Q2 2020 Blackstone Mortgage Trust Inc Earnings Call
And then leave your question.
And I'd also like to a sizable policies at the conference is being recorded for replay purposes, I know if I turn you over to Weston Tucker head of Investor Relations. Please go ahead Weston.
Great. Thanks, Leslie and good morning, everyone and welcome to Blackstone mortgage.
Trust second quarter Conference call I'm joined today by Mike Nash Executive Chairman, Steve Klabin, Chief Executive Officer, Jonathan pilot Global head of real estate that strategies, Tony Marone, Chief Financial Officer, and Doug Armer Executive Vice President capital markets.
18 is out of maternity leave currently.
This morning, we filed our 10-Q and issued a press release with a presentation of our results which are available on our website and have been filed with the SEC.
I'd like to remind everyone that today's call may include forward looking statements, which are uncertain and outside of the company's control actual results may differ materially for a discussion of some of the risks that could affect results. Please see the risk factor section of our most recent 10-K and 10-Q reports, we do not undertake any duty to update forward looking statements. We will also refer to certain non-GAAP measures on this call.
For reconciliations you should refer to the press release and our 10-Q.
This audiocast is copyrighted material of Blackstone mortgage trust and may not be duplicated without our consent.
So quick recap of our results we reported GAAP net income per share of 13 cents for the second quarter. While core earnings were 62 cents per share two weeks ago, we paid a dividend at 62 cents per share with respect to the second quarter.
If you have any questions. Following today's call. Please let me now and with that I'll now turn things over to Steve. Thanks lessons.
The efficiencies key advantages, namely our portfolio of senior loans are well capitalized balance sheet in a market, leading real estate franchise continue to provide strength and stability.
We had another great quarter of portfolio income was 100% of scheduled interest collected driving 62 cents of core earnings in line with previous quarters.
This performance is a testament to the caliber of the underlying real estate the quality of our borrowers in the proactive approach of our dedicated asset management team.
We further strengthened our balance sheet in the quarter by accessing both debt and equity markets through a $607 million of new capital, increasing our liquidity by 60% to $1.3 billion.
We added a new term loan b tranche at accretive pricing in issued common stock at a premium to book value underscoring be execute superior access to the capital markets amid a challenging backdrop for commercial mortgage Reits.
In the broader markets there was some more significant recovery, including a reopening of the CMBS market.
With our increase liquidity, we are very well positioned to take advantage of the improved outlook and growth in origination opportunities as well as to protect our portfolio in the event of a prolonged period of disruption.
And while we are optimistic about the benefits of this broader capital markets recovery, we remain vigilant and proactive on the asset management side working closely with our borrowers, especially on those assets most impacted by cobot 19.
With this wide range of activity and Bx and see the resources of Blackstone's market, leading real estate platform continue to provide us with great advantages.
Blackstone Global real estate ownership, along with the ongoing investing activity of this $167 billion 81 business provide real time data and insights into every market, where we are active as a lender. In addition to unrivaled operating expertise.
This can activity across the platform helps us to create our existing high quality loan portfolio is now helping us to manage that portfolio and evaluate new opportunities.
Our sponsors have stepped up and provided great support for their loans. Many of these sponsors are institutionally backed repeat borrowers that are protected their assets with additional cash investment.
With our active and collaborative management, we expect continued strong performance across our loan portfolio was 64% origination LTV.
While we believe there seemed to letting strategy and proactive asset management will continue to translate to credit outperformance, we will not be completely immune to the impact of cobot 19.
In Q2, we increased our seasonal reserve by $57 million, primarily related to two specific properties directly impacted by the pandemic.
One New York City Hotel.
One transitional New York City rent regulated apartment building.
Each case it was a combination of covered related and asset specific challenges that led to the impairments.
Our exposure to similarly impacted properties is limited our total New York City Hotel exposure is three loans, representing 3% of the portfolio.
The two additional loans each have lower leverage 50% to 60% at the time of origination.
