Q1 2020 MFA Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to that and that the financial Inc. first quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question answer session and if you do have a question during the conference we cross Wanna than zero on your toe.
Just on phone you may remove yourself by repeating the one zero command if you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I'd now like turn the conference over to Hell Schwartz. Please go ahead.
Thank you operator, and good morning, everyone and thank you for your patience, while we results from technological issues on our end.
The information discussed on this conference call today may contain or refer to forward looking statements regarding about fade financial inc., which reflect management's beliefs expectations and assumptions as to how about base future performance and operations. When used statements that are not historical nature, including those containing words, such as will believe expect.
We anticipate.
Estimate should could would or similar expressions are intended to identify forward looking statements. All forward looking statements speak only as of the date on which they are made these types of statements are subject to various known and unknown risks uncertainties assumptions and other factors, including those described in MFS annual report on form 10-K for the year ended December.
31, 2019, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks uncertainties and other factors could cause MFS actual results to differ materially from those projected expressed or implied in any forward looking statements. It makes for additional information regarding them if they use a forward looking statements.
Please see the relevant disclosure in the press release announcing interface first quarter 2020 financial results. Thank you for your time I would now like to turn the call over the M.F., a CEO and President Craig Knutson.
Thank you help a good morning, everyone Little did I know that I would have to compete for airtime with chairman Powell, whose testifying in the Senate today.
I apologize for those of you do a short stronger second recall.
I'd like to thank you for your interest in and welcome you to M&A Financial's first quarter Twentytwenty financial results webcast also dialoging with me today or Steve yard or CFO, Gudmundur Kristjansson and brought in Wilson, our co chief investment officers and other members of senior management or format. This morning will be slightly different.
From our customary earnings call.
We have an earnings presentation on our website and filed as part of an 8-K filed this morning, but unlike our usual earnings calls this deck will not scroll on the webcast and we will not follow the earnings that page by page as we typically do I encourage you to open the presentation as I will refer at times to various pages in the deck as I deliver prepared remarks.
For opening up the call two questions.
Before we begin I want to give a shout out to our entire and that they team. The last three months have obviously been extremely challenging and made exponentially more so by the fact that all of our efforts have been remote.
The company fully implemented or business continuity plan during the third week of March and successfully completely transitioned to a remote work environment to address the operating risks associated with the global Cobot 19 pandemic.
The effort and commitment displayed by our entire team over the last three months has been extraordinary and I've been humbled by their dedication.
Before we discuss the first quarter of 2020 financial results, which frankly at this point seems like ancient history I'd like to spend some time discussing what other important work streams have been taking place at analyst day since March 23rd that I think it will be obvious why we've been silent on so many of these activities.
These critical efforts have been comprised primarily of three things one forebears to balance sheet and liquidity management and three sourcing third party capital.
We have issued several press releases chronicling forbearance agreements with various of our lending Counterparties and we're presently in the third forbearance plan, which extends to June 26.
As arduous [laughter] forbearance agreements have been to negotiate and operate through they have provided us with the time to manage our balance sheet and liquidity. While also working to source third party capital and we are grateful to our lending counterparties that stuck with us through three versions of forbearance plans.
During April and May.
We significantly reduced our balance sheet in an effort to raise liquidity and de lever importantly, because we entered into these forbearance plans.
We were able to manage our balance sheet in a more judicious fashion given the time allowed through forbearance many of our asset sales, particularly on mortgage backed securities were at prices significantly higher than the price levels that existed in late March or sales during the month of April alone of legacy non agencies.
Crts and MSR related assets generated over $150 million of realized gains versus March 31 marks.
Now well still down significantly from values at the end of February the patients permitted through forbearance enabled us to work hard to lessen book value erosion.
We were also able to manage the sale of a large non QM whole loan portfolio. The traded in late April and closed in mid May well, we realize the significant loss on the sale. We're confident that we achieved a much better execution by controlling and managing the trade than we would've realized had the lender just liquidated the pool.
In the and all of our lenders will have been fully repaid with no deficiencies, which is another of the design goals of a forbearance plan.
It was clear to us in late March that our situation was not due to bad assets, such a fragile funding and the path forward would require more durable forms of financing.
We also recognize that term financing margin holiday and or non mark to market financing would necessarily require higher haircuts and therefore more capital.
Our method for seeking third party capital began somewhat passively during the last week of March with fielding incoming indications of interest.
