Note 10 — Debt Obligations

Credit Facilities and Repurchase Agreements

The following table outlines borrowings under our credit facilities and repurchase agreements ($ in thousands):

				March 31, 2018						December 31, 2017
	Current Maturity	Extended Maturity	Note Rate	Debt Carrying Value (1)		Collateral Carrying Value		Wtd. Avg. Note Rate		Debt Carrying Value (1)		Collateral Carrying Value		Wtd. Avg. Note Rate

Structured Business
$300 million repurchase facility	Mar. 2020	Mar. 2021	L + 1.75% to 3.50%	$	115,226	$	163,000	3.96	%	$	102,350	$	145,850	3.90	%

$100 million repurchase facility	June 2019	N/A	L + 2.00%	37,871		50,827		3.94	%	2,445		6,600		3.61	%

$75 million credit facility	Dec. 2018	N/A	L + 2.00% to 2.50%	13,212		18,500		4.06	%	—		—		—

$75 million credit facility	June 2018	N/A	L + 2.00%	9,000		16,000		3.94	%	8,999		16,000		3.61	%

$50 million credit facility	Feb. 2019	N/A	L + 2.00%	38,027		48,800		3.94	%	32,538		40,700		3.61	%

$50 million credit facility	Sept. 2019	Sept. 2021	L + 2.50% to 3.25%	3,599		4,625		5.20	%	3,581		4,625		4.88	%

$25.5 million credit facility	Oct. 2019	N/A	L + 2.50%	13,940		18,753		4.44	%	13,920		18,753		4.12	%

$23.2 million credit facility	Feb. 2020	Feb. 2021	L + 2.30%	23,072		30,900		4.24	%	—		—		—

$20 million credit facility	Mar. 2020	Mar. 2021	L + 2.50%	19,884		41,650		4.44	%	—		—		—

$10 million working capital facility	June 2018	N/A	L + 2.50%	—		—		—		10,000		—		4.12	%

$7.5 million credit facility	Aug. 2018	N/A	L + 2.75%	7,444		9,340		4.70	%	7,432		9,340		4.37	%

Repurchase facility - securities	N/A	N/A	L + 2.50% to 3.50%	60,390		—		4.84	%	53,938		—		4.45	%

$3 million master security agreement	Oct. 2020	N/A	2.96% to 3.42%	1,670		—		3.20	%	1,834		—		3.21	%


$2.2 million master security agreement	Mar. 2021	N/A	4.60%	1,390		—		4.66	%	—		—		—

Structured Business total				$	344,725	$	402,395	4.21	%	$	237,037	$	241,868	4.02	%


Agency Business

$500 million ASAP agreement (2)	N/A	N/A	L + 1.05%	$	40,470	$	40,470	2.93	%	$	121,880	$	121,880	2.61	%

$150 million credit facility	Jan. 2019	N/A	L + 1.30%	139,763		139,955		3.18	%	21,802		21,821		2.96	%

$150 million credit facility	July 2018	N/A	L + 1.35%	76,144		76,206		3.23	%	99,242		99,357		2.91	%

$100 million credit facility (3)	June 2018	N/A	L + 1.30%	5,000		5,000		3.18	%	23,785		23,785		2.86	%

$100 million repurchase facility	Aug. 2018	N/A	L + 1.35%	19,961		19,990		3.23	%	24,827		24,873		2.91	%


Agency Business total				$	281,338	$	281,621	3.16	%	$	291,536	$	291,716	2.78	%


Consolidated total				$	626,063	$	684,016	3.74	%	$	528,573	$	533,584	3.34	%

(1)

The debt carrying value for the Structured Business at March 31, 2018 and December 31, 2017 was net of unamortized deferred finance costs of $3.4 million and $2.2 million, respectively. The debt carrying value for the Agency Business at March 31, 2018 and December 31, 2017 was net of unamortized deferred finance costs of $0.3 million and $0.2 million, respectively.

(2)

The note rate under this agreement is subject to a LIBOR Floor of 35 basis points.

(3)

The committed amount under the facility was temporarily increased to $250.0 million, which expired in January 2018.

Structured Business

At March 31, 2018 and December 31, 2017, the weighted average interest rate for the credit facilities and repurchase agreements of our Structured Business, including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, was 4.55% and 4.51%, respectively. The leverage on our loans and investment portfolio financed through our credit facilities and repurchase agreements, excluding the securities repurchase facility, working capital line of credit and the security agreements used to finance leasehold and capital expenditure improvements at our corporate office, was 71% and 72% at March 31, 2018 and December 31, 2017, respectively.

In March 2018, we amended our $225.0 million repurchase facility to increase the committed amount by $75.0 million to $300.0 million, reduce the interest rates by 50 basis points and extend the maturity date to March 2020 with a one year extension option.