Our total loans backed by New York City regulated multifamily properties account for less than 1% of our portfolio.
As we look forward now relative to a quarter ago I wanted to share a few additional observations.
Our Q2 repayments exceeded our Q2 future advances all of which were financed as expected buyer lenders.
With transaction activity slow the resuming we expect repayments to continue to be a source of liquidity.
We also expect to see our pipeline build.
Many of our market, leading sponsors have dry powder to invested new opportunities and we are standing by to support them.
We have capitalized CX conceived the road ahead.
For both the continuing recovery with a potential opportunity to make new loans and for the possibility that the recovery will be prolonged for certain assets and markets.
In conclusion fueled by our second quarter capital raising and backed by our $18 billion senior loan portfolio. We have established both staying power and firepower SPX empty ideal positioning for the current environment and with that I'll turn the call over to Tony.
Thank you, Steve and good morning, everyone.
As we review be absentees performance. This quarter, we will see positive results in terms of core earnings liquidity and balance sheet stability, notwithstanding the isolated valuation impacts that Steve mentioned earlier.
Let's start with earnings where we reported GAAP net income of 13 cents per share in core earnings of 62 cents per share both of which benefited significant significantly from interest rate floors embedded in our loan agreements as LIBOR and other benchmark rates declined in near zero levels during the quarter.
Looking specifically at U.S. de LIBOR, our most common floating rate index by far we had $8.8 billion of loans with active floors as of 630 at an average rate of 1.47%, which we expect will continue generating incremental earnings going into threeq as well.
The primary difference between this quarter's GAAP net income and core earnings is at 57 million dollar or 41 cents per share increase in our current expected credit loss or Cecil reserve, which was driven by the two loans Steve referenced in his remarks.
Similar to our treatment of the General Cesar Reserve, we recorded last quarter. These loans specific provisions are excluded from core earnings until they are realized and at this point, we may still see a future recovery above the current mark.
Further as a result of the Cecil provisions, we recorded into Q. These loans will be accounted for under the cost recovery method going forward, which essentially differs all income recognition and reflects any cash interest received as a reduction to the assets carrying value on our balance sheet.
Overall, our portfolio continues to be strong with 100% interest collection through July including the two loans, where we took a reserve.
We had an active quarter on the asset management front, completing 13 loan modifications that generally required additional bar equity or contained other lender favorable terms, reflecting the collaborative nature of these conversations with our borrowers and their continued support of their assets.
As always we draw on the deep experience in resources of Blackstone's broader real estate platform as we re underwrite these loans and evaluate our borrowers positions.
Our $18 billion portfolio size was roughly flat quarter over quarter as $386 million of repayments slightly outpaced $370 million loan fundings.
Our weighted average risk rating remained at 3.0 on our five point scale. The same level as 331 with no new for rated loans this quarter.
Our portfolio continues to benefit.
LTV of 64%, reflecting the significant equity are well capitalized institutional borrowers have invested in these assets.
One of our key focus areas during the quarter has been to build on our strong liquidity position, providing us the resources to address future cash needs as well as originate new loans.
We ended the quarter with $1.3 billion of liquidity almost entirely holding cash.
We increased liquidity this quarter by nearly a half billion dollars driven by our successful term loan b in common stock issuance during the quarter.
Our new term loan B raised a net $315 million is coterminous with our existing term loan in 2026 and priced at LIBOR, plus 4.75% with a 1% floor.
We raised the net $278 million from our common stock offering during the quarter, which priced slightly above book and added six cents to our Twoq book value per share.
We also continue to focus on the stability of the right hand side of our balance sheet, which has no corporate debt maturing until 2022 with 96% of our asset level financing term matched to the underlying collateral.
Further 30% of our asset level financing is through non debt structures, either syndications or securitizations and we have reached agreements with our seven largest credit facility lenders covering 84% of our outstanding borrowings to temporarily suspend credit Mark credit Mark provisions for the loans in those collateral pools that have been more heavily impacted by over 19.
