Weighted average haircut on MSR-related assets (3) |  | 39.87 | % |  | 21.18 | %
Mark-to-market financing agreements secured by other interest-earning assets |  | $ | 34,082 |  |  | $ | 57,198 |
Fair value of other interest-earning assets pledged as collateral under financing agreements |  | $ | 44,079 |  |  | $ | 61,708 |
Weighted average haircut on other interest-earning assets (3) |  | 25.00 | % |  | 22.01 | %
(1)Excludes $0 and $1.1 million of unamortized debt issuance costs at September 30, 2020 and December 31, 2019, respectively. (2)At September 30, 2020 and December 31, 2019, includes RPL/NPL MBS with an aggregate fair value of $192.7 million and $238.8 million, respectively, obtained in connection with the Company’s loan securitization transactions that are eliminated in consolidation. (3) Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount. In addition, the Company had cash pledged as collateral in connection with its financing agreements of $5.3 million and $25.2 million at September 30, 2020 and December 31, 2019, respectively. The following table presents repricing information (excluding the impact of associated derivative hedging instruments, if any) about the Company’s financing agreements that have non-mark-to-market collateral provisions as well as those that have mark-to-market collateral provisions, at September 30, 2020 and December 31, 2019:
|  | September 30, 2020 |  | December 31, 2019
Amortized Cost Basis |  | Weighted Average Interest Rate | Amortized Cost Basis |  | Weighted Average Interest Rate
Time Until Interest Rate Reset
(Dollars in Thousands) |  |  |  |  |  |  |  |
Within 30 days |  | $ | 2,932,213 |  |  | 3.36 | % |  | $ | 4,472,120 |  |  | 2.55 | %
Over 30 days to 3 months |  | — |  |  | — |  |  | 2,746,384 |  |  | 3.43 |
Over 3 months to 12 months |  | 280,843 |  |  | 3.02 |  |  | 1,014,441 |  |  | 3.36 |
Over 12 months |  | — |  |  | — |  |  | 907,999 |  |  | 3.44 |
Total financing agreements |  | $ | 3,213,056 |  |  | 3.33 | % |  | $ | 9,140,944 |  |  | 2.99 | %
Less debt issuance costs |  | — |  |  |  |  | 1,123 |  |  |
Total financing agreements less debt issuance costs |  | $ | 3,213,056 |  |  |  |  | $ | 9,139,821 |  |  |
The Company had financing agreements, including repurchase agreements and other forms of secured financing with 8 and 28 counterparties at September 30, 2020 and December 31, 2019, respectively. The following table presents information with respect to each counterparty under financing agreements for which the Company had greater than 5% of stockholders’ equity at risk in the aggregate at September 30, 2020:
|  | September 30, 2020
|  | Counterparty Rating (1) |  | Amount at Risk (2) |  | Weighted Average Months to Repricing for Repurchase Agreements |  | Percent of Stockholders’ Equity
Counterparty |  |  |  |
(Dollars in Thousands) |  |  |  |  |  |  |  |
Barclays Bank |  | BBB/Aa3/A |  | $ | 750,922 |  |  | 1 |  | 29.3 | %
Credit Suisse |  | BBB+/Baa2/A- |  | 574,835 |  |  | 1 |  | 22.4 |
Wells Fargo |  | A+/Aa2/AA- |  | 349,825 |  |  | 1 |  | 13.6 |
Goldman Sachs (3) |  | BBB+/A3/A |  | 173,266 |  |  | 3 |  | 6.8 |
Athene (4) |  | BBB+/N/A/BBB+ |  | 144,245 |  |  | 1 |  | 5.6 |
(1)As rated at September 30, 2020 by S&P, Moody’s and Fitch, Inc., respectively. The counterparty rating presented is the lowest published for these entities. (2)The amount at risk reflects the difference between (a) the amount loaned to the Company through financing agreements, including interest payable, and (b) the cash and the fair value of the securities pledged by the Company as collateral, including accrued interest receivable on such securities. (3)Includes $20.6 million at risk with Goldman Sachs and $152.7 million at risk with Goldman Sachs Bank USA. (4)Includes amounts at risk with various Athene affiliates that collectively exceed 5% of stockholders’ equity. Senior Secured Term Loan Facility The Company entered into a $500 million senior secured term loan facility (the “Term Loan Facility”) with certain funds, accounts and/or clients managed by affiliates of Apollo Global Management, Inc. and affiliates of Athene Holding Ltd. The term loans were 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 original 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. The Company is permitted to voluntarily prepay the amount borrowed under the Term Loan Facility in full at any time without penalty. In addition, the Company may partially prepay the amount borrowed on only one occasion without penalty, provided such partial prepayment be 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 are 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 is required to comply with certain affirmative and negative covenants as specified in the Term Loan Facility that, among other things, impose certain limitations on the