As this process intensified with more and more parties together with negotiating and Da's and then responding to voluminous data requests all the while with our hair on fire in negotiating a forbearance agreement, while managing our balance sheet and liquidity when we engaged houlihan lokey at the end of March to manage this process for us.
The initial indications of interest from a number of capital providers came back in mid April, but as we continued to de lever and raise liquidity. It became evident evidenced that our third party capital needs had already changed we extended our initial forbearance agreement at the end of April to June 1st and as we entered May we began.
We will pain better price discovery, particularly on our loan portfolio, which gave us more clarity as to our path forward.
We saw a second round or proposals from third party capital providers in mid May and as we held due diligence and informational calls with many of these institutions. We found that there was a competitive dynamic at work and a keen interest in pursuing a transaction with NFV.
We started the term sheet over memorial day weekend and have been working sense to negotiate and document. This agreement for obvious reasons, we could not communicate publicly about these activities and it was frustrating not to be able to provide the public disclosure and transparency on which we pride ourselves.
We signed these agreements last night and we're happy to announce today that we have entered into an agreement with Apollo and a theme and insurance company affiliate of Apollo to raise $500 million in the form of a senior secured note.
But this 500 million dollar low is only part of a holistic solution for MFS and a very strategic partnership with Apollo and a theme.
Apollo when a theme together have arranged a committed term borrowing facility with Barclays of approximately $1.65 billion that includes over $500 million for participation from a theme. This term non mark to market facility will provide us with durable financing for a large portion of our.
Loan portfolio.
In addition.
Theme has committed to purchase subject to certain pricing conditions, a portion of our first securitization of non QM loans.
And finally Apollo in a theme are engaged with another of our lenders to structure and additional similar lending facility for our fixed and flip portfolio in which a team also intends to participate.
Pro forma for these facilities approximately 60% of the company's financing will be in the form of non mark to market funding, providing shareholders with significant downside protection in the event of future market volatility.
We expect that upon closing and funding of these transactions will be able to satisfy remaining margin calls, which were only $32 million as of June 12.
And exit from the current forbearance agreement on or before June 26.
We also anticipate using some of the proceeds to pay accumulated unpaid dividends on our series B and C preferred stock issues.
And finally, we expect that this transaction will provide us with substantial capital to once again begin to pursue attractive investment opportunities.
As part of this transaction Apollo in a theme will receive warrants to purchase emigre common stock at varying prices over a five year period and will appoint the non voting observer to our board of directors Apollo when a theme have also committed to purchase the lesser of 4.9% for $50 million of interface stock.
In the open market over the next 12 months.
We are extremely excited about this transaction, which we consider to be much more than a capital raise and very much a strategic alliance details of the specific terms of the credit agreement are provided in an 8-K that we filed this morning.
Moving on to the financial results for the first quarter of 2020.
Others have described before us.
First quarter of 2020 was literally a tale of two distinct an orderly different periods and Tom.
January February and the first two weeks of March were very normal and a good start to the new year.
In open and only a few days the financial markets and the mortgage market in particular completely collapsed with the onset of the cobot 19 pandemic pricing dislocations for markets in residential mortgage assets.
Was so extreme that liquidity evaporated.
Prices of legacy non agencies, which has not changed by more than three points in the last two to three years, where suddenly lower by 20 points.
CRT Securities dropped as much as 20 to 50 points and NSR related asset prices were lower by 20 to 30 points.
All in a few days.
And if they received almost $800 million in margin calls during the weeks of March 16th and March 23rd and over 600 of these were on mortgage backed securities.
In contrast, we received seven $7 million of margin calls on these portfolios during the entire week of March 2nd.
37 million during the week of March 9th.
And during the month of December January and February we received a total of six margin calls all related to factor changes with total aggregate amount of $4 million.
During those same three months, we initiated 10 reverse margin calls totaling 14 million, meaning we received net 10 million more from our lenders due to price increases.
Well, we began selling assets during the week of March 16, the dearth of liquidity made this difficult we announced on March 24th that we have not net margin calls on March 23rd and that we had initiated forbearance discussions with our financing counterparties.
As we begin these negotiations we continue to sell assets to raise liquidity and reduce leverage our first quarter financial results were profoundly affected by realized losses impairment losses.
Unrealized losses on loans accounted for at fair value provisions for credit losses under the new Cecil standard and valuation adjustments on assets designated as held for sale and resulted in a loss of $914 million or $2.02 per share.
