Item 7.01 Regulation FD Disclosure.
Bid Terms Acknowledgment Letter
On May 1, 2020, BCAT 2020-23TT (the "Seller"), a subsidiary of AG Mortgage
Investment Trust, Inc. (the "Company"), entered into a Bid Terms Acknowledgment
Letter (the "Letter Agreement") with an unaffiliated third party (the
"Purchaser"), evidencing the Purchaser's intent to purchase, and the Seller's
intent to sell, the pool of mortgage loans set forth therein (the "Loans")
having an approximate unpaid principal balance of approximately $469 million
(the "Loan Sale") for a purchase price of approximately $383 million. The Loan
Sale is subject to the terms and conditions set forth in the Letter Agreement
and the entry by the Seller, the Company, and an affiliate of the Purchaser into
a Mortgage Loan Purchase and Sale Agreement (the "MLPA"). The principal terms
and conditions set forth in the Letter Agreement for the Loan Sale are
summarized below.
The Loans will be sold on a whole loan, servicing-released basis and shall be
subject to certain trade stipulations, including customary closing conditions to
be set forth in the MLPA and the Purchaser's ability to obtain financing for the
Loan Sale within certain specified parameters. The purchase price of the Loans
is subject to re-pricing based on the confirmatory due diligence of an affiliate
of the Purchaser and the mutual agreement of the Seller and Purchaser. The Loans
are being sold on an "as is, where is" basis, without representation or
warranty, other than certain representations to be set forth in the MLPA. The
Letter Agreement provides that the parties shall use their commercially
reasonable efforts to consummate the Loan Sale on May 22, 2020, or such later
date as may be agreed between an affiliate of the Purchaser and the Seller.
The Company cannot provide any assurance that the terms and conditions of the
Letter Agreement will be met, that the MLPA will be executed, or that the Loan
Sale will occur on the terms or timing that the Company expects, if at all. If
the Loan Sale is not consummated or is not consummated on the terms the Company
expects, the Company may be unable to use the proceeds of the Loan Sale to
reduce the balances under its repurchase financing facilities with certain
Participating Counterparties (defined below), and any alternative disposition of
the collateral could be on terms that are less desirable than those of the
proposed Loan Sale.
Portfolio Update
The COVID-19 pandemic's effects on financial markets have negatively impacted
and continue to negatively impact the Company's business. The Company has
experienced declines in the value of its target assets, as well as adverse
developments with respect to the cost and terms of financing available to it. In
light of the ongoing COVID-19 pandemic and related market conditions, the
Company has taken various actions in an effort to prudently manage the Company's
portfolio through unprecedented market volatility. These actions include
declining to meet margin calls, entering into two Forbearance Agreements with
the Participating Counterparties (as each term is defined below), the sale of
various assets and the reduction of the balances under the Company's repurchase
financing facilities.
As previously disclosed on March 23, 2020, the Company notified its financing
counterparties that it was not in a position to fund the margin calls it
received on March 23, 2020, and that the Company did not expect to be in a
position to fund the anticipated volume of future margin calls under its
financing arrangements in the near term as a result of market disruptions
created by the COVID-19 pandemic. Since March 23, 2020, the Company and several
of its subsidiaries have received from several financing counterparties margin
call notices, notifications of alleged events of default and deficiency notices.
On April 10, 2020, the Company entered into a Forbearance Agreement (the "First
Forbearance Agreement") with each of the following financing counterparties:
Bank of America, N.A., BofA Securities, Inc., Credit Suisse Securities (USA)
LLC, Credit Suisse AG, Credit Suisse International, Barclays Capital Inc.,
Barclays Bank PLC, Société Général S.A., Wells Fargo Bank, National Association,
Wells Fargo Securities, LLC, Goldman Sachs Bank USA and Goldman Sachs & Co. LLC
(each, a "Participating Counterparty," and collectively, the "Participating
Counterparties"). Upon the expiration of the First Forbearance Agreement on
April 27, 2020, the Company entered into a second Forbearance Agreement
(together with the First Forbearance Agreement, the "Forbearance Agreements")
with the Participating Counterparties, pursuant to which each Participating
Counterparty agreed to continue to forbear from exercising any of its rights and
remedies in respect of events of default and any and all other defaults under
the applicable repurchase agreement with the Company until the earlier of (a)
4:30 p.m. Eastern Daylight Time on June 1, 2020 or (b) the occurrence and
continuance of a Triggering Event (as defined).
