4. OTHER RECENT BUSINESS TRANSACTIONS OR EVENTS

ViaNova Capital Group LLC

In 2018, the Company formed a wholly-owned subsidiary, ViaNova Capital Group LLC (“ViaNova”), for the purpose of building a residential transition loan (“RTL”) business. RTLs are small balance commercial loans that are secured by first lien mortgages used by professional investors and real estate developers to finance the purchase and rehabilitation of residential properties.

On November 20, 2018, ViaNova entered into a Warehousing Credit and Security Agreement with LegacyTexas Bank (the “LegacyTexas Credit Facility”) with an effective date of November 16, 2018. The LegacyTexas Credit Facility was amended on May 4, 2019 and again on September 25, 2019 and October 28, 2019. The LegacyTexas Credit Facility supported the buying, aggregating, and distributing of RTLs performed by the business of ViaNova.

On March 19, 2020, ViaNova received a notice of default from LegacyTexas Bank regarding the LegacyTexas Credit Facility, stating that ViaNova’s unrestricted cash balance was less than the amount required. Also, on March 19, 2020, ViaNova received notice from LegacyTexas Bank that the Bank had suspended funding all “Alternative” loans for all of their clients, including the RTL loans that are the subject of the LegacyTexas Credit Facility with LegacyTexas Bank. Since March 19, 2020 ViaNova has repaid all outstanding indebtedness under the LegacyTexas Credit Facility. ViaNova stopped acquiring new RTLs and does not intend to acquire any new RTLs in the future. As of March 31, 2020, the Company had four RTLs and several interest strips representing a par value of $3,034 and a fair value of $2,956, including the fair value of interest strips held. These RTLs and interest strips are included as a component of investments-trading (see note 7). The Company intends to opportunistically sell these RTLs if possible or allow them to mature. The latest maturity date of the RTLs is January 9, 2021.

COVID 19 / Impairment of Goodwill

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. The spread of COVID-19 has caused significant volatility in domestic and international markets. There is on-going uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. While the Company cannot fully assess the impact COVID-19 will have on all of its operations at this time, there are certain impacts that the Company has identified:

The unprecedented volatility of the financial markets experienced in March 2020, has caused the Company to operate JVB at a lower level of leverage than prior to the pandemic. Specifically, JVB has reduced the size of its GCF repo operations and the volume of its TBA trading. The Company determined that at its pre-pandemic levels in these businesses, it was exposed to a higher level of counterparty credit risk than it should have and was experiencing too much volatility in its available liquidity to conservatively meet capital requirements and margin calls in these businesses. The Company expects JVB to operate at lower volumes in both these businesses for an indefinite period of time, which could unfavorably impact the operating profitability of JVB.

The financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses, that resulted from COVID-19 required the Company to reassess the goodwill it had recorded related to JVB under the guidance of ASC 350. The Company determined that the fair value of JVB was less than the carrying value (including the goodwill). As a result, the Company recorded an impairment loss of $7,883 in the three months ended March 31, 2020. See note 12.

The Company expects that its asset management segment will also be adversely impacted by the pandemic. While it is difficult to determine the extent of the impact at this time, the Company expects that raising capital for new funds may become more challenging. In addition, lower returns earned by funds will adversely impact the Company’s asset management fees and investors’ need for liquidity may result in reductions in AUM.

JVB’s mortgage group’s operations are centered on serving the financial needs of mortgage originators and institutions that invest in mortgage backed securities. Prolonged high unemployment will most likely impact mortgage originations and demand for and supply of mortgage backed securities, which may have a significant unfavorable impact on the revenue earned by JVB’s mortgage group.

The Company will likely be impacted by the pandemic in other ways which the Company cannot yet determine. The Company will continue to monitor market conditions and respond accordingly.

Subsequent to March 31, the Company has applied for and received a $2.2 million loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. See note 26.

The 2020 Senior Notes

On January 31, 2020, the Operating LLC entered into a Note Purchase Agreement with JKD Capital Partners I LTD, a New York corporation (“JKD Investor”), and RN Capital Solutions LLC, a Delaware limited liability company (“RNCS”). The JKD Investor is owned by Jack DiMaio, the vice chairman of the Company’s board of directors and the Operating LLC’s board of managers, and his spouse.

Pursuant to the Note Purchase Agreement, JKD Investor and RNCS each purchased a Senior Promissory Note in the principal amount of $2,250 (for an aggregate investment of $4,500). The Senior Promissory Notes bear interest at a fixed rate of 12% per annum and mature on January 31, 2022. On February 3, 2020, pursuant to the Note Purchase Agreement, the Operating LLC used the proceeds received from the issuance of the Senior Promissory Notes to repay in full all amounts outstanding under the Senior Promissory Note, dated September 25, 2019, issued by the Company to Pensco Trust Company, Custodian fbo Edward E. Cohen IRA in the principal amount of $4,386 (the “Cohen IRA Note”). The Cohen IRA Note is included as a portion of the 2019 Senior Notes outstanding as of December 31, 2019. The Cohen IRA Note was fully paid and extinguished on February 3, 2020. Subsequent to this repayment, $2,400 of the 2019 Senior Notes remain outstanding. See note 17.