Value decreased to $4 was 34 cents per share at March 31, and economic book value decreased to $4 in nine cents per share.
Page nine of the earnings presentation provides detail of some of these items together with the additional information section of the presentation beginning on page 13.
Weve yard will be available to discuss.
The financial results from the first quarter during the question and answer structure.
I would now like to spend some time discussing balance sheet changes since March 30, Onest and provide some perspective on what we envision after funding of the Apollo and a theme transaction and exit from forbearance.
Page seven of the earnings deck shows portfolio activity from December 31 to March 31st and then again from March 30, Onest to May 31.
As you can see from the pie charts, we have sold substantially all of our mortgage backed securities in our 6.6 billion dollar portfolio is approximately 94% whole loans.
It should not be a surprise because almost all of our portfolio growth and new acquisitions over the last two to three years has been in whole loans mortgage backed securities are admittedly more liquid and we're therefore easier to sell but we saw improvement in securities pricing through April and May whereas loan pricing changes were less.
Defined and slower to occur bolt on the way down than on the way back up.
More importantly, there is more difficult to get nonmarket non mark to market financing on mortgage backed securities than it is on loans due to certain regulatory issues. So the decision was relatively easy we view loans as generally more attractive assets and then securities and loans are more conducive.
To more durable financing arrangements in rough numbers, our whole loan portfolio today is comprised of non QM loans 2.4 billion.
Loans at fair value 1.2 billion fixing flip loans 850 million.
Purchase credit impaired or re performing loans 660 million single family rental 500 million.
Season, performing loans, 150 million and Oreo or real estate owned of $375 million.
Looking forward, we will finance a significant portion of this portfolio through term non mark to market financing, including securitization.
The committed 1.65 billion and our our existing Securitizations of approximately 500 million, we will have over $2 billion such financing.
And as mentioned previously we're working on a similar committed line with 15 at another dealer for our fix and flip portfolio.
We will continue to pursue securitization, particularly for non QM loans spreads for AAA securities widened out from the 100 area. That's 100 over swaps in early March two as wide as plus 400 at the depth of the crisis, but they've been slowly grinding tighter and are now back to mid 100.
Average levels.
We expect that following the closing and funding of these transactions, we will be able to declare and pay the accumulated dividends on our series B and series C preferred stock issues as we have disclosed previously the terms of the forbearance agreement prohibited payments of dividends on any equity interests include.
King preferred stock once the preferred stock dividends are covered we will no longer be prohibited from paying a common dividend.
As far as the dividend on interface common stock the board of directors will determine our dividend policy going forward, while we do not provide guidance as to expected future dividends I will share several perten facts that will clearly be given consideration in framing dividend discussions with the board.
One we presently have undistributed taxable income from 2019 of five cents per share in order to avoid paying corporate income tax we are required to declare a dividend for this income prior to filing of our 2019, we tax return, which we do in October.
Of this year and pay such dividend before the end of the year.
To estimated re taxable income ordinary income for the first quarter of 2020 is approximately.
10 cents per share.
In order to avoid paying a 4% excise tax on this amount we're required to declare dividends in twentytwenty for at least 85% of our estimated 2020, we taxable income.
And three capital losses again for tax purposes generated from sales of residential mortgage assets to date, and twentytwenty or carry forward and offset future capital gains. However, these capital losses do not offset ordinary taxable income.
While we cannot forecast ordinary re taxable income for the balance of Twentytwenty any such income generated will be added to the 10 cents in the first quarter in determining the threshold necessary to avoid the 4% excise tax.
The other brief update at June 12, our unrestricted cash was $242 million.
Book value as of May 30, Onest GAAP book value is estimated to have increased by approximately 2% to 3% versus March 30, Onest economic book value is estimated to be flat versus March 30 Onest.
This is primarily because carrying value loan marks were lower in April than in March and while we have seen some appreciation from April to made the may loan marks for carrying value loans, which is what determines economic book value for the difference between GAAP and economic book value. Those marks are still below the March marks.
This concludes my prepared remarks, Stacy will you. Please open up the lines for questions.
Thank you ladies and gentlemen, if you have a question perhaps one that they are all on your Touchtone phone and you may remove yourself by repeating that one near all time man and our first question without a doubt the harder with credit Suisse. Please go ahead.
Thanks.