As part of these credit facility modifications, we pledged $414 million of previously unencumbered assets, which modestly reduced the advance rate on lease facilities.
We closed the quarter with a debt to equity ratio of only 2.6 times down from 2.8 times at 331, as we further delevering our balance sheet during the quarter.
As we move into the second half of 2020, we will continue to benefit from the key pillars, we haven't place with incremental earnings power through our LIBOR floors market, leading asset management capabilities and a stable balance sheet with ample liquidity.
Thank you for your support and with that I will ask the operator to open the call the questions and lastly will allow read instructions after the culinary, but if I could just remind all the analyst. Please to limit. Your initial question. Just one question one follow on question and we have any further to rejoin the queue.
Thanks, Goggle atrophy instructions operator.
Thank you. Thank you everyone. You question answer session will now begin if you do we see last question. If you start then one on your telephone if you want to withdraw your question. It started and just to remind you. We ask a question. It's star then one anew telephone.
On your first question comes from Don Fandetti from Wells Fargo. So your line in the call. Tom. Please go ahead.
Yes, good morning, So Steve how do you I mean, obviously you talked a lot of.
Cash on hand.
They come to defensive move how do you balance.
Offense, and Thats kind of environment because.
It's still high room situation.
In the markets and for your company do you think it makes more sense just to kind of.
The defensive per while or what are your plans from and how do you think about that.
Hey done Great question, I think no our capital raising was really it was really about the opportunity to to return to offence as well as to maintain that appropriately conservative posture through the through the cobot 19.
Disruption period. So you saw the magnitude of cash that we raised.
1 billion three is the highest level of liquidity we've ever had.
So we really feel well positioned both to.
Get back on to offense and Theres not a lot of loan demand yet, but we do expect to see loan demand increase through the second half of the year, but we're also very well positioned for defensively. We hope we obviously have a lot of liquidity to defend our book into do whatever is necessary to carry our portfolio through so we feel that were.
Again, ideally positioned for both office in defense that we struck the right balance.
And can you talk about the New York Hotel property that your reserve for you know what's going on on the ground there and also.
It is occupancy increasing.
The hotels in your portfolio and can you just give us a sense off.
Or any of these at breakeven level are you seeing improvement at the underlying asset.
Well, let me take when we first talk about the New York City Hotel. It was a two to 2018 acquisition loan by Relisted opportunity funds. So there's a lot of equity in the transaction, but with the cobot impacts on demand and operating costs, the hotel spacing and extended period of operating deficit that needs to be funded.
So and we're in discussions with the bar about the path forward on the asset was no agreement yet, but we're we're still engaged with the but with the borrower I would say as it relates to hotel performance generally I mean, we haven't we haven't really seen the beginning of the come back yet some of the hotels or will open and.
In cases, yeah, we do we are seeing.
Midscale and the economy and drive two hotels.
A pickup in performance, but we havent seen that across the portfolio broadly and I think we're cautious given the potential second way above of the up cobot 19. So it's a little early to predict the recovery, but I think ultimately to long term prospects the hotels and favorable.
Thanks.
Okay. Thank you next question comes from and Gild Hall says from credit Suisse utilizing the cool Doug. Please go ahead.
Hi, Thanks, I will just again on the liquidity you talked about kind of the pipeline building, but not really there yet I guess.
Help us size kind of what the what the lending opportunity might be like in the second half and then kind of with that you know in this current environment. How you would think about what though.
What the kind of minimum level of liquidity that you would want to hold versus kind of the current one three.
Not that you have.
Well ill as we as we think about.
The opportunities really have about positioning is really about having liquidity to take advantage of the opportunity that exists.
So, we'll and what we're also sort of monitoring the pace of repayments as we as we look at as as we look at it at our portfolio.
But we do think that.
Having the look having liquidity is so they will give us really significant advantage here, there's not a lot of lenders in our segment that are really position there that have repositioned themselves and go to make losses, the mark as the market recovers so.
