Note 2—Investments in Debt Securities

At December 31, 2019, the Company’s investments in debt securities consist of one subordinate multifamily tax-exempt mortgage revenue bond and one tax-exempt infrastructure bond. These investments are classified as available-for-sale for reporting purposes and are measured on a fair value basis in our Consolidated Balance Sheets.

Multifamily tax-exempt bonds are issued by state and local governments or their agencies or authorities to finance affordable multifamily rental housing. Generally, the only source of security on these bonds is either a first mortgage or a subordinate mortgage on the underlying property. The Company’s non-amortizing subordinated cash flow bond principal is due in full on November 2044 (the total cost basis and fair value of this bond was zero and $6.0 million, respectively, at December 31, 2019).

The Company’s infrastructure bond financed the development of infrastructure for a mixed-use town center development in Spanish Fort, Alabama and is secured by incremental tax revenues generated from the development and its landowners (this investment is hereinafter referred to as our “Infrastructure Bond”). At December 31, 2019, the Company’s Infrastructure Bond amortizes on a scheduled basis and has a stated maturity date of December 2048.

The following tables provide information about the unpaid principal balance (“UPB”), amortized cost, gross unrealized gains and fair value associated with the Company’s investments in bonds that are classified as available-for-sale:


	At
	December 31, 2019
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost (1)		Gains		FV		of UPB
Multifamily tax-exempt bonds	$	4,000	$	─	$	6,026	$	6,026		151%
Infrastructure Bond		26,885		20,797		4,542		25,339		94%
Total	$	30,885	$	20,797	$	10,568	$	31,365		102%


	At
	December 31, 2018
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost (1)		Gains		FV		of UPB
Multifamily tax-exempt bonds	$	65,162	$	38,653	$	33,564	$	72,217	111%
Infrastructure Bond		27,170		20,912		4,061		24,973	92%
Total	$	92,332	$	59,565	$	37,625	$	97,190	105%

⁽¹⁾

Amortized cost consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as net OTTI recognized in “Impairments” in our Consolidated Statements of Operations.

See Note 8, “Fair Value,” which describes factors that contributed to the $65.8 million decrease in the reported fair value of the Company’s investments in debt securities for the year ended December 31, 2019.

Troubled Debt Restructurings

The Company may periodically agree to modify the contractual terms of its investments in debt securities in the interest of attempting to obtain more cash or other value from a debtor than it otherwise would, or to increase the probability of receipt, by granting a concession to a borrower. If the Company makes an economic concession to a borrower that is experiencing financial difficulty, the Company will typically assess a modification or other form of concession to represent a TDR for reporting purposes.

On August 27, 2018, the Company agreed to extend the scheduled payment date associated with one of its infrastructure bonds from September 1, 2018 to November 1, 2018. This extension provided the debtor and the Company more time to negotiate a comprehensive restructuring of both of the Company’s infrastructure bond investments. Additionally, on October 30, 2018, the Company restructured the two municipal bonds that financed the development of infrastructure for a mixed-use town center development and that are secured by incremental tax revenues generated from the development. Under the terms of the restructured bond investment, a single tax-exempt bond was issued, that has a UPB of $27.2 million, bears a coupon of 6.30%, has a contractual term of 30.1 years and had a fair value of $25.0 million at December 31, 2018. For reporting purposes, the restructuring of the Company’s infrastructure bond investments was deemed to be a TDR. As a result, the total amortized cost basis of the Company’s bond investments as of the date of restructuring date was carried forward as the cost basis of the restructured bond. Fair value of this restructured bond investment was measured prospectively for reporting purposes based on its amended terms.

There were no TDRs for the year ended December 31, 2019.

Nonaccrual Bonds

At December 31, 2019, the Company had no bonds that were on nonaccrual status.

The fair value of the Company’s investments in bonds that were on nonaccrual status at December 31, 2018 was $12.9 million.

Interest income on bonds that was recognized on a cash basis for the year ended December 31, 2018 was $0.4 million.

Interest income not recognized on bond investments that were on nonaccrual status for the year ended December 31, 2018 was $1.0 million.

Bond Sales and Redemptions

The Company received cash proceeds in connection with the sale or redemption in full of investments in bonds of $29.3 million and $12.8 million for the years ended December 31, 2019 and December 31, 2018, respectively.

The following table provides information about gains or losses that were recognized in the Company’s Consolidated Statements of Operations in connection with the Company’s investments in bonds:


	For the year ended
	December 31,
(in thousands)	2019		2018
Gains recognized at time of sale or redemption	$	28,606	$	21,875
OTTI losses recognized on bonds held at each period-end		─		(6)
Total net gains on bonds	$	28,606	$	21,869