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Investment Portfolio Financing
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Investment Portfolio Financing Investment Portfolio Financing
The Company finances its portfolio of loans, or participation interests therein, and REO using secured financing agreements, including secured credit agreements, secured revolving credit facilities, asset-specific financing arrangements, and collateralized loan obligations.
The following table summarizes the Company's investment portfolio financing (dollars in thousands):
Outstanding principal balance
June 30, 2023December 31, 2022
Collateralized loan obligations(1)
$2,142,939 $2,461,170 
Secured credit agreements1,039,185 1,108,386 
Asset-specific financing arrangements492,563 565,376 
Secured revolving credit facility— 44,279 
Mortgage loan payable31,200 — 
Total$3,705,887 $4,179,211 
________________________________
(1)See Note 5 for additional information regarding the Company's collateralized loan obligations.
Secured Credit Agreements
As of June 30, 2023 and December 31, 2022, the Company had secured credit agreements used to finance certain of the Company’s loan investments. These financing arrangements bear interest at rates equal to Term SOFR plus a credit spread negotiated between the Company and each lender, often a separate credit spread for each pledge of collateral, which is primarily based on property type and advance rate against the unpaid principal balance of the pledged loan. These borrowing arrangements contain defined mark-to-market provisions that permit our lenders to issue margin calls to the Company only in the event that the collateral properties underlying the Company’s loans pledged to the Company’s lenders experience a non-temporary decline in value (“credit marks”) due to reasons other than capital markets events that result in changing credit spreads for similar borrowing obligations. In connection with one of these borrowing arrangements, the lender is also permitted to issue margin calls to the Company in the event the lender determines capital markets events have caused credit spreads to change for similar borrowing obligations (“spread marks”). Furthermore, in connection with one of these borrowing arrangements, the lender has the right to re-margin the secured credit agreement based solely on appraised loan-to-values.
The following table presents certain information regarding the Company’s secured credit agreements. Except as otherwise noted, all agreements are on a partial (25%) recourse basis (dollars in thousands):
June 30, 2023
Secured credit agreements(1)
Initial
maturity date		Extended
maturity date		Index
rate		Weighted average
credit spread 		Interest
rate 		Commitment
amount		Maximum
current availability		Balance
outstanding		Principal balance
of collateral		Amortized cost
of collateral
Goldman Sachs08/19/2308/19/241 Month BR2.4 %7.4 %$500,000 $175,677 $324,323 $420,633 $420,286 
Wells Fargo04/18/2504/18/251 Month BR1.9 %6.9 %500,000 64,154 435,846 598,319 595,854 
Barclays08/13/2508/13/261 Month BR2.0 %7.0 %500,000 367,374 132,626 180,188 179,748 
Morgan Stanley(2)
05/04/2405/04/241 Month BR2.3 %7.4 %500,000 446,200 53,800 80,587 80,587 
JP Morgan10/30/2310/30/251 Month BR1.7 %6.8 %400,000 343,275 56,725 80,329 80,329 
Bank of America(3)
06/06/2606/06/261 Month BR1.8 %6.8 %200,000 164,135 35,865 49,018 49,018 
Institutional Lender 1(4)
10/30/2310/30/251 Month BR— %— %249,546 249,546 — — — 
Totals$2,849,546 $1,810,361 $1,039,185 $1,409,074 $1,405,822 
________________________________
(1)Borrowings under secured credit agreements with a 25% recourse guarantee from Holdco. Each secured credit agreement contains defined mark-to-market provisions that permit the lenders to issue margin calls based on credit marks. Under the JP Morgan secured credit agreement, the Company is also subject to spread marks. Index rate is the underlying benchmark interest rate ("BR"), currently Term SOFR, for the Company's borrowings on each secured credit agreement.
(2)On March 17, 2023, the Company executed an extension of the secured credit agreement's maturity that is effective May 4, 2023 with a one year term maturing on May 4, 2024.
(3)On March 20, 2023, the Company executed a short term extension of the secured credit agreement's maturity to May 30, 2023, and on May 25, 2023 executed a further short-term extension to June 6, 2023. On June 6, 2023, the secured credit agreement's initial and extended maturity was extended to June 6, 2026.
(4)Under this arrangement, the lender has the right to re-margin the secured credit agreement based solely on appraised loan-to-values.