Can you talk about the non mark to market facility I guess, how should we think about the incremental costs now to have that.
Patent protection of non Mark to market.
Sure does that answer the question.
So.
Without.
Yes. It is it is slightly more expensive, although it's not really that much more expensive. The bigger difference is the advance rates as you can imagine are lower and so hence the reason for.
The reason for for more capital and overall less leverage overall.
But without without and we're still in the process of negotiating a.
Fixed and flip line, so it's a little bit too early to to to give you exact spread levels. We will will definitely do that on the second quarter earnings call.
But like I say, they're not they're not that much more expensive than than what we what we use the pack.
Alright, Thanks, and you mentioned in your prepared remarks that went into capital you might be able to take advantage of investment opportunities anyway, you could size how much.
Kind of available liquidity, you think you would have to to invest and cut about actions you've taken.
Sure.
Again, it's a little preliminary because there is there zone.
This this probably this will likely fund at the at the end of towards the end of June when we get to the end of the forbearance period and some of that will be used to pay down some of the existing rico lines, but suffice to say it will be hundreds of millions of dollars. So.
It'll be substantial dry powder.
To look for new opportunities.
Alright, Thank you Greg.
Sure.
And we'll go to Steven lies with Raymond James. Please go ahead.
Hi, good morning.
Good morning, Stephen I guess really good morning follow up on Doug's question.
I think you commented during the prepared remarks, 60% of the financing once you pro forma for the new non mark to market facility will be non mark to market leverage was 1.9.
Is that about where you want to be do you see the leverage going down from here does it go up from here given the shift in the the risk around the financing kind of how do you view.
The optimal portfolio size here for the near term either.
Bigger or smaller staying the same.
I don't I, certainly don't think it needs to be any smaller than it is today I think there's there's room to increase it somewhat I think the leverage number could could increase somewhat for several reasons, we still have and will have a number of unencumbered assets, which we could add leverage to win again.
For those would be the Oreo portfolio, which youre right now were essentially 100% unencumbered.
The other is through securitization.
Effectively we get higher levels of leverage through securitization and.
Because it's it's termed out and it's non mark to market.
It's a which is it's a different type of leverage.
So I think it could tick higher do I see it going back up to.
Three times, where it was before where we used to say that we were the lowest levered.
Mortgage rate in the space, probably not but certainly within the in the twos is conceivable.
Great. Thanks for that color in a couple of things around the of the Apollo announcement saw the.
Filing and I assumed again, Bob Doug the financing facility will get more clarity on pricing there on the newmont non mark to market I think it's expected to close January 10 days from al So.
Is that when we'll see pricing or will it be after that.
I think what we'd probably do is endeavored to provide more clarity on on our liability cost structure on the earnings call for the second quarter.
We will have the we'll have the Apollo with theme numbers, obviously at the end of June.
But some of the other financing may not completely be in place yet. So we're we're moving as fast as we can to solidify that we need to to renegotiate am arrays with our existing lenders for the for the post forbearance.
Lending environment, and so all that will come to move will come into place.
But at a minimum will who will provide much more robust disclosure on that cost structure on the second quarter earnings call and again keep in mind that.
None of those numbers will be reflected in the second quarter. So they won't even begin to be reflected in financial results until the third quarter.
Okay Thats helpful to think about that from timing on the theme commitment to buy bonds next year deflation can you give us any color on where the bonds are in stack that they're committed to to look at him.
When that securitization may Tom I mean, how should we think about the benefits.
Tim I'd say from that that commitment.
So I think the benefits are pretty substantial.
They were they would typically be on the bonds below triple A.'s.
And as far as timing on that securitization, it's hard to say, we were literally one or two days in March.
Pricing a securitization on non QM loans so.
Suffice to say that the pools of loans are teed up to securitize.
So we're we're going to move ahead with that as quickly as we can.
Great and last question I think for me.
Oh really appreciate the color around re taxable income and Carrie spillover from last year and distribution dates.
I guess I understand it is that while the losses on security sales can offset read ordinary income the losses on the the hedges and swaps can since that's considered part of financing and can offset.
Ordinary income so I guess first am I, correct with that statement and if so.
Can you quantify I believe I wrote it down tried to.
What the losses were on online to the swaps thing was 170 million, maybe that will be amortized and interest expense over.
20 months I believe is that all going to be able to offset ordinary income this year or does it.
Carry over next year as well.