So difficult to predict what the size of the opportunity will be but yet, but we want to be position us to capitalize on it but no matter what its magnitude Antonio we obviously have the ability with our $18 billion portfolio in the large scale. The company do you really significant participant in that in the in the resumption of loan demand that we expect to see in that.
In the coming period.
Got it and then and just a follow up you know has there been any sense that are enough sort of transaction you know.
No the two to get a sense as to kind of what the what their spreads are returns on incremental loans might look like compared to kind of.
Pre March.
It's still a little early to make that determination I will say spreads in general are wider.
<unk> leverage on the laws that we're seeing is Jeff is generally lower so and again. This is what we would expect to see coming out of a period of volatility and while we wanted to recharge our capital base to take advantage of what we think will be really good opportunities to to to make the terrific new loans in the early stages of.
The resumption of loan demand so.
So that's our expectation, we'll see what happens as the as the pipeline builds over the next couple of quarters, but we do think it'll be a very favorable environment and that will be well position to take advantage of it.
Thanks.
Okay. Thank you.
Your next question comes from the line as Steve Delaney from JMP Securities. Please go ahead your line in the cool.
Hi, Good morning, everyone. In first thank you for the additional a data point you gave us a weighted average LIBOR floor.
Robin and I think we've been trying to get that number out of you for the last year or two so we appreciate it.
Repayments for the quarter about 2% of the total book just wondered if you have any visibility that you can share with us as far as what we might see over the second half of this year. Thanks.
Hey, Steve is isn't really is difficult to predict.
I forgot to predict what the repayments will be if the second half, but I do think with the reopening of the CMBS market.
And.
We're seeing a little bit more transaction activity generally that that will vote that will that will ultimately lead them to some more repayments. I mean, we were I think pleasantly surprised in the quarter that our repayments exceeded our findings.
So I think you'll see you'll see the repayments to be a meaningful contributor to our liquidity, but not nearly as at the historic pace until we get much more of a regular way market. So I think on our them on the margin, though as liquidity.
Yeah, that's a game changer, our liquidity was the capital that we raised.
Sure. Okay. Thanks, So I mean be you're saying that I think that you've got some maybe three year old loans that are reaching a point of stability, but they might be able to eke into a 10 year fixed line. I think is is what I'm hearing there, but not so much.
What Jay just always referred to as bridge to bridge, you think people are pretty much sitting with their existing lenders in terms of the borrowers attitudes.
Yeah, well I think when you think about it if you if you're an owner of an asset you thinking about is this a good time to sell this is a good time to refinance.
And so you'll sell when you think that the transaction markets accommodative to your asset.
There will be good loan demand Oh, good I'm, sorry, good asset demand on the borrowing so I do you looking at what what a refinancing could look like generally with our loans are takeouts of sale, because we're financing opportunity funds business plans when they achieve.
Stabilization they typically sell in and then and then go and returned the money. It's there to their investors is still a little bit early for.
For it to be I think it attractive selling environment, but.
Right I guess, the opening of the CMBS market makes it possible for buyers just to finance acquisitions, which will ultimately help lead to the reopening of that market. So.
So I think for except for the assets that are most heavily impacted by the test amec. The size are favorable in terms of the resumption of transaction activity will refinance activity, which will lead to more origination opportunities for us and also more repayments.
Great. Thank you for the comments.
Sure Thanks to the question.
Thank you. Your next question comes from Jade Rahmani from KBW. Your line in the cool. Please go ahead.
Thank you very much on the New York multifamily loan that you took a reserve on I wanted to ask you. If you could give a sense as to how the reserve was bifurcated between.
The increased capital costs in the current environment to operate multifamily.
Versus the impact of rent regulation and also what's relevant to the magnitude of reserves seems pretty high. This was a 65% LTV loan I'm. So 28% reserve is pretty high and implies something like 50% decline and in the asset values. So perhaps you could.
To give some color on that asset.