December 31, 2022
Secured credit agreements(1)
Initial
maturity date		Extended
maturity date		Index
rate		Weighted average
credit spread 		Interest
rate 		Commitment
amount		Maximum
current availability		Balance
outstanding		Principal balance
of collateral		Amortized cost
of collateral
Goldman Sachs(2)
08/19/2308/19/241 Month BR2.2 %6.6 %$500,000 $114,662 $385,338 $595,576 $595,136 
Wells Fargo(3)
04/18/2504/18/251 Month BR1.6 %6.0 %500,000 77,998 422,002 544,557 541,134 
Barclays(4)
08/13/2508/13/261 Month BR1.6 %5.9 %500,000 403,074 96,926 129,049 128,489 
Morgan Stanley(5)
05/04/2305/04/231 Month BR2.3 %6.7 %500,000 444,421 55,579 79,103 79,103 
JP Morgan10/30/2310/30/251 Month BR1.6 %6.0 %400,000 287,324 112,676 159,601 159,596 
Bank of America(6)
03/31/2303/31/231 Month BR1.8 %6.1 %200,000 164,135 35,865 47,820 47,820 
Institutional Lender 1(7)
10/30/2310/30/251 Month BR— %— %249,546 249,546 — 1,542 1,542 
Totals$2,849,546 $1,741,160 $1,108,386 $1,557,248 $1,552,820 
________________________________
(1)Borrowings under secured credit agreements with a 25% recourse guarantee from Holdco. Each secured credit agreement contains defined mark-to-market provisions that permit the lenders to issue margin calls based on credit marks. Under the JP Morgan secured credit agreement, the Company is also subject to spread marks. Index rate is the underlying benchmark interest rate ("BR"), currently LIBOR or Term SOFR, for the Company's borrowings on each secured credit agreement.
(2)On August 19, 2022 the secured credit agreement's initial maturity was extended to August 19, 2023.
(3)On February 9, 2022 the secured credit agreement's initial maturity was extended to April 18, 2025.
(4)On April 11, 2022 the secured credit agreement's initial maturity was extended to August 13, 2025 and the Company reduced the total commitment to $500.0 million from $750.0 million. The secured credit agreement includes a $250.0 million accordion feature subject to the lender's approval.
(5)On April 29, 2022 the secured credit agreement's maturity was extended to May 4, 2023.
(6)On September 14, 2022, the secured credit agreement's initial and extended maturity was extended to March 31, 2023.
(7)Under this arrangement, the lender has the right to re-margin the secured credit agreement based solely on appraised loan-to-values.
Secured Credit Agreement Terms
As of June 30, 2023 and December 31, 2022, the Company had six secured credit agreements to finance its loan investing activities. Credit spreads vary depending upon the collateral type, advance rate and other factors. Assets pledged as of June 30, 2023 and December 31, 2022 consisted of 38 and 45 mortgage loans, or participation interests therein, respectively. Under five of the six secured credit agreements, the Company transfers all of its rights, title and interest in the loans to the secured credit agreement counterparty in exchange for cash, and simultaneously agrees to reacquire the asset at a future date for an amount equal to the cash exchanged plus an interest factor. The secured credit agreement lender collects all principal and interest on related loans and remits to the Company the net amount after the lender collects its interest and other fees. For the sixth secured credit agreement, which until June 6, 2023 was a mortgage warehouse facility, the lender received a security interest (pledge) in the loans financed under the arrangement. Effective June 6, 2023, this credit facility was extended for three years and converted from a mortgage warehouse facility to a secured credit facility similar to the Company's five other secured credit facilities. The secured credit agreements used to finance loan investments are 25% recourse to Holdco.
Under each of the Company’s secured credit agreements, the Company is required to post margin for changes in conditions to specific loans that serve as collateral for those secured credit agreements. The lender’s margin amount is in all but one instance limited to collateral-specific credit marks based on non-temporary declines in the value of the properties securing the underlying loan collateral. Market value determinations and redeterminations may be made by the repurchase lender in its sole discretion subject to certain specified parameters. These considerations only include credit-based factors unrelated to the capital markets. In only one instance do the considerations include changes in observable credit spreads for such liabilities.
The following table summarizes certain characteristics of the Company’s secured credit agreements secured by mortgage loan investments, including counterparty concentration risks (dollars in thousands):
June 30, 2023
Secured credit agreementsCommitment
amount		UPB of
collateral
Amortized cost
of collateral(1)
Amount
payable(2)
Net counterparty exposure(3)
Percent of
stockholders' equity 		Days to
extended maturity
Goldman Sachs Bank$500,000 $420,633 $422,190 $324,906 $97,284 8.0 %416
Wells Fargo500,000 598,319 600,568 436,727 163,841 13.4 %658
Barclays500,000 180,188 180,834 133,060 47,774 3.9 %1140
Morgan Stanley Bank500,000 80,587 81,339 54,029 27,310 2.2 %309
JP Morgan Chase Bank649,546 80,329 81,808 57,422 24,386 2.0 %853
Bank of America200,000 49,018 49,115 35,885 13,230 1.1 %1072
Total / weighted average$2,849,546 $1,409,074 $1,415,854 $1,042,029 $373,825 651
_______________________
(1)Loan amounts include interest receivable of $10.0 million and are net of premium, discount and origination fees of $3.3 million.