In March 2018, we entered into a $20.0 million credit facility to finance a healthcare facility bridge loan. The facility bears interest at a rate of 250 basis points over LIBOR and matures in March 2020, with a one year extension option.

In March 2018, we entered into a master security agreement that was used to finance certain capital expenditures. We have a $2.2 million note payable under this agreement which bears interest at a fixed rate of 4.60%, requires monthly amortization payments and matures in 2021.

In March 2018, we amended our $10.0 million credit facility extending the maturity date to June 2018.

In February 2018, we entered into a $23.2 million credit facility to finance a self storage bridge loan. The facility bears interest at a rate of 230 basis points over LIBOR and matures in February 2020, with a one year extension option.

Agency Business

In January 2018, we amended our $150.0 million warehouse facility reducing the interest rate 10 basis points to 130 basis points over LIBOR and extending the maturity date one year to January 2019.

Collateralized Loan Obligations (“CLOs”)

We account for our CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us.

The following table outlines borrowings and the corresponding collateral under our CLOs ($ in thousands):

	Debt						Collateral (3)
							Loans				Cash
March 31, 2018	Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		UPB		Carrying Value		Restricted Cash (4)

CLO IX	$	356,400	$	351,323	3.29	%	$	461,000	$	459,526	$	—
CLO VIII	282,874		278,910		3.24	%	314,564		313,405		47,586
CLO VII	279,000		275,622		3.93	%	323,578		322,438		35,617
CLO VI	250,250		247,730		4.42	%	306,140		305,175		16,485
CLO V	267,750		266,253		4.38	%	341,921		341,059		8,079

Total CLOs	$	1,436,274	$	1,419,838	3.81	%	$	1,747,203	$	1,741,603	$	107,767

December 31, 2017

CLO IX	$	356,400	$	351,042	2.97	%	$	372,350	$	371,236	$	88,650
CLO VIII	282,874		278,606		2.92	%	364,838		363,339		162
CLO VII	279,000		275,331		3.61	%	346,524		345,220		13,476
CLO VI	250,250		247,470		4.10	%	314,382		313,582		10,618
CLO V	267,750		265,973		4.06	%	347,797		346,803		2,203

Total CLOs	$	1,436,274	$	1,418,422	3.48	%	$	1,745,891	$	1,740,180	$	115,109

(1)

Debt carrying value is net of $16.4 million and $17.9 million of deferred financing fees at March 31, 2018 and December 31, 2017, respectively.

(2)

At March 31, 2018 and December 31, 2017, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 4.37% and 4.08%, respectively.

(3)

As of March 31, 2018 and December 31, 2017, there was no collateral at risk of default or deemed to be a “credit risk” as defined by the CLO indenture.

(4)

Represents restricted cash held for principal repayments as well as for reinvestment in the CLOs. Does not include restricted cash related to interest payments, delayed fundings and expenses.

Luxembourg Debt Fund

In November 2017, we formed a $100.0 million Luxembourg commercial real estate debt fund (“Debt Fund”) and issued $70.0 million of floating rate notes to third party investors which bear an initial interest rate of 4.15% over LIBOR. The notes mature in 2025 and we retained a $30.0 million equity interest in the Debt Fund. The Debt Fund is a VIE for which we are the primary beneficiary and is consolidated in our financial statements. The Debt Fund is secured by a portfolio of loan obligations with a face value of $100.0 million, which includes first mortgage bridge loans, senior participation interests in first mortgage bridge loans, subordinate participation interest in first mortgage bridge loans and participation interests in mezzanine loans. The Debt Fund allows, for a period of three years, principal proceeds from portfolio assets to be reinvested in qualifying replacement assets, subject to certain conditions.

Borrowings and the corresponding collateral under our Debt Fund are as follows ($ in thousands):

March 31, 2018
Debt						Collateral (3)
						Loans				Cash
Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		UPB		Carrying Value		Restricted Cash (4)

$	70,000	$	68,176	6.12	%	$	97,700	$	97,256	$	—


December 31, 2017
$	70,000	$	68,084	5.79	%	$	96,995	$	96,564	$	3,005

(1)

Debt carrying value is net of $1.8 million and $1.9 million of deferred financing fees at March 31, 2018 and December 31, 2017, respectively.

(2)

At March 31, 2018 and December 31, 2017, the aggregate weighted average note rate, including certain fees and costs, was 6.51% and 6.05%, respectively.

(3)

At both March 31, 2018 and December 31, 2017, there was no collateral at risk of default or deemed to be a “credit risk.”

(4)

Represents restricted cash held for reinvestment. Does not include restricted cash related to interest payments, delayed fundings and expenses.

