Financing Arrangements, Residential Mortgage Loans

12 Months Ended

Dec. 31, 2017

Financing Arrangements, Residential Mortgage Loans

Financing Arrangements, Portfolio Investments

The Company has entered into repurchase agreements with third party financial institutions to finance its investment portfolio. These financing arrangements are short-term borrowings that bear interest rates typically based on a spread to LIBOR, and are secured by the securities which they finance. At December 31, 2017, the Company had repurchase agreements with an outstanding balance of $1.3 billion and a weighted average interest rate of 2.18%. At December 31, 2016, the Company had repurchase agreements with an outstanding balance of $773.1 million and a weighted average interest rate of 1.92%.

The following table presents detailed information about the Company’s borrowings under financing arrangements and associated assets pledged as collateral at December 31, 2017 and December 31, 2016 (dollar amounts in thousands):



	2017						2016
Assets Pledged as Collateral	Outstanding Borrowings		Fair Value of Collateral Pledged		Amortized Cost Of Collateral Pledged		Outstanding Borrowings		Fair Value of Collateral Pledged		Amortized Cost Of Collateral Pledged
Agency ARMs RMBS	$	86,349	$	90,343	$	92,586	$	102,088	$	109,552	$	110,903
Agency Fixed-rate RMBS	842,474		890,359		902,744		289,619		308,411		318,544
Agency IOs/U.S. Treasury Securities	—		—		—		60,862		82,153		93,819
Non-Agency RMBS	38,160		51,841		50,693		113,749		150,944		149,969
CMBS ⁽¹⁾	309,935		421,156		322,092		206,824		294,083		216,092
Balance at end of the period	$	1,276,918	$	1,453,699	$	1,368,115	$	773,142	$	945,143	$	889,327


⁽¹⁾	Includes first loss PO and mezzanine CMBS securities with a fair value amounting to $377.5 million and $254.6 million included in the Consolidated K-Series as of December 31, 2017 and December 31, 2016, respectively.

As of December 31, 2017 and 2016, the average days to maturity for all financing arrangements were 44 days and 12 days, respectively. The Company’s accrued interest payable on outstanding financing arrangements at December 31, 2017 and 2016 amounts to $2.5 million and $1.1 million, respectively, and is included in accrued expenses and other liabilities on the Company’s consolidated balance sheets.

The following table presents contractual maturity information about the Company’s outstanding financing arrangements at December 31, 2017 and 2016 (dollar amounts in thousands):



Contractual Maturity	December 31, 2017		December 31, 2016
Within 30 days	$	1,081,911	$	729,134
Over 30 days to 90 days	95,007		44,008
Over 90 days	100,000		—
Total	$	1,276,918	$	773,142

As of December 31, 2017, the outstanding balance under our financing arrangements was funded at a weighted average advance rate of 90.0% that implies an average haircut of 10.0%. As of December 31, 2017, the weighted average “haircut” related to our repurchase agreement financing for our Agency RMBS, non-Agency RMBS, and CMBS was approximately 5%, 25%, and 24%, respectively.

In the event we are unable to obtain sufficient short-term financing through financing arrangements, or our lenders start to require additional collateral, we may have to liquidate our investment securities at a disadvantageous time, which could result in losses. Any losses resulting from the disposition of our investment securities in this manner could have a material adverse effect on our operating results and net profitability. At December 31, 2017 and December 31, 2016, the Company had financing arrangements with ten and eight counterparties, respectively. At December 31, 2017 and December 31, 2016, the Company's only exposure where the amount at risk was in excess of 5% of the Company's stockholders' equity was to Deutsche Bank AG, London Branch at 5.0% and 5.1%. respectively. The amount at risk is defined as the fair value of securities pledged as collateral to the financing arrangement in excess of the financing arrangement liability.

As of December 31, 2017, our available liquid assets include unrestricted cash and cash equivalents, overnight deposits and unencumbered securities that we believe may be posted as margin. The Company had $95.2 million in cash and cash equivalents, $0.5 million in overnight deposits in our Agency IO portfolio included in restricted cash and $315.7 million in unencumbered investment securities to meet additional haircuts or market valuation requirements. The unencumbered securities that we believe may be posted as margin as of December 31, 2017 included $188.8 million of Agency RMBS, $76.6 million of CMBS and $50.3 million of non-Agency RMBS. The cash and unencumbered securities, which collectively represent 32.2% of our financing arrangements, are liquid and could be monetized to pay down or collateralize a liability immediately.

Financing Arrangements, Residential Mortgage Loans

The Company has a master repurchase agreement with Deutsche Bank AG, Cayman Islands Branch with a maximum aggregate committed principal amount of $100.0 million and a maximum uncommitted principal amount of $150.0 million to fund distressed residential mortgage loans, expiring on June 8, 2019. At December 31, 2016, the master repurchase agreement provided for a maximum aggregate principal committed amount of $200.0 million. The outstanding balance on this master repurchase agreement as of December 31, 2017 and December 31, 2016 amounts to approximately $123.6 million and $193.8 million, respectively, bearing interest at one-month LIBOR plus 2.50% (4.05% and 3.26% at December 31, 2017 and December 31, 2016, respectively). The Company expects to roll outstanding borrowings under this master repurchase agreement into a new repurchase agreement or other financing prior to or at maturity.

In November 2015, the Company entered into a master repurchase agreement with Deutsche Bank AG, Cayman Islands Branch in an aggregate principal amount of up to $100.0 million, to fund the future purchase of residential mortgage loans, expiring on May 25, 2017. On May 24, 2017, the Company entered into an amended master repurchase agreement that reduced the guaranteed committed principal amount to $25.0 million and expires on November 24, 2018. The outstanding balance on this master repurchase agreement as of December 31, 2017 amounts to approximately $26.1 million, with the amount in excess of $25.0 million being uncommitted, bearing interest at one-month LIBOR plus 3.50% (5.05% at December 31, 2017). There was no outstanding balance on this master repurchase agreement as of December 31, 2016.

During the terms of the master repurchase agreements, proceeds from the residential mortgage loans, including the Company's distressed residential mortgage loans, will be applied to pay any price differential and to reduce the aggregate repurchase price of the collateral. The financings under the master repurchase agreements are subject to margin calls to the extent the market value of the residential mortgage loans falls below specified levels and repurchase may be accelerated upon an event of default under the master repurchase agreements. The master repurchase agreements contain various covenants, including among other things, the maintenance of certain amounts of net worth, liquidity and leverage ratios. The Company is in compliance with such covenants as of February 27, 2018.