Oh sure Jay This is a 2014 acquisition loan on or other rent regulated multifamily asset with a plan.
To improve units into increase rents.
And.
They were still relatively early in the in that plan in 2019, when their rent when the when the when the rent rigs were changed as we had there been some renovation some approve it but still very much in the in the middle of.
About the ultimate what the ultimate outcome would be fit for the asset. So so first and 29 teeny or the impact that limited the upside achievable on that kind of business plan. So it was just no longer you owners are no longer able in the current environment.
To make capital investments in units and get in and get high or are we benefits are a high ROI benefits from from those investments in terms of higher rent levels on units. So that was really the impact of that 2000 2019 regulation was pretty significant also really curtailed the upside is achievable at least kinds of business plans.
The added impact I think what we're seeing now is it general downward pressure from co bid in terms of city Center.
Apartment rents so we've seen the city wassa season, the knew that the employer base. It would typically come in from schools and everybody that moved to the city you start new jobs. It just didn't happen this year and so we're definitely seeing a reduced demand for apartments increased occupancy pretty significant and.
So for the market rate units here, which I think we thought had much better prospects pre cobot.
Yeah, the pressure on on rent level and occupancy level.
I really impacted the near term and intermediate term potential for the for the asset. We do have we do believe that the long term prospects. This market are good but it's going to takes a while to working to work our way out of the current the current.
Pandemic impacted operating environment for the city in at apartments.
And I'm just a follow on is with respect to New York City exposure overall, how are you thinking about that within the office space, It's about 20% of the portfolio within the a hotel space, it's about 27% on although only a few loans.
Could you comment on the outlook for a New York City.
Yeah sure I think as it relates to.
As I think as it relates the city, obviously, there's a lot of near term pressure in the city I mean were ultimately.
Long term believers that that that this markets. It is a good place today and once we get through.
The pandemic, we believe that that again that New York City will recover and this will and you know again is capital flows typically returned to New York City first.
And that ale and so work and so we've been focused always in our lending on on asset selection within within the city, we like them, we like the major markets, but very important to select the right assets you know the majority of our assets.
Our in.
Hudson yards Midtown West in the office sector. There are newer assets assets that fit our that appeal to the new economy to where you know to where the new talent wants to work in live and the a we've avoided the commodity office in Midtown that it's under the most pressure. So we're confident that because the asset selection and.
Because of the strong sponsorship that those office to their office multiple perform well you know as it relates to hotels obviously.
Big impact on demand and a longer rode out.
From that from Covidien and from the city being shutdown.
We again.
One of the benefits that we'll see in hotel is gonna be for is gonna be a hard stop to the supply wave that existed in New York. There was a lot of hotel construction over the last few years, that's all going to stop and we do expect to supply of hotel rooms to be down as much as 10% to 15% from hotels that don't reopen postcode post.
But.
So supply side is going to is going to be benefited from what's going on so we think that will ultimately in order to the benefit of the owners can get through to the other side and you know and we're confident in the case of of our of of or other hotel is given the sponsorship the low at the lower leverage the cash investment from those sponsors so far that.
You know that will they'll see those assets through the Pandemics will ultimately be strong performers.
Okay. Thank you.
Your next question comes from the line Rick Shane from JP Morgan Your line in the call. Please go ahead.
Hi, Good morning, everyone that just earlier I see actually on for Rick today.
I was wondering kind of a high level what your thoughts are around maturity defaults on loans that are coming due in the near term and how you're looking to manage that given that I'm assuming.
A more loans than usual are probably looking to exercise, though is that is extension options.
[laughter].
It's a great question, Neil we don't have a lot of a lot of near term maturities only a very small percentage of of our of our portfolio less than 10%.
Has final maturities over the over the over the next year.
Well I guess, it's interesting what what we will see is in some cases that.
Some of the interim maturities, we'll have we'll have a extension tests that won't be that Neil and what we've seen is very strong sponsor performance around that and we've had tremendous cash investment inter assets during the during that period of impact.
