Repurchase Agreements

9 Months Ended

Sep. 30, 2019

Investment Securities

The Company has entered into repurchase agreements with third party financial institutions to finance its investment securities portfolio. These repurchase agreements are short-term borrowings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance. At September 30, 2019 and December 31, 2018, the Company had repurchase agreements secured by investment securities with an outstanding balance of $1.8 billion and $1.5 billion, respectively, and a weighted average interest rate of 3.06% and 3.41%, respectively.

The following table presents detailed information about the Company’s borrowings under repurchase agreements secured by investment securities and associated assets pledged as collateral at September 30, 2019 and December 31, 2018 (dollar amounts in thousands):



	September 30, 2019						December 31, 2018
	Outstanding Repurchase Agreements		Fair Value of Collateral Pledged		Amortized Cost of Collateral Pledged		Outstanding Repurchase Agreements		Fair Value of Collateral Pledged		Amortized Cost of Collateral Pledged
Agency ARMs RMBS	$	55,598	$	57,546	$	58,993	$	67,648	$	70,747	$	73,290
Agency Fixed-rate RMBS	785,266		830,400		832,071		857,582		907,610		940,994
Non-Agency RMBS	210,339		288,014		280,724		88,730		117,958		118,414
CMBS ⁽¹⁾	772,707		976,121		790,492		529,617		687,876		539,788
Balance at end of the period	$	1,823,910	$	2,152,081	$	1,962,280	$	1,543,577	$	1,784,191	$	1,672,486


⁽¹⁾	Includes first loss PO, IO and mezzanine CMBS securities with a fair value amounting to $773.4 million and $543.0 million included in the Consolidated K-Series as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, the average days to maturity for repurchase agreements secured by investment securities were 71 days and 62 days, respectively. The Company’s accrued interest payable on outstanding repurchase agreements secured by investment securities at September 30, 2019 and December 31, 2018 amounts to $7.1 million and $3.9 million, respectively, and is included in accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The following table presents contractual maturity information about the Company’s outstanding repurchase agreements secured by investment securities at September 30, 2019 and December 31, 2018 (dollar amounts in thousands):



Contractual Maturity	September 30, 2019		December 31, 2018
Within 30 days	$	752,874	$	732,051
Over 30 days to 90 days	824,579		677,906
Over 90 days	246,457		133,620
Total	$	1,823,910	$	1,543,577

As of September 30, 2019, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 86.1% that implies an average “haircut” of 13.9%. As of September 30, 2019, the weighted average “haircut” related to our repurchase agreement financing for our Agency RMBS, non-agency RMBS, and CMBS was approximately 5%, 26%, and 20%, respectively.

In the event we are unable to obtain sufficient short-term financing through existing repurchase agreements, 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 September 30, 2019 and December 31, 2018, the Company had financing arrangements with fourteen and eleven counterparties, respectively. As of September 30, 2019, the Company had no exposure where the amount at risk was in excess of 5% of the Company's stockholders’ equity. As of December 31, 2018 the Company's only exposure where the amount at risk was in excess of 5% was to Jefferies & Company, Inc. at 5.04%.

As of September 30, 2019, our available liquid assets included unrestricted cash and cash equivalents and unencumbered securities that we believe may be posted as margin. The Company had $65.9 million in cash and cash equivalents and $637.0 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 September 30, 2019 included $67.9 million of Agency RMBS, $187.3 million of CMBS, $333.5 million of non-Agency RMBS and $48.3 million of ABS. The cash and unencumbered securities, which collectively represent 38.5% of our repurchase agreements secured by investment securities, are liquid and could be monetized to pay down or collateralize a liability immediately.

Distressed and Other Residential Mortgage Loans

The Company has master repurchase agreements with third party financial institutions to fund the purchase of distressed and other residential mortgage loans, including both first and second mortgages. The following table presents detailed information about the Company’s borrowings under these repurchase agreements and associated distressed and other residential mortgage loans pledged as collateral at September 30, 2019 and December 31, 2018 (dollar amounts in thousands):



	Maximum Aggregate Uncommitted Principal Amount		Outstanding Repurchase Agreements		Carrying Value of Loans Pledged ⁽¹⁾		Weighted Average Rate		Weighted Average Months to Maturity
September 30, 2019	$	950,000	$	736,348	$	937,682	4.05	%	4.00
December 31, 2018	$	950,000	$	589,148	$	754,352	4.67	%	9.24


⁽¹⁾	Includes distressed and other residential mortgage loans at fair value of $854.4 million and $626.2 million and distressed and other residential mortgage loans, net of $83.3 million and $128.1 million at September 30, 2019 and December 31, 2018, respectively.

During the terms of the master repurchase agreements, proceeds from the distressed and other 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 distressed and other 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 liquidity, market capitalization, and total stockholders' equity. The Company is in compliance with such covenants as of November 7, 2019. The Company expects to roll outstanding borrowings under these master repurchase agreements into new repurchase agreements or other financings prior to or at maturity.

Costs related to the establishment of the repurchase agreements which include commitment, underwriting, legal, accounting and other fees are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying condensed consolidated balance sheets in the amount of $0.4 million as of September 30, 2019 and $1.2 million as of December 31, 2018. These deferred charges are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.