So it's a good question. Unfortunately, I don't have Terry Meyers on this call Steve I'm not sure. It is you know the answer that for maybe yes, we can get back offline.
Hi, good.
Yes.
Steve's questions a good one on I think we disclosed in the press release that as a result of the unwind. The 4.1 billion of swaps, we have roughly 70 71 million of.
Losses that currently trapped in.
And I'm just trying to.
And so we.
Yeah right now is it does that.
The liabilities at that we're hedging for accounting purposes.
The.
Swaps have a 20 months sort of average lot. So all things, saying is out right now the does losses will be recognized for accounting purposes over that period of time its going to depend on.
Yes men as whether those hedged items will the probability of those hedges I just had started recurring in the future and that will ultimately determine the timing of when those losses are recognized the GAAP accounting purposes, and also ultimately for tax so yes.
Based on how that assessment plays out.
Yeah, as we as we renegotiate financing it could impact the timing of that.
So that will the remained remained to be seems to exactly when that does losses recognized in GAAP income and taxable income.
Right now it's not it's based on the assessment that we've done it would be recognized over about a 20 month period.
Okay. Thanks for the color on that appreciate you taking my questions. This morning.
Thanks Steven.
Look I know Rick Shane with JP Morgan. Please go ahead.
Hey, guys. Thanks for taking my questions. Thank you for all of the disclosure.
In the timeline, it's very it's very helpful.
I just want to understand the Apollo work physician a little bit better.
Typically we talk about words in terms of coverage.
What is the coverage in the context to the $500 million facility.
So as disclosed in the in the 8-K, it's basically to warn packages totaled 7.5%.
And.
The the pricing was struck when the term sheet was signed.
Although coincidentally I think the blended.
Exercise price of the warrants is approximately equal to the to the 60 days be lap of the stock.
Got it Okay. That's helpful and I did not see that Nikkei, there's a ton of material.
This morning so.
I apologize for Mis thing that but thats helpful.
Lower then yeah look you guys talk about the D.
[laughter] excuse me.
The strategic nature of the partnership.
Obviously, Apollo from a funding and financing perspective.
It is a global leader.
They also frankly have some history in this space strategically I'm curious if you see it really is more of a funding relationship or ultimately up more of a partnership in terms of asset gathering as well.
I mean, frankly, I think it's probably both I think.
You've already seen with a theme that 15 has as leaned in two.
To lend us money into lend US you know attractive term non mark to market money.
They're they're doing the same thing with another dealer on our fixed and flip portfolio. There you know purchasing subordinate bonds in securitizations that we do.
I think.
The theme is obviously a buyer of mortgage assets. So I think we view it very much as a partnership within the Apollo complex. There's also an originator amerihome. So.
I think it remains to be seen where all the possible synergies are but we think it's very much a strategic relationship and it's certainly more than just funding.
Got it.
Very helpful. Hey, guys. Thank you very much.
Thanks, Rick.
And we'll go to Kenneth Lee with RBC capital markets. Please go ahead.
Hi, Thanks for taking my question.
You mentioned that overtime, you're expecting to finance more the residential whole loans through Securitizations wondering if you could just give us some color on that on the current environment, you're seeing in terms of securitizations.
Sure, Brian you want to talk about that.
Yeah sure.
Actually.
For some time there there has been a fair amount of demand for the senior part of the stack.
Thanks, Craig is measuring in his prepared remarks.
Spreads really widen out going into March April, but from a Ana and then you've really seen sort of the return of a securitization and now you're seeing sort of spread on the AAA.
Anywhere between 125 and.
On 50 at the moment, so there seems to be a lot of pent up demand from the lack of issuance over that two month period and so there's a lot of.
Demand for the security so so were.
The outlook on that at least an immediate near term.
Pretty positive.
Great. Thanks, and just one or one follow up if I may and it sounds like you know, we would see from financing facilities as well the capital raise.
The liquidity position and the general resiliency of the company has been improved significantly but wondering.
With 60% to be the portfolio as you mentioned now being sinosteel non mark to market.
Is there any way you could just sort of I give us a sense or better yet frame, how strongest liquidity position is in terms of being able to withstand any kind of potential market volatility going forward. Thanks.
Sure well, we think we think it's a it's a substantially more bullet proof on financing structure, you know given additional liquidity and given the non mark to market nature. We think it is very durable to your to your point about the Securitizations I think as.
