NOTE 5: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations.

The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2018:

Description	Unpaid Principal Balance		Unamortized Discount/Premium and Deferred Financing Costs			Carrying Amount			Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	871	$	(36	)	$	835			7.0	%	Apr. 2031 (1)
4.0% convertible senior notes (2)		68,222		(1,858	)		66,364			4.0	%	Oct. 2033 (2)
7.625% senior notes		56,324		(1,340	)		54,984			7.6	%	Apr. 2024
7.125% senior notes		68,408		(655	)		67,753			7.1	%	Aug. 2019
Senior secured notes		9,500		(234	)		9,266			7.3	%	Apr. 2019
Junior subordinated notes, at fair value (3)		18,671		(13,560	)		5,111			6.3	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		—			25,100			4.9	%	Apr. 2037
Secured warehouse facilities		—		(34	)		(34	)		0.0	%	Jul. 2018
Total recourse indebtedness		247,096		(17,717	)		229,379			6.1	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		210,785		(1,033	)		209,752			2.8	%	Jun. 2045 to Nov. 2046
CMBS securitizations (6)(7)		459,219		(4,779	)		454,440			3.4	%	Jun. 2037 to Dec. 2037
Loans payable on real estate		41,082		(264	)		40,818			4.7	%	Oct. 2021 to Dec. 2021
Total non-recourse indebtedness		711,086		(6,076	)		705,010			3.3	%
Total indebtedness	$	958,182	$	(23,793	)	$	934,389			4.0	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

(3)	Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.

(4)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(5)

Collateralized by $390,063 principal amount of commercial mortgage loans, mezzanine loans, other loans and preferred equity interests, $253,564 of which is eliminated in consolidation. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6)	Excludes CMBS securitization notes purchased by us which are eliminated in consolidation.

(7)	Collateralized by $564,094 principal amount of commercial mortgage loans and participation interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

The following table summarizes our total recourse and non-recourse indebtedness as of December 31, 2017:

Description	Unpaid Principal Balance		Unamortized Discount/Premium and Deferred Financing Costs			Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	871	$	(38	)	$	833		7.0	%	Apr. 2031 (1)
4.0% convertible senior notes (2)		110,513		(3,713	)		106,800		4.0	%	Oct. 2033 (2)
7.625% senior notes		56,324		(1,457	)		54,867		7.6	%	Apr. 2024
7.125% senior notes		68,408		(934	)		67,474		7.1	%	Aug. 2019
Senior secured notes		11,500		(437	)		11,063		7.3	%	Apr. 2019
Junior subordinated notes, at fair value (3)		18,671		(10,550	)		8,121		5.3	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		—			25,100		3.9	%	Apr. 2037
Secured warehouse facilities		22,313		(570	)		21,743		3.5	%	Jan. 2018 to Jul. 2018
Total recourse indebtedness		313,700		(17,699	)		296,001		5.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		258,063		(3,339	)		254,724		2.2	%	Jun. 2045 to Nov. 2046
CMBS securitizations (6)(7)		744,763		(8,177	)		736,586		3.4	%	Jan. 2031 to Dec. 2037
Loans payable on real estate		62,297		(375	)		61,922		5.2	%	May 2021 to Dec. 2021
Total non-recourse indebtedness		1,065,123		(11,891	)		1,053,232		3.2	%
Other indebtedness (8)		40,830		125			40,955		—			—
Total indebtedness	$	1,419,653	$	(29,465	)	$	1,390,188		3.7	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

(3)	Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.

(4)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(5)

Collateralized by $507,306 principal amount of commercial mortgage loans, mezzanine loans, other loans and preferred equity interests, $274,629 of which is eliminated in consolidation. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6)	Excludes CMBS securitization notes purchased by us which are eliminated in consolidation.

(7)

Collateralized by $944,894 principal amount of commercial mortgage loans and participation interests in commercial mortgage loans. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(8)

Represents two 40% interests issued to an unaffiliated third party in two ventures to which we contributed the junior notes and equity of two floating rate securitizations. Together these ventures are referred to as the RAIT Venture VIEs. The first of these ventures, the 2016 RAIT Venture VIE, was formed in 2016. The second, the 2017 RAIT Venture VIE, was formed in 2017. We retained a 60% interest in these ventures, and, as a result of our controlling financial interest, we consolidated the ventures. We received approximately $41,689 of proceeds as a result of issuing these 40% interests, which have an unpaid principal balance of $40,830. These 40% interests have no stated maturity date and do not provide for mandatory redemption or any required return or interest payment. These ventures allocate the distributions on such junior notes and equity when made between the parties to the ventures.

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the loans payable on real estate that are guaranteed by us. Non-recourse indebtedness consists of indebtedness of consolidated securitizations and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated securitization have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or during the six months ended June 30, 2018 is as follows:

Recourse Indebtedness

7.0% convertible senior notes. The 7.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 206.0859 common shares per $1 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $4.85 per common share). As of June 30, 2018, $871 of the 7.0% convertible notes remain outstanding. The 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2021, and April 2026. During the six months ended June 30, 2018, there was no activity other than recurring interest during the current period. These notes do not contain financial covenants.

4.0% convertible senior notes. The 4.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 108.5803 common shares per $1 principal amount of 4.0% convertible senior notes (equivalent to a current conversion price of $9.21 per common share). The 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028. These notes do not contain financial covenants.