Senior Unsecured Notes

In March 2018, we issued $100.0 million aggregate principal amount of 5.625% senior unsecured notes due in May 2023 (the “2023 Notes”) in a private offering, generating net proceeds of $97.8 million, after deducting the underwriting discount and other offering expenses. We used the net proceeds from the offering to fund the redemption of our outstanding 7.375% senior unsecured notes due in 2021(the “2021 Notes”). The 2023 Notes are unsecured and can be redeemed by us at any time prior to April 1, 2023, at a redemption price equal to 100% of the aggregate principal amount, plus a “make-whole” premium and accrued and unpaid interest. We have the right to redeem the 2023 Notes on or after April 1, 2023, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannual in May and November starting in November 2018. At March 31, 2018, the debt carrying value of the 2023 Notes was $98.2 million, net of $1.8 million of deferred financing fees, and the weighted average note rate was 6.08%, including certain fees and costs.

The debt carrying value of our 2021 Notes at March 31, 2018 and December 31, 2017 was $97.9 million and $95.3 million, respectively. The debt carrying value at December 31, 2017 was net of $2.6 million of deferred financing fees, which were expensed into interest expense on the consolidated statements of income. Including certain fees and costs, the weighted average note rate was 8.16% at both March 31, 2018 and December 31, 2017.

Convertible Senior Unsecured Notes

In November 2017, we issued $143.8 million aggregate principal amount of 5.375% convertible senior unsecured notes, which included the underwriter’s exercise of the over-allotment option of $18.8 million. The notes pay interest semiannually in arrears. We received total proceeds of $139.2 million from the offering, net of deferred financing fees, which is being amortized through interest expense over the life of the notes. The notes mature in November 2020, unless earlier converted or repurchased by the holders pursuant to their terms. The initial conversion rate was 107.7122 shares of common stock per $1,000 principal amount of notes and represents a conversion price of $9.28 per share of common stock. At March 31, 2018, the notes had a conversion rate of 107.9604 shares of common stock per $1,000 principal amount of notes, which represented a conversion price of $9.26 per share of common stock.

In 2016, we issued $86.3 million aggregate principal amount of 6.50% convertible senior unsecured notes, including the underwriter’s over-allotment option of $11.3 million, and, in January 2017, we issued an additional $13.8 million, which brought the aggregate outstanding principal amount of the notes to $100.0 million. The additional issuance in January 2017 is fully fungible with, and ranks equally in right of payment with, the initial issuance. The notes pay interest semiannually in arrears. We received total proceeds of $95.8 million from the offerings, net of deferred financing fees, which are being amortized through interest expense over the life of the notes. The notes mature in October 2019, unless earlier converted or repurchased by the holders pursuant to their terms. The initial conversion rate was 119.3033 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $8.38 per share of common stock. At March 31, 2018, the notes had a conversion rate of 121.1613 shares of common stock per $1,000 principal amount of notes, which represented a conversion price of $8.25 per share of common stock.

Our convertible senior unsecured notes are not redeemable by us prior to their maturities and are convertible into, at our election, cash, shares of our common stock or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion rates are subject to adjustment upon the occurrence of certain specified events and the holders may require us to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if we undergo a fundamental change as specified in the agreements.

Accounting guidance requires that convertible debt instruments with cash settlement features, including partial cash settlement, account for the liability component and equity component (conversion feature) of the instrument separately. The initial value of the liability component reflects the present value of the discounted cash flows using the nonconvertible debt borrowing rate at the time of the issuance. The debt discount represents the difference between the proceeds received from the issuance and the initial carrying value of the liability component, which is being accreted back to the notes principal amount through interest expense over the term of the notes, which was 2.17 years and 2.41 years at March 31, 2018 and December 31, 2017, respectively, on a weighted average basis.

The UPB, unamortized discount and net carrying amount of the liability and equity components of the notes were as follows (in thousands):

	Liability								Equity
	Component								Component
Period	UPB		Unamortized Debt Discount		Unamortized Deferred Financing Fees		Net Carrying Value		Net Carrying Value
March 31, 2018	$	243,750	$	5,155	$	6,018	$	232,577	$	6,733


December 31, 2017	$	243,750	$	5,742	$	6,721	$	231,287	$	6,733

During the three months ended March 31, 2018, we incurred total interest expense on the notes of $4.9 million, of which $3.6 million, $0.7 million and $0.6 million related to the cash coupons, accretion of the deferred financing fees and of the debt discount, respectively. During the three months ended March 31, 2017, we incurred total interest expense on the notes of $2.1 million, of which $1.6 million, $0.3 million and $0.2 million related to the cash coupon, accretion of the deferred financing fees and of the debt discount, respectively. Including the amortization of the deferred financing fees and debt discount, our weighted average total cost of the notes is 7.96% per annum.