On on assets that are most impacted at over $175 million up a bit of additional equity investment from sponsors that wasn't required.
We had <unk>.
Our loan in Roslund. This was one of our 10 largest loans about a $750 million alone.
Oh sponsored pay downs alone by over $100 million to in order to comply with its extension test.
In the second quarter. So we're seeing strong performance from from from all loans as it relates to both interim and and and final maturities and so we think that I don't think the maturity. The the maturity issue will will find its way into a into into the alone problem I do think it'll help create liquidity.
Our portfolio and that as we get closer to maturity is the borrowers will will be willing to take.
Stretch a little bit more in terms of what's acceptable for their exit.
But the discussions we've had about maturities in the interim has been very favorable and again. This is really boosted the performance of our loans with additional cash coming in.
Okay got it that's really helpful color. Thank you and then just secondly on related are you guys seeing any divergence in collateral performance in international portfolio versus your U.S. assets.
It great Great question No I think we're seeing we're seeing very good performance of our assets internationally you know the yeah, we'll see in Ah.
Yeah. The office market in London continues to hold up well, we have a number of transitional office buildings. A continued to have continued to lease through the through through this stage or our asset sustain a happy [laughter] ill have begun to recover from in terms of activity standpoint is.
We get through the initial wave of the of the pandemic, So I feel like our European assets or well are well positioned.
Like our U.S. assets is a ton of sponsor equity.
They are most there they are concentrated in major markets.
And the long term prospects in all these markets continued to be favorable.
So I, so we're hoping that there will be.
Some new opportunity at any in the European markets as it relates to new business as well I haven't seen a while loan demand, yes, but again.
As as we see.
The terms of new mortgages improve war pressure from opportunity funds. This our two investor capital, we do expect to see more opportunities one in Europe as well as well as many as in the U.S. and we're excited about that opportunity.
Thanks, so much for taking my question.
Thank you.
Your next question comes from Stephen Laws from Raymond James Your line in the Cool. Please go ahead.
Hi, good morning.
First.
You know salty modified a number of the credit facilities I believe the decks at 84% to eliminate the I believe it was near term credit marks or suspend those for period of time can you talk about what you had to give in order to it to get those modifications did you agreed to.
Lower advance rates are higher cost of those facilities are kind of what was the trade off in order to modify those credit facilities.
Hey, Steven it's it's Doug I'll take that one.
Tony mentioned that we had a pledge some additional collateral just north of $400 million as senior mortgage loans that were in our portfolio.
In addition to that we did make some cash payment just north of $200 million.
And so that constituted did that de leveraging essentially of those facilities in return for which we got the suspension of credit marks through year end and additional asset management flexibility, which I think it's important to relative to that loan modifications in the asset management initiatives.
In our portfolio.
We didn't change the rates on those facilities and we didnt otherwise alter the terms as a reminder, those are long term match funded credit facilities and part of our match funded liability structure.
Overall.
Right just wanted to understand the trade off thanks for that dog in a you know thinking about the business plans behind though the the assets that you lend again.
Can you provide any color have there been and I get this would apply more to heavy transitional or construction, but have there been any material changes since cobot hit in March.
The ultra those business plans for for the better for the post Cobot World, maybe moving away from one floor being the kitchen back to a kitchen out on every single quarter, an officer or more offices versus open space can you can you talk about how active these developers are with regards to their business plans. Many modifications that they've already made and Ben had.
Approved by Blackstone over the last four to five four months I guess.
Yeah, It's great Great question, I think as it relates to the construction heavy transitional deals Gen generally.
I think most of those have proceeded on on course, we have what we're very confident comfortable on the new construction about <unk> about deliveries and delivery time frames for tenants, we have very significant pre leasing in our in our construction.
And traditional loan portfolio.
And so I think we a few of the cities, which had construction shutdown. We continue to feel very good about getting meeting all the relevant timed timetables.
As it relates to modifications and space.
Utilization design, we've seen a little bit of that.
You know.
