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Fair Value | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value Recurring financial assets and liabilities measured and carried at fair value by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
|  |  |  | Level 1 |  | Level 2 |  | Level 3
June 30, 2021 |  | Carrying Value |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Recurring financial assets |  |  |  |  |  |  |  |
Investment in debt securities at fair value |  | $ | 424,632 |  |  | $ | — |  |  | $ | 424,632 |  |  | $ | — |
Recurring financial liabilities |  |  |  |  |  |  |  |
Put option liability |  | $ | 18,350 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,350 |
|  |  |  | Level 1 |  | Level 2 |  | Level 3
December 31, 2020 |  | Carrying Value |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Recurring financial assets |  |  |  |  |  |  |  |
Investment in debt securities at fair value |  | $ | 273,834 |  |  | $ | — |  |  | $ | 273,834 |  |  | $ | — |
Recurring financial liabilities |  |  |  |  |  |  |  |
Put option liability |  | $ | 14,205 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,205 |
The following tables set forth the fair value of financial instruments by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
|  |  |  | Level 1 |  | Level 2 |  | Level 3
June 30, 2021 |  | Carrying value |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Financial assets |  |  |  |  |  |  |  |
Mortgage loans, net |  | $ | 955,628 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,043,197 |
Investments in beneficial interests |  | $ | 133,484 |  |  | $ | — |  |  | $ | — |  |  | $ | 133,484 |
Investment in Manager |  | $ | 1,571 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,794 |
Investment in AS Ajax E LLC |  | $ | 683 |  |  | $ | — |  |  | $ | 825 |  |  | $ | — |
Investment in AS Ajax E II LLC |  | $ | 2,840 |  |  | $ | — |  |  | $ | 3,012 |  |  | $ | — |
Investment in GAFS, including warrants |  | $ | 2,656 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,320 |
Investment in Gaea |  | $ | 19,818 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,991 |
Investment in Loan pool LLCs |  | $ | 361 |  |  | $ | — |  |  | $ | — |  |  | $ | 724 |
Financial liabilities |  |  |  |  |  |  |  |
Secured borrowings, net |  | $ | 653,948 |  |  | $ | — |  |  | $ | 667,565 |  |  | $ | — |
Borrowings under repurchase transactions |  | $ | 394,386 |  |  | $ | — |  |  | $ | 394,386 |  |  | $ | — |
Convertible senior notes, net |  | $ | 103,427 |  |  | $ | 111,693 |  |  | $ | — |  |  | $ | — |
|  |  |  | Level 1 |  | Level 2 |  | Level 3
December 31, 2020 |  | Carrying value |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Financial assets |  |  |  |  |  |  |  |
Mortgage loans, net |  | $ | 1,119,372 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,232,081 |
Investment in beneficial interests |  | $ | 91,418 |  |  | $ | — |  |  | $ | — |  |  | $ | 91,418 |
Investment in Manager |  | $ | 1,366 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,709 |
Investment in AS Ajax E LLC |  | $ | 776 |  |  | $ | — |  |  | $ | 934 |  |  | $ | — |
Investment in AS Ajax E II LLC |  | $ | 3,381 |  |  | $ | — |  |  | $ | 3,484 |  |  | $ | — |
Investment in GAFS, including warrants |  | $ | 2,711 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,320 |
Investment in Gaea |  | $ | 20,001 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,150 |
Investment in Loan pool LLCs |  | $ | 381 |  |  | $ | — |  |  | $ | — |  |  | $ | 701 |
Financial liabilities |  |  |  |  |  |  |  |
Secured borrowings, net |  | $ | 585,403 |  |  | $ | — |  |  | $ | 586,419 |  |  | $ | — |
Borrowings under repurchase agreement |  | $ | 421,132 |  |  | $ | — |  |  | $ | 421,132 |  |  | $ | — |
Convertible senior notes, net |  | $ | 110,057 |  |  | $ | 110,675 |  |  | $ | — |  |  | $ | — |
During the quarter ended June 30, 2021, the company refinanced its Ajax Mortgage Trust 2017-D secured borrowing and took back debt securities and beneficial interests in Ajax Mortgage Trust 2021-C (“2021-C”). 2021-C is not consolidated in the Company’s financial statements. Accordingly, the carrying value and fair value of Mortgage loans declined and the Investment in and fair value of debt securities and beneficial interests increased. The Investment in debt securities and beneficial interests are carried at fair value on the Company’s consolidated balance sheet. The fair value of mortgage loans and beneficial interests is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred. The Company values its investments in debt securities using estimates provided by its financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from financing counterparties. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on its investments in beneficial interests. The Company's investment in the Manager is valued by applying an earnings multiple to base fee revenue. The Company’s investments in AS Ajax E LLC and AS Ajax E II LLC are valued using estimates provided by financing counterparties or other publicly available information. The fair value of the Company's investment in GAFS, including warrants, is determined by applying an earnings multiple to expected earnings. The fair value of the Company's investment in Gaea is estimated using a projected net operating income for its property portfolio. The fair value of the Company's investment in the loan pool LLCs is determined by using estimates of underlying assets and liabilities taken from its Manager's pricing model. The fair value of secured borrowings is estimated using estimates provided by the Company's financing counterparties, which are compared for reasonableness to the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans collateralizing the debt. The Company is able to call the bonds issued in its secured borrowings at par value plus accrued interest pursuant to the terms of the offering document. The Company carries its secured borrowings net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is largely driven by the deferred issuance costs. The Company's put option liability is adjusted to approximate market value through earnings.The put obligation is a fixed amount that may be settled in cash or shares of the Company’s common stock at the option of the Company. Fair value is determined using the discounted cash flow method using a rate to accrete the initial basis of $9.5 million to the future put obligation of $50.7 million over the 39-month term of the put option liability. The Company’s borrowings under repurchase agreements are short-term in nature, and the Manager believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value. The Company’s convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the balance sheet date. The Convertible debt may be redeemable at par plus accrued interest beginning on April 30, 2022 subject to satisfying the conversion price trigger. The Company carries it Convertible debt net of deferred issuance cost. Accordingly, the difference between fair value and carrying value is partially driven by the deferred issuance costs. The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from Servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value. Non-financial assets Property held-for-sale is carried at the lower of its acquisition cost ("cost") or net realizable value. Net realizable value is determined based on appraisals, broker price opinions, or other market indicators of fair value less expected liquidation costs. The lower of cost or net realizable value for the Company’s REO Property is stated as it's carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of June 30, 2021 and December 31, 2020 ($ in thousands):
|  |  |  |  |  | Level 1 |  | Level 2 |  | Level 3
June 30, 2021 |  | Carrying value |  | Six months ended fair value adjustment recognized in the consolidated statements of income |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Non-financial assets |  |  |  |  |  |  |  |  |  |
Property held-for-sale |  | $ | 4,409 |  |  | $ | (248) |  |  | $ | — |  |  | $ | — |  |  | $ | 4,409 |
|  |  |  |  |  | Level 1 |  | Level 2 |  | Level 3
December 31, 2020 |  | Carrying value |  | Fair value adjustment recognized in the consolidated statements of income |  | Quoted prices in active markets |  | Observable inputs other than Level 1 prices |  | Unobservable inputs
Non-financial assets |  |  |  |  |  |  |  |  |  |
Property held-for-sale |  | $ | 7,807 |  |  | $ | (1,359) |  |  | $ | — |  |  | $ | — |  |  | $ | 7,807 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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