As previously disclosed, in connection with the Forbearance Agreements, on April
13, 2020, the Company received a subordinated loan of $10 million from AG REIT
Management, LLC, its external manager (the "Manager"), due on March 31, 2021. On
April 27, 2020, the Company received an additional subordinated loan of $10
million from the Manager, due on July 27, 2020.
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The Company has continued taking steps to manage and de-lever its portfolio and
generate liquidity. In particular, since March 23, 2020, the Company has sold
residential and commercial mortgage assets generating proceeds of approximately
$620 million to date (exclusive of the proposed Loan Sale described above),
comprised of approximately $330 million of residential investments, $250 million
of commercial investments and $40 million of Agency MBS collateralized mortgage
obligations.
The Company is engaged in negotiations with certain of its financing
counterparties with regard to consolidating certain of its repurchase financing
arrangements with a smaller number of existing counterparties. The Company is
also engaged in negotiations with non-Participating Counterparties to settle
recourse financing obligations totaling approximately $90 million, net of cash
posted as collateral.
The Company has elected to provide the following updates as of the close of
business on April 30, 2020. The below estimates are limited to information that
has been received by the Company from its financing counterparties with respect
to sales of portfolio assets as of April 30, 2020 and is subject to change.
• The Company had an investment portfolio of approximately $1.4 billion1,2
as of April 30, 2020, consisting of 83% residential investments, 16%
commercial investments and 1% agency derivatives.
• The Company's debt obligations as of April 30, 2020 were approximately
$1.1 billion3, net of cash posted as collateral to its financing
counterparties, of which approximately $690 million3 are recourse
repurchase obligations. Of the recourse repurchase obligations,
approximately $600 million3 is included under the Forbearance Agreements
with Participating Counterparties.
• If the Loan Sale described above were completed as of April 30, 2020, and
without any potential reduction based upon the Purchaser's due diligence,
the Company's investment portfolio would decrease to approximately $1
billion1,2 and the Company's recourse repurchase obligations net of cash
posted as collateral would be reduced to approximately $300 million4.
• The Company's book value per share5 as of April 30, 2020 is estimated to
be in the range of $1.80 to $1.90.
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1The Company's $1.4 billion investment portfolio includes approximately $340
million of assets held through investments in debt and equity of affiliates,
consisting of approximately 99% residential investments and less than 1% agency
derivatives. These figures reflect the Company's percentage interest in the
respective affiliates.
2The Company's investment portfolio does not include the Company's $20 million
net investment in Arc Home.
3The Company's $1.1 billion of debt obligations includes approximately $270
million of repurchase obligations held through investments in debt and equity of
affiliates, net of cash posted as collateral. The $690 million of the Company's
total recourse repurchase obligations and the $600 million of recourse
obligations included under the Forbearance Agreements includes approximately $50
million of repurchase obligations held through investments in debt and equity of
affiliates, net of cash posted as collateral. These figures reflect the
Company's percentage interest in the respective affiliates.
4The $300 million of repurchase obligations includes approximately $50 million
of repurchase obligations held through investments in debt and equity of
affiliates, net of cash posted as collateral. These figures reflect the
Company's percentage interest in the respective affiliates.
5Per share amounts for book value are calculated using all outstanding common
shares in accordance with U.S. GAAP, including all vested shares granted to the
Manager and our independent directors under our equity incentive plans as of
April 30. 2020. Book value is calculated using stockholders' equity less net
proceeds of our 8.25% Series A Cumulative Redeemable Preferred Stock ($49.9
million), 8.00% Series B Cumulative Redeemable Preferred Stock ($111.3 million),
and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
. . .
Item 8.01 Other Events.