During the three months ended March 31, 2018, we repurchased $6,000 in principal amount of the 4.0% convertible senior notes for $5,708. During the three months ended June 30, 2018, we repurchased $36,291 in principal amount of the 4% convertible senior notes for $35,319. As of June 30, 2018, $68,222 of the 4.0% convertible senior notes remain outstanding.

7.625% senior notes. During the six months ended June 30, 2018, there was no activity other than recurring interest. As of June 30, 2018, $56,324 of the 7.625% senior notes remain outstanding. These notes contain financial covenants that are applicable upon the incurrence of debt as defined in the notes’ related indenture including a maximum leverage ratio covenant and a minimum fixed charge ratio covenant. We did not incur debt, as defined in this indenture, during the three months ended June 30, 2018. As of March 31, 2018, the leverage ratio, calculated in accordance with the indenture, was 74.6% as compared to a maximum leverage ratio not to exceed 80%, and for the preceding four quarters, the fixed charge coverage ratio, calculated in accordance with the indenture, was 1.34x as compared to a minimum fixed charge coverage ratio of no less than 1.20x.

7.125% senior notes. During the six months ended June 30, 2018, there was no activity other than recurring interest. As of June 30, 2018, $68,408 of the 7.125% senior notes remain outstanding. These notes contain financial covenants that are applicable upon the incurrence of debt as defined in the notes’ related indenture including a maximum leverage ratio covenant and a minimum fixed charge ratio covenant. We did not incur debt, as defined in this indenture, during the three months ended June 30, 2018. As of March 31, 2018, the leverage ratio, calculated in accordance with the indenture, was 74.6% as compared to a maximum leverage ratio not to exceed 80%, and for the preceding four quarters, the fixed charge coverage ratio, calculated in accordance with the indenture, was 1.34x as compared to a minimum fixed charge coverage ratio of no less than 1.20x.

Senior secured notes. During the six months ended June 30, 2018, we repaid $2,000 of the senior secured notes. These notes do not contain financial covenants.

Junior subordinated notes, at fair value. At issuance, we elected to record the $18,671 junior subordinated notes at fair value under FASB ASC Topic 825, with all subsequent changes in fair value recorded in earnings. As of June 30, 2018, the fair value, or carrying amount, of this indebtedness was $5,111. These notes do not contain financial covenants.

Junior subordinated notes, at amortized cost. During the six months ended June 30, 2018, there was no activity other than recurring interest. These notes do not contain financial covenants.

Secured warehouse facilities. As of June 30, 2018, we had $0 of outstanding secured warehouse borrowings and $0 of outstanding commercial mortgage borrowings under the amended and restated master repurchase agreement, or the Amended MRA. The Amended MRA had a capacity of $150,000 with a limit of $100,000 for floating rate loans. This facility was not renewed after its maturity in July 2018 and it has terminated.

As of June 30, 2018, we had $0 of outstanding borrowings under the $75,000 commercial mortgage facility. This facility was not renewed after its June 2018 maturity and it has terminated.

As of June 30, 2018, we had $0 of outstanding borrowings under the $150,000 commercial mortgage facility. This facility was not renewed after its June 2018 maturity and it has terminated.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO securitizations which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgage loans and mezzanine loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both RAIT I and RAIT II are meeting all of their over collateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2018.

CMBS securitizations

On June 27, 2018, RAIT IV, a subsidiary of RAIT, completed the sale of its FL5 Interests and FL6 Interests to Melody RE II, LLC. As a result of the sale, we determined that RAIT is no longer the primary beneficiary of the RAIT Venture VIEs, FL5 or FL6 (each as defined in Note 8: Variable Interest Entities). Therefore, we deconsolidated those entities as of June 27, 2018. See Note 8: Variable Interest Entities for more information regarding this transaction.

As of June 30, 2018, our subsidiary, RAIT 2017-FL7 Trust, or RAIT FL7, had $340,738 of total collateral at par value, none of which was defaulted. As of June 30, 2018, RAIT FL7 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $275,259 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $65,479, and the equity, or the retained interests, of RAIT FL7. RAIT FL7 does not have OC triggers or IC triggers.

As of June 30, 2018, our subsidiary, RAIT 2017-FL8 Trust, or RAIT FL8, had $228,122 of total collateral at par value, none of which was defaulted. As of June 30, 2018, RAIT FL8 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $183,960 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $44,162, and the equity, or the retained interests, of RAIT FL8. RAIT FL8 does not have OC triggers or IC triggers.

The junior notes that we have retained in our CMBS securitizations include the class of junior notes that is subject to the first dollar of loss.

Loans payable on real estate

As of June 30, 2018 and December 31, 2017, we had $41,082 and $62,297, respectively, of other indebtedness outstanding relating to loans payable on consolidated real estate. These loans are secured by specific consolidated real estate assets included in our consolidated balance sheets.

Maturity of Indebtedness

Generally, the majority of our indebtedness is payable in full upon the maturity or termination date of the underlying indebtedness. The following table displays the aggregate contractual maturities of our indebtedness on or before December 31 by year:

	Recourse indebtedness		Non-recourse indebtedness
2018	$	-	$	358
2019		77,908		749
2020		-		779
2021		-		39,196
2022		-		-
Thereafter (1)		169,188		670,004
Total	$	247,096	$	711,086

(1)	Includes $871 of our 7.0% convertible senior notes which are redeemable, at par at the option of the holder in April 2021 and April 2026. Includes $68,222 of our 4.0% convertible senior notes which are redeemable, at par at the option of the holder in October 2018, October 2023, and October 2028.