(2)Loan amounts include interest payable of $2.8 million and do not reflect unamortized deferred financing fees of $2.1 million.
(3)Loan amounts represent the net carrying value of the commercial real estate loans sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.
The following table summarizes certain characteristics of the Company’s secured credit agreements secured by mortgage loan investments, including counterparty concentration risks (dollars in thousands):
 December 31, 2022
Secured credit agreementsCommitment
amount		UPB of
collateral
Amortized cost
of collateral(1)
Amount
payable(2)
Net counterparty exposure(3)
Percent of
stockholders' equity		Days to
extended maturity
Goldman Sachs Bank$500,000 $595,576 $596,838 $386,124 $210,714 15.9 %597
Wells Fargo500,000 544,557 544,824 422,870 121,954 9.2 %839
Barclays500,000 129,049 128,900 97,215 31,685 2.4 %1321
Morgan Stanley Bank500,000 79,103 79,935 55,798 24,137 1.8 %124
JP Morgan Chase Bank649,546 161,143 162,328 113,197 49,131 3.7 %1034
Bank of America200,000 47,820 48,272 35,882 12,390 0.9 %90
Total / weighted average$2,849,546 $1,557,248 $1,561,097 $1,111,086 $450,011  757
_______________________
(1)Loan amounts include interest receivable of $8.3 million and are net of premium, discount and origination fees of $4.4 million.
(2)Loan amounts include interest payable of $2.7 million and do not reflect unamortized deferred financing fees of $2.8 million.
(3)Loan amounts represent the net carrying value of the commercial real estate loans sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.
Secured Revolving Credit Facility
On February 22, 2022, the Company closed a $250.0 million secured revolving credit facility with a syndicate of 5 lenders. During the fourth quarter of 2022, an additional lender was added to the facility, increasing the borrowing capacity to $290.0 million. This facility has an initial term of 3 years, an interest rate of Term SOFR plus 2.00% that is payable monthly in arrears, and an unused fee of 15 or 20 basis points, depending upon whether utilization exceeds 50.0%. During the three months ended June 30, 2023 and 2022, the weighted average unused fee was 19 and 20 basis points, respectively. During the six months ended June 30, 2023 and 2022, the weighted average unused fee was 19 and 20 basis points, respectively. The facility generally provides the Company with interim financing of eligible loans for up to 180 days at an initial advance rate of 75.0%, which declines to 65.0%, 45.0%, and 0.0% after 90, 135, and 180 days from initial borrowing, respectively, depending on the likely source of refinancing. This facility is 100% recourse to Holdco. As of June 30, 2023, the Company did not have any outstanding borrowings under its secured revolving credit facility. As of December 31, 2022, the Company pledged one loan investment with an aggregate collateral principal balance of $59.8 million and outstanding Term SOFR-based borrowings of $44.3 million.
Asset-Specific Financing Arrangements
As of June 30, 2023, the Company had two asset-specific financing arrangements with Axos Bank each secured by a mortgage loan. The separate arrangements provide non-mark-to-market financing, a term of up to 2 years, and are 15% recourse to Holdco.
On June 30, 2022, the Company closed a $200.0 million loan financing facility with BMO Harris Bank ("BMO Facility"). The facility provides asset-specific financing on a non-mark-to-market, matched term basis. This facility is 25% recourse to Holdco. The advance rate and borrowing rate are determined separately for each loan financed under the facility.
On September 1, 2022, the Company closed a $397.9 million asset-specific financing arrangement with an Institutional Lender ("Institutional Lender 2"). The arrangement is non-mark-to-market, matched term, and non-recourse. The advance rate and borrowing rate are uniform for all loans financed under the arrangement.
On November 17, 2022, the Company closed a $23.3 million asset-specific financing arrangement with Customers Bank. The arrangement is non-mark-to-market, matched term, and non-recourse.