Extension for Filing of Form 10-Q
The ongoing COVID-19 pandemic has caused disruptions in the
Company's day-to-day activities. While the Company's Manager has the technology
in place for all of its employees to work remotely, the Company's sole office is
(and many of the Company's advisors, service providers and counterparties are)
located in New York City, which has been significantly affected by COVID-19, and
which has caused delays in the receipt of information from various
counterparties. This, in turn, has delayed the Company's ability to complete the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the
"Quarterly Report"). As a result, the Company will be relying on the Securities
and Exchange Commission's (the "SEC") Orders under Section 36 of the Securities
Exchange Act of 1934, as amended (Release Nos. 34-88318 and 34-88465), to delay
the filing of its Quarterly Report. The Company expects to file the Quarterly
Report on or before June 25, 2020, which is 45 days from the original filing
deadline of May 11, 2020.
Risk Factor Update
The risk factors below update the risk factors presented in the Company's Annual
Report on Form 10-K for the year ended December 31, 2019, as supplemented by the
Company's Current Report on Form 8-K, dated April 8, 2020.
The novel coronavirus pandemic, measures intended to prevent its spread and
government actions to mitigate its economic impact have had and may continue to
have a material adverse effect on our business, results of operations and
financial condition.
The novel coronavirus (COVID-19) pandemic is causing significant disruptions to
the U.S. and global economies and has contributed to volatility and negative
pressure in financial markets. The outbreak has led governments and other
authorities around the world to impose measures intended to control its spread,
including restrictions on freedom of movement and business operations such as
travel bans, border closings, business closures, quarantines and
shelter-in-place orders. The impact of the pandemic and measures to prevent its
spread have negatively impacted us and could further negatively impact our
business. Recently, we have experienced declines in the value of our target
assets as well as adverse developments with respect to the cost and terms of
financing available to us, and have received margin calls, default notices and
deficiency letters from certain of our financing counterparties. Additionally,
we expect over the near and long term that the economic impacts of the pandemic
will impact the financial stability of the mortgage loans and mortgage loan
borrowers underlying the residential and commercial securities and loans that we
own and, as a result, anticipate that the number of borrowers who become
delinquent or default on their loans may increase significantly. Elevated levels
of delinquency or default would have an adverse impact on our income and the
value of our assets. Forced sales of the securities and other assets that secure
our repurchase and other financing arrangements in the current environment have
been, and will likely continue to be, on terms less favorable to us than might
otherwise be available in a more regularly functioning market and could result
in deficiency judgments and other claims against us. To the extent current
conditions persist or worsen, we expect there to be a materially negative effect
on our results of operations, and, in turn, cash available for distribution to
our stockholders and on the value of our assets.
In response to the pandemic, the U.S. government has taken various actions to
support the economy and the continued functioning of the financial markets. The
Federal Reserve has announced its commitment to purchase unlimited amounts of
U.S. Treasuries, mortgage-backed securities, municipal bonds and other assets.
In addition, President Trump signed into law the Coronavirus Aid, Relief, and
Economic Security (CARES) Act, which will provide billions of dollars of relief
to individuals, businesses, state and local governments, and the health care
system suffering the impact of the pandemic, including mortgage loan forbearance
and modification programs to qualifying borrowers who have difficulty making
their loan payments. Moreover, certain actions taken by U.S. or other
governmental authorities, including the Federal Reserve, that are intended to
ameliorate the macroeconomic effects of COVID-19 may harm our business.
Decreases in short-term interest rates, such as those announced by the Federal
Reserve late in our 2019 fiscal year and during the first fiscal quarter of
2020, may have a negative impact on our results, as we have certain assets and
liabilities which are sensitive to changes in interest rates. The Federal
Reserve recently significantly further lowered interest rates in response to
COVID-19 pandemic concerns. These market interest rate declines have negatively
affected our results of operations for prior periods and may continue to
negatively affect our results of operations for future periods.
There can be no assurance as to how, in the long term, these and other actions
by the U.S. government will affect the efficiency, liquidity and stability of
the financial and mortgage markets. To the extent the financial or mortgage
markets do not respond favorably to any of these actions, or such actions do not
function as intended, our business, results of operations and financial
condition may continue to be materially adversely affected.
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The term of the Second Forbearance Agreement is limited and may be terminated
prior to its expiration upon certain events, and does not bind all of our
financing counterparties.
The Forbearance Period is limited and, unless extended by the parties, will
expire on June 1, 2020. Further, the Second Forbearance Agreement may terminate
earlier than June 1, 2020, upon the occurrence of certain specified Triggering
Events. Therefore, we cannot predict the full length of the Forbearance Period.