Junior Subordinated Notes

In the first quarter of 2017, we purchased, at a discount, $20.9 million of our junior subordinated notes with a carrying value of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million. As a result, we settled our related equity investment and extinguished $21.5 million of notes. The carrying value of borrowings under our junior subordinated notes was $139.8 million and $139.6 million at March 31, 2018 and December 31, 2017, respectively, which is net of a deferred amount of $12.4 million and $12.5 million, respectively, (which is being amortized into interest expense over the life of the notes) and $2.2 million of deferred financing fees at both March 31, 2018 and December 31, 2017. These notes have maturities ranging from March 2034 through April 2037 and pay interest quarterly at a fixed or floating rate of interest based on LIBOR. The current weighted average note rate was 5.16% and 4.53% at March 31, 2018 and December 31, 2017, respectively. Including certain fees and costs, the weighted average note rate was 5.25% and 4.63% at March 31, 2018 and December 31, 2017, respectively.

Related Party Financing

In connection with the Acquisition, we entered into a five year $50.0 million preferred equity interest financing agreement with ACM to finance a portion of the aggregate purchase price. In January 2018, we paid $50.0 million in full satisfaction of this debt. At December 31, 2017, the outstanding principal balance was $50.0 million and, during the three months ended March 31, 2018 and 2017, we recorded interest expense of $0.3 million and $1.0 million, respectively.

Debt Covenants

Credit Facilities and Repurchase Agreements. The credit facilities and repurchase agreements contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth requirements, as well as certain other debt service coverage ratios, debt to equity ratios and minimum servicing portfolio tests. We were in compliance with all financial covenants and restrictions at March 31, 2018.

CLOs. Our CLO vehicles contain interest coverage and asset overcollateralization covenants that must be met as of the waterfall distribution date in order for us to receive such payments. If we fail these covenants in any of our CLOs, all cash flows from the applicable CLO would be diverted to repay principal and interest on the outstanding CLO bonds and we would not receive any residual payments until that CLO regained compliance with such tests. Our CLOs were in compliance with all such covenants as of March 31, 2018, as well as on the most recent determination dates in April 2018. In the event of a breach of the CLO covenants that could not be cured in the near-term, we would be required to fund our non-CLO expenses, including employee costs, distributions required to maintain our REIT status, debt costs, and other expenses with (i) cash on hand, (ii) income from any CLO not in breach of a covenant test, (iii) income from real property and loan assets, (iv) sale of assets, or (v) accessing the equity or debt capital markets, if available. We have the right to cure covenant breaches which would resume normal residual payments to us by purchasing non-performing loans out of the CLOs. However, we may not have sufficient liquidity available to do so at such time.

A summary of our CLO compliance tests as of the most recent determination dates in April 2018 is as follows:

Cash Flow Triggers	CLO V		CLO VI		CLO VII		CLO VIII		CLO IX

Overcollateralization (1)
Current	130.72	%	129.87	%	129.03	%	129.03	%	134.69	%
Limit	129.72	%	128.87	%	128.03	%	128.03	%	133.68	%
Pass / Fail	Pass		Pass		Pass		Pass		Pass

Interest Coverage (2)
Current	190.24	%	203.07	%	211.84	%	329.34	%	259.18	%
Limit	120.00	%	120.00	%	120.00	%	120.00	%	120.00	%
Pass / Fail	Pass		Pass		Pass		Pass		Pass

(1)

The overcollateralization ratio divides the total principal balance of all collateral in the CLO by the total principal balance of the bonds associated with the applicable ratio. To the extent an asset is considered a defaulted security, the asset’s principal balance for purposes of the overcollateralization test is the lesser of the asset’s market value or the principal balance of the defaulted asset multiplied by the asset’s recovery rate which is determined by the rating agencies. Rating downgrades of CLO collateral will generally not have a direct impact on the principal balance of a CLO asset for purposes of calculating the CLO overcollateralization test unless the rating downgrade is below a significantly low threshold (e.g. CCC-) as defined in each CLO vehicle.

(2)

The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by us.

A summary of our CLO overcollateralization ratios as of the determination dates subsequent to each quarter is as follows:

Determination (1)	CLO V		CLO VI		CLO VII		CLO VIII		CLO IX
April 2018	130.72	%	129.87	%	129.03	%	129.03	%	134.69	%
January 2018	130.72	%	129.87	%	129.03	%	129.03	%	134.68	%
October 2017	130.72	%	129.87	%	129.03	%	129.03	%	—
July 2017	130.72	%	129.87	%	129.03	%	—		—
April 2017	130.72	%	129.87	%	—		—		—

(1)

The table above represents the quarterly trend of our overcollateralization ratio, however, the CLO determination dates are monthly and we were in compliance with this test for all periods presented.

The ratio will fluctuate based on the performance of the underlying assets, transfers of assets into the CLOs prior to the expiration of their respective replenishment dates, purchase or disposal of other investments, and loan payoffs. No payment due under the junior subordinated indentures may be paid if there is a default under any senior debt and the senior lender has sent notice to the trustee. The junior subordinated indentures are also cross-defaulted with each other.