Some with with some of the with the flexible office companies were able to adapt more quickly, but we've seen landlords and prebuilt space.
Oh look to create.
More distance less density.
Rethink some of the collaboration space at least at least for that for the time being.
I haven't seen any anything that would put in the category. It's a permanent change, but just changes to make the space.
And as design.
More reflective of the immediate environment in the immediate challenges in terms of occupying office space. It we'll see we'll see what that means long term if any of this if any of these changes affect you know density long term or or the thoughts in terms of how tests are going to occupy space.
But for us by having highly skilled operating partners and owners.
At the very if they're able to very quickly adapt to accommodate their tenants current needs and so we and we and so we have seen that and look for in the in the portfolio and it's a real benefit for us to have.
Such a high standard of asset.
Sophisticated sponsors who are very much on top of what's going on in the market.
Great up it your your comments on that thanks, Steve I've got one more question about Q backup I appreciate it.
Thank you.
Your final question comes from George that the Monday's from Deutsche Bank. Please go ahead, your luggage and nickel.
Hi, Good morning, I, just hey, good morning, I'm not a follow up on the seasonal reserves for the quarter and how we should think about reserves being recorded going forward. It can you help provide some additional context around you know the Cecil your reserves in how the recorded I know you mentioned revenue generation headwinds in high operating costs as key drivers.
Yeah, I assume that there are few assets that are facing revenue generation operating cost headwind that's environment.
What's the performance threshold that said seem to hit before its useful reserve is reported as it is it triggered when when loan modification discussions began there are certain debt service coverage threshold that needs to be Matt no I'd assume it depends on the situation, but any incremental color on there's kind of how we should think about this going forward said I'd imagine you are seeing headwinds.
Across churn churn up its its environment HM.
Any additional context would be helpful. Thank you.
Sure. This is Tony and there's you're right. It is situational and there are some some general kind of technical guidance that I could I could give you I'd say, there's two specific provisions under the GAAP accounting rules that you would look to.
Valuation test to see if your LTV is north of 100%. One is you mentioned modifications. If you have a modification that under the rules is considered a troubled debt restructuring, which usually think of as a when you're just kicking the can down the road something we saw a lot of out of it the global financial crisis and that would be as opposed to the types of modifications. We highlighted earlier there are more.
Collaborative and there are some given time get and we're working together with our borrowers I'm, Saudi One instance, where the rules say you have to test for any incremental season reserves specific to that asset we did not have any any of those this quarter.
And the other scenario would be where you look at the terms of your alone and the like the word that accounting rules used as probable it I just not probable that you will collect all of your principal interest due under your alone now that's a that's the technical term that that's very situational what is probable mean its a higher.
And then more likely than not so it's more than 50%, but it doesn't have to be all the way, but you know high ninetys for sand. So you would look at the loans on a case by case basis, and you would look at things like our the missing interest payments, which as we noted earlier, we don't have that in our portfolio are they in breach of covenants or in technical default also things we don't have in our portfolio.
Is there conversations with the bar that would indicate that you may have you know a very near term no change in circumstance and so there's a little bit of a gray area on in terms of went exactly you trips a probable threshold when we looked at our portfolio. This quarter as you could see even the results we felt like we hit it two times.
In particular looking at some of the conversations as we flipped over quarter ending into July.
Which sets shed some light on the 630 balance sheet.
But looking at the rest of the portfolio. We felt like we had not trip that threshold on our other assets and so you're at the time, we just have the two loans. That's I know that was a mouthful and accounting rules, but that that gives you a little bit of around what would trigger that as we go forward.
Great that's helpful color and it for me today. Thank you.
Thank you that was your final question and I would like to come back to listen to close the final remarks.
Okay, great. Thanks, everyone for your time this morning, and please let me know after a copy of any follow up questions.
[noise] U.S. then as I can you just speaking. Thank you. This is one that can take your conference call. Today. You may now disconnect. Thank you for joining and enjoy the rest of your day.
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