Any early termination of the Forbearance Period, our inability to extend the
Forbearance Period, or our inability to fully come to an agreement with our
counterparties (including non-Participating Counterparties) with respect to our
outstanding repurchase agreement obligations would have a material adverse
effect on our business.
Our efforts to increase our liquidity and decrease our indebtedness by
consummating the Loan Sale may not be successful or may not result in realizing
our original intent in undertaking the Loan Sale. Sales of assets, including the
proposed Loan Sale, may result in a material amount of realized losses and
significantly diminish future interest income, negatively impacting our results
of operations and financial condition.
In order to increase our liquidity and decrease our indebtedness, we have
undertaken to sell certain of our assets, including the proposed Loan Sale. The
Loan Sale and any future asset sale transactions may not be completed on the
terms or timing that we expect, if at all. The Loan Sale and any future asset
sale transactions may not be completed, in whole or in part, as a result of
standard closing conditions, including, without limitation, that the
counterparty to one or more of these transactions is unwilling or unable to
complete the transactions or is unwilling to complete a portion of the
transaction as a result of the underlying loans entering non-performing status
or otherwise being determined by the counterparty, following due diligence, to
be impaired or defective. If the Loan Sale is not consummated or is not
consummated on the terms we expect, we may be unable to use the proceeds of the
Loan Sale to reduce the balances under our repurchase financing facilities with
certain Participating Counterparties, and any alternative disposition of the
collateral could be on terms that are less desirable than those of the proposed
Loan Sale. Moreover, to the extent we seek to enter into additional sale or
transfer transactions with respect to other assets, we may not be successful in
identifying counterparties or in negotiating sales or transfers that are on
terms or at prices that are acceptable to us. Sales of assets may result in a
material amount of realized losses and significantly diminish our future
interest income, negatively impacting our results of operations and financial
condition.
Item 9.01. Financial Statements and Exhibits.
Exhibit No. Description
99.1 Press Release, dated May 7, 2020
FORWARD LOOKING STATEMENTS
This press release includes "forward-looking statements" within the meaning of
the safe harbor provisions of the United States Private Securities Litigation
Reform Act of 1995 related to the sale of certain of the Company's assets, the
Company's outstanding indebtedness and investment portfolio, certain additional
financial metrics, and the Company's ability meet certain deadlines related to
its filings with the Securities and Exchange Commission, among others.
Forward-looking statements are based on estimates, projections, beliefs and
assumptions of management of the Company at the time of such statements and are
not guarantees of future performance. Forward-looking statements involve risks
and uncertainties in predicting future results and conditions. Actual results
and outcomes could differ materially from those projected in
these forward-looking statements due to a variety of factors and the impact of
the COVID-19 pandemic on these factors, including, without limitation, changes
in interest rates, changes in default rates, changes in the yield curve, changes
in prepayment rates, the availability and terms of financing, changes in the
market value of our assets, general economic conditions, conditions in the
market for Agency RMBS, Non-Agency RMBS and CMBS securities, Excess MSRs and
loans, our ability to predict and control costs, our ability to maintain our
exemption from registration under the Investment Company Act of 1940, as
amended, conditions in the real estate market, legislative and regulatory
actions by the U.S. Department of the Treasury, the Federal Reserve and other
agencies and instrumentalities in response to the economic effects of the
COVID-19 pandemic, our negotiations with our repurchase financing counterparties
and the Manager, our ability to negotiate, to the extent necessary, further
extensions of the forbearance period with the Participating Counterparties and
to enter into settlements with non-Participating Counterparties, our ability to
complete the Loan Sale and, if completed, the timing and terms of completion,
and our ability to accurately estimate our book value per share and our
investment portfolio as of April 30, 2020. Additional information concerning
these and other risk factors are contained in the Company's filings with the
SEC, including its most recent Annual Report on Form 10-K and subsequent
filings. Copies are available free of charge on the SEC's website,
http://www.sec.gov/. The Company undertakes no duty to update any
forward-looking statements in the Current
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Report on Form 8-K to reflect any change in its expectations or any change in
events, conditions or circumstances on which any such statement is based.
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