Some of these securitizations occur those are loans that will go off those lines because there'll be part of the securitization and you know even at current levels, which are.
25, or maybe 30 basis points wider than than where they were in early March they're still very attractive levels, given how low swap rates are.
So I think and obviously the securitization is completely.
Non recourse non mark to market. So I think we're in a substantially better situation also keep in mind that as I said there were there were 800 million a margin calls over a two week period and 600 million to that was mortgage backed securities in our mortgage backed securities portfolio. At this point is very small so.
It really was the securities portfolio, Ironically, because so much of the pain.
Rather than the loans and yes, the loans did decline in value, but the loan value declined happened over a much longer period of time and it was and it was nowhere near as deep as the securities.
Value declines.
Great. That's very helpful. Appreciate it thank you very much.
You bet.
And once again, if you have a question, perhaps one than zero and we'll go to Eric Hagen with KBW. Please go ahead.
Hey, Thanks, Good morning, guys and hope, you're probably all done well mourner, let's see good morning, Whatsapp can you just toss the amount of unrealized loss that's remaining in the portfolio now like.
How much of that you I guess do you think can be recovered I mean, how much is.
How much of those marks on the loan side or do the things like liquidity that.
Aren't necessarily credit related or explicitly credit related and could be recovered.
Sure. Good question, Steve you want to what you want to tackle that.
Sure Craig.
So on the carrying value line.
Which impacts our economic book value the losses on the as you know at at current at the current position into my.
Yeah, we're an unrealized loss tradition of roughly $160 million.
And you know.
Can extend that.
Prices.
Continue to recover.
It's hard to say how much they could recover digital liquidity or whatnot, but as an example, if there was a one one point increasing pricing across that portfolio.
That would that would reduce.
These losses by roughly $50 million.
And similarly on the security side because of the way we could the accounting on the CRT securities and the MSR not quite yet.
Selling those securities than we impaired does.
Securities and adjusted the amortized cost at the end of March.
If it is increasing increases in those prices again hard to suggest how much that my favorite as this is an example, if they were to revert to part of the time, there would be fairly substantial impact on our net book value. It was much is.
$70 million, if they were two or the taposh, so that would have to an increase.
Significant increase in fact as well so hard to say exactly how much how much of that recovery could occur, but its certainly basin uplift in the book value as a result as continued recovery in those prices.
And Steve loan loss reserves.
We have achieved another thing I mean, obviously, we applied Cecil.
In the first quarter for the first time, probably the worst possible timing to apply an accounting standard that was really based on projections of future losses. So you know, we obviously took some significant.
Reserves on our carrying value portfolios and yeah, we used I think yeah prudently.
So that if assumptions essential reserves, so heavily dependent on macroeconomic factors like unemployment and H.T.I. and yeah, we have roughly.
Yes, $140 million of 140 $150 million Cecil reserves, so yes, it's our assumptions.
You know a little too conservative, perhaps I don't not I will be at I want to deal with dependent upon how things progress, but that's another area, where they could be some.
Some potential uplift in a GAAP book value moving forward.
Got it.
That's a that's helpful detail I'm wondering how you guys are thinking about the shape of the capital structure here I think the intention when you guys raise the preferred in February was to.
Retire the baby bond and maybe some of the craft for maybe a half that backwards, but.
I mean, what's the plan here, there's still some capacity needed to be able to do that or.
Just your overall thoughts on I guess, the shape of the capital structure.
So I think you know, we're we're pretty happy with this was the shape of the capital structure. I think you know the timing of that have that series C was such that.
The world changed very quickly in the course of a few days.
And so we we did not end the call calling the the baby bonds. So I think you know well, we'll look at that over time, but like I say, we're not unhappy with our capital structure. At this point I don't think it's you know overly heavily weighted towards.
Preferred certainly.
So, we'll we'll just sort of take it quarter by quarter and say.
Okay.
And I know that Theres, a lot of I guess it feels like there is moving pieces with the various facilities in what you guys are in the brink of sounds like.
Obtaining and and I know that 40% of the funding Buck will be.
Repo, but can you give us detail on what assets that repo will be funding and.
What's the terms I mean is there any respite that.
It doesn't roll and are they all still.
Bailey Mark to market on that remainder that remaining repo.
So there's there's you know there's always danger that the repo won't roll, although we have we're down to six counterparties in the current programs planned and suffice to say.
We're we're.