The following table details the Company's asset-specific financing arrangements (dollars in thousands):
June 30, 2023
FinancingCollateral
Asset-specific financingCountCommitment amountOutstanding principal balance
Carrying
value(1)
Wtd. avg.
spread(2)
Wtd. avg.
term(3)
CountOutstanding principal balanceAmortized CostWtd. avg.
term
Axos Bank2$100,915 $100,915 $100,265 4.4 %0.72$189,905 $189,671 0.7
BMO Facility1200,000 29,110 28,781 2.0 %4.2136,525 36,197 4.2
Institutional Lender 21341,159 341,159 340,585 3.5 %1.94459,348 447,395 1.9
Customers Bank123,250 21,379 20,950 2.5 %1.9128,799 28,575 1.9
Total / weighted average$665,324 $492,563 $490,581 3.6 %1.8 years$714,577 $701,838 1.7 years
_______________________
(1)Net of $2.0 million unamortized deferred financing costs.
(2)Collateral loan assets and related financings are indexed to Term SOFR under Axos Bank, the BMO Facility and Customers Bank. Under the Institutional Lender 2 arrangement, collateral loan assets are indexed to Term SOFR with the exception of one loan indexed to LIBOR and the financing provided is indexed to Term SOFR.
(3)Term under Axos Bank is based on the extended maturity date for the specific arrangement. Borrowings under the BMO Facility, the Institutional Lender 2 arrangement and Customers Bank are term-matched to the corresponding collateral loan asset. The weighted-average term assumes all extension options of the collateral loan assets are exercised by the borrower.
The following table details the Company's asset-specific financing arrangements (dollars in thousands):
December 31, 2022
FinancingCollateral
Asset-specific financingCountCommitment amountOutstanding principal balance
Carrying
value(1)
Wtd. avg.
spread(2)
Wtd. avg.
term(3)
CountOutstanding principal balanceAmortized CostWtd. avg.
term
Axos Bank2$105,152 $105,152 $104,504 4.4 %1.32$198,603 $198,246 1.2
BMO Facility1200,000 47,545 46,985 1.8 %4.5259,431 58,717 4.5
Institutional Lender 21397,928 392,070 389,442 3.5 %2.45513,181 494,965 2.4
Customers Bank123,250 20,609 20,086 2.5 %2.4128,505 28,232 2.4
Total / weighted average$726,330 $565,376 $561,017 3.5 %2.4 years$799,720 $780,160 2.3 years
_______________________
(1)Net of $4.4 million unamortized deferred financing costs.
(2)Collateral loan assets are indexed to either LIBOR or Term SOFR and related financings are indexed to Term SOFR under Axos Bank, the BMO Facility and Customers Bank. Under the Institutional Lender 2 arrangement, collateral loan assets are indexed to LIBOR and the financing provided is indexed to Term SOFR.
(3)Term under Axos Bank is based on the extended maturity date for the specific arrangement. Borrowings under the BMO Facility, the Institutional Lender 2 arrangement and Customers Bank are term-matched to the corresponding collateral loan asset. The weighted-average term assumes all extension options of the collateral loan assets are exercised by the borrower.
Mortgage Loan Payable
The Company, through a wholly-owned special purpose subsidiary, is the borrower under a $31.2 million mortgage loan secured by a deed of trust against an REO asset. The first mortgage loan was provided by an institutional lender, has an interest-only five year term and bears interest at a rate of 7.7%. As of June 30, 2023, the carrying value of the loan was $30.5 million.
Financial Covenant Compliance
Our financial covenants and guarantees for outstanding borrowings related to our secured financing agreements require Holdco to maintain compliance with the following financial covenants (among others):
Financial CovenantCurrent
Cash Liquidity
Minimum cash liquidity of no less than the greater of: $15.0 million; and 5.0% of Holdco’s recourse indebtedness
Tangible Net Worth
$1.0 billion, plus 75% of all subsequent equity issuances (net of discounts, commissions, expense), minus 75% of the redeemed or repurchased preferred or redeemable equity or stock
Debt-to-Equity
Debt-to-Equity ratio not to exceed 4.25 to 1.0
Interest Coverage
Minimum interest coverage ratio of no less than 1.4 to 1.0, effective June 30, 2023. Previously, 1.5 to 1.0.
The financial covenants and guarantees for outstanding borrowings related to the Company’s secured credit agreements and secured revolving credit facility require Holdco to maintain compliance with certain financial covenants. The uncertain long-term impact of global macroeconomic conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, increased interest rates, currency fluctuations, labor shortages and recent distress in the banking sector, on the commercial real estate markets and global capital markets may make it more difficult to meet or satisfy these covenants, and there can be no assurance that the Company will remain in compliance with these covenants in the future.
Financial Covenant Compliance
The Company was in compliance with all financial covenants for its secured credit agreements and secured revolving credit facility to the extent of outstanding balances as of June 30, 2023 and December 31, 2022.