Company to incur liens or indebtedness, to make certain 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 Term Loan Facility. Subsequent to the end of the third quarter, the outstanding balance of the Term Loan Facility was repaid and the Term Loan Facility was terminated. Refer to note 16 for further discussion. (b) Other Financing Agreements These arrangements were either entered into prior to the Company experiencing financial difficulties related to the COVID-19 pandemic, or, in the case of the Company’s most recent securitization, after the Company’s exit from forbearance, and were not subject to the forbearance arrangements that were entered into by the Company or any negotiations related to the Company’s exit from those arrangements. Additional information regarding the Company’s Other financing arrangements as of September 30, 2020, is included below: Securitized Debt Securitized debt represents third-party liabilities of consolidated VIEs and excludes liabilities of the VIEs acquired by the Company that are eliminated in consolidation. The third-party beneficial interest holders in the VIEs have no recourse to the general credit of the Company. The weighted average fixed rate on the securitized debt was 2.93% at September 30, 2020 (see Notes 10 and 15 for further discussion). Convertible Senior Notes On June 3, 2019, the Company issued $230.0 million in aggregate principal amount of its Convertible Senior Notes in an underwritten public offering, including an additional $30.0 million issued pursuant to the exercise of the underwriters’ option to purchase additional Convertible Senior Notes. The total net proceeds the Company received from the offering were approximately $223.3 million, after deducting offering expenses and the underwriting discount. The Convertible Senior Notes bear interest at a fixed rate of 6.25% per year, paid semiannually on June 15 and December 15 of each year commencing December 15, 2019 and will mature on June 15, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. The Convertible Senior Notes are convertible at the option of the holders at any time until the close of business on the business day immediately preceding the maturity date into shares of the Company’s common stock based on an initial conversion rate of 125.7387 shares of the Company’s common stock for each $1,000 principal amount of the Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $7.95 per share of common stock. The Convertible Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 6.94%. The Company does not have the right to redeem the Convertible Senior Notes prior to maturity, except to the extent necessary to preserve its status as a REIT, in which case the Company may redeem the Convertible Senior Notes, in whole or in part, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The Convertible Senior Notes are the Company’s senior unsecured obligations and are effectively junior to all of the Company’s secured indebtedness, which includes the Company’s repurchase agreements and other financing arrangements, to the extent of the value of the collateral securing such indebtedness and equal in right of payment to the Company’s existing and future senior unsecured obligations, including the Senior Notes. Senior Notes On April 11, 2012, the Company issued $100.0 million in aggregate principal amount of its Senior Notes in an underwritten public offering. The total net proceeds the Company received from the offering of the Senior Notes were approximately $96.6 million, after deducting offering expenses and the underwriting discount. The Senior Notes bear interest at a fixed rate of 8.00% per year, paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year and will mature on April 15, 2042. The Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 8.31%. The Company may redeem the Senior Notes, in whole or in part, at any time, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest. The Senior Notes are the Company’s senior unsecured obligations and are effectively junior to all of the Company’s secured indebtedness, which includes the Company’s repurchase agreements and other financing arrangements, to the extent of the value of the collateral securing such indebtedness and equal in right of payment to the Company’s existing and future senior unsecured obligations, including the Convertible Senior Notes.

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- Definition The entire disclosure for repurchase agreements (also known as repos), resale agreements (also known as reverse repurchase agreements or reverse repos), securities borrowed transactions, and securities loaned transactions. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -URI http://asc.fasb.org/topic&trid=2197590 + Details
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