Very familiar with all six of them and have had you know many discussions with them about this I think you know to give you. An example, I think some of the ins and some of the way that we create a little bit more durable financing on let's say loans for instance is even if it is a daily mark to market. If the if the permitted advance rate is.
Lets say, 70%, which which is probably lower than it used to be but let's say the permitted advance rate and 70%.
If we if we instead of borrowing 70%, if we borrow 65 or even 60% it creates a little bit of margin holiday in that the you know the price of the of the loans could decline, but it wouldn't generate a margin call until you until you actually made up the difference between the actual bar.
On rate and the advance rate. So that's one way to create slightly more durable financing.
Out of daily Mark to market put answer.
Right.
Current pressing for where that repo is going to be sitting and what it's going to be funding I mean, it sounds like maybe the Nonqm has committed funding at this point.
But where I guess, what I'm asking is worried where you are.
Where are you still trying to tie up some potential term funding or what do you not able to get funding on essentially.
I mean, you know we can get term funding is just a question of we have we have more loans than we have term funding. So we just have to figure out how to allocate so I think a substantial portion of non QM will be termed out non mark to market, but a substantial portion will be more traditional as well.
I think you know as I mentioned the goal is to see to put this facility in place for fixed Glip, which will be a term non mark to market and that would be for that whole portfolio.
The you know the rest of the loan portfolio is spread around I think more of the nonperforming loans or better suited to the the existing facility with Barclays and a theme.
But as far as re performing and season performing they're all stir all somewhat fungible.
Okay, and there's flexibility for what you guys can plugs on the line with Apollo in a thing and Barclays.
Or is it yet or is it pretty accurate, yes, because no is it doesn't mean that we can pledge everything, but theres a fair amount of flexibility.
Got it essentially the comments I appreciate it sure.
And we'll go to Steve Delaney with JMP Securities. Please go ahead.
Thanks, Hey, good morning, everyone Im sorry to be late getting in the queue I had the code wrong. So first just congratulations on the refi package two points. They are strong strategic partners and by Air Mouse. It looks like the dilution from the warrants was was far less than we've seen in some or some other finance.
I think so great job on that.
Thanks, Craig or you can you I guess eventually we'll see this but just quickly trying to run through the 8-K I didn't see a reference to the rate index or what should be paying on these two facilities. The a the 500 senior secured and the a deep borrowing facility could you let us know.
With the a payment terms are on those facilities.
Sure Steve Thanks for the question good to finally talk to you again, yeah. So we talked about this earlier in the call. We'll we're we're well report more robustly on the cost structure of our liability structure. When we report our second quarter earnings I'm not in the eight k., So don't kill yourself looking for.
Okay I stopped after a few minutes units.
But as I said to another question earlier on the call. You know it is it is somewhat more expensive than than what we used to pay for financing costs not so much more expensive. It's the you know the advance rates on on more durable financing are obviously lower and so the implications are that that overall leverage number.
Even though we've got our leverage was pretty low before no probably be somewhat lower so I guided to the to that somewhere in the twos earlier.
You know sort of target future leverage.
All right that's helpful and we'll keep an eye off for that we can we can certainly plug something and get them in the model update for now and I listened closely to your comments about the tax situation and be a the dividends and just given where you are without trying to clean up you know the forbearance and catch up on the Prefs.
It's it struck me that you'd be Dimmit message you were sending is that the board certainly intends to to reestablish a common dividend in fact, you be likely will be required to but my read on it is in a bit would I think I'm going to advise clients that ask is you know.
Look forward, maybe two or three Q and the second half of the year as far as the reestablishment and let the company for common payout and let the company completely clean up their repositioning and that's the I'm just trying that's the way I think I heard your comments into but you didn't say that specifically that there would be no twoq comment, but it seems.
More likely to me that it makes more sense in the in the third quarter.
Well again, you're right I didn't say that specifically, but but I think you know your your your comment is probably won't founded.
Okay, great well listen congrats I know, it's been a brutal brutal three months, but congratulations on getting through it and we'll all live to fight another day.
Thanks, a lot Steve could you talk to you take care guys are dollar.
And at this time there are no questions. Thank you.
All right. Thanks, Stacy so thanks, everyone for joining us we look forward to one to speaking with you again fairly soon in early August the truck about the second quarter. Thanks again.
Thank you, ladies and gentlemen that does conclude your conference for today. Thank you for your participation in for using ATP teleconference Service you may now disconnect.