Note 11—Borrowings

The borrowing facilities described throughout this Note 11 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio, profitability and liquidity. Management believes that the Company was in compliance with these covenants as of September 30, 2019.

Assets Sold Under Agreements to Repurchase

The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by loans held for sale at fair value or participation certificates backed by MSRs. Eligible loans and participation certificates backed by MSRs are sold at advance rates based on the fair value (as determined by the lender) of the assets sold. Interest is charged at a rate based on the lender’s overnight cost of funds rate or on LIBOR depending on the terms of the respective agreements. Loans and MSRs financed under these agreements may be re-pledged by the lenders.

Assets sold under agreements to repurchase are summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(dollars in thousands)
Average balance of assets sold under agreements to repurchase	$	2,098,208		$	1,563,053		$	1,861,086		$	1,618,008
Weighted average interest rate (1)		3.66	%		3.91	%		4.08	%		3.72	%
Total interest expense (2)	$	19,429		$	4,676		$	47,709		$	15,943
Maximum daily amount outstanding	$	3,539,459		$	2,201,880		$	3,539,459		$	2,380,121


		September 30,			December 31,
	2019			2018
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	3,539,459		$	1,935,200
Unamortized debt issuance premiums and costs, net		(570)			(1,341)
	$	3,538,889		$	1,933,859
Weighted average interest rate		3.53	%		4.22	%
Available borrowing capacity (3):
Committed	$	2,665		$	695,767
Uncommitted		1,292,876			2,354,033
	$	1,295,541		$	3,049,800
Fair value of assets securing repurchase agreements:
Loans held for sale	$	3,939,161		$	1,923,857
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell	$	107,678		$	131,025
Servicing advances (4)	$	181,747		$	162,895
Mortgage servicing rights (4)	$	2,532,369		$	2,807,333
Margin deposits placed with counterparties (5)	$	5,000		$	3,750

(1)

Excludes the effect of amortization of net issuance costs and premiums totaling $0.2 million and $9.2 million for the quarter and nine months ended September 30, 2019, respectively, and net premiums totaling $10.9 million and $29.7 million for the quarter and nine months ended September 30, 2018, respectively.

(2)

In 2017, PFSI entered into a master repurchase agreement that provides the Company with incentives to finance mortgage loans approved for satisfying certain consumer relief characteristics as provided in the agreement. The Company included $1.6 million and $12.8 million of such incentives as reductions in Interest expense during the quarters ended September 30, 2019 and 2018, respectively, and $14.7 million and $35.5 million during the nine months ended September 30, 2019 and 2018, respectively. The master repurchase agreement expired on August 21, 2019.

(3)

The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets financed.

(4)

Beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing the VFN, 2018-GT1 Notes and 2018-GT2 Notes described in Notes Payable. The VFN financing is included in Assets sold under agreements to repurchase and 2018-GT1 Notes and 2018-GT2 Notes are included in Notes payable on the Company's consolidated balance sheet.

(5)

Margin deposits are included in Other assets on the Company’s consolidated balance sheet.

Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:


Remaining maturity at September 30, 2019	Balance
	(dollars in thousands)
Within 30 days	$	276,113
Over 30 to 90 days		3,041,052
Over 90 to 180 days		122,294
Over 180 days to one year		100,000
Total assets sold under agreements to repurchase	$	3,539,459
Weighted average maturity (in months)		2.5

The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) relating to the Company’s assets sold under agreements to repurchase is summarized by counterparty below as of September 30, 2019:


			Weighted average
			maturity of advances
			under repurchase
Counterparty	Amount at risk		agreement	Facility maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC	$	1,313,083	April 26, 2020	April 26, 2020
Credit Suisse First Boston Mortgage Capital LLC	$	231,656	December 2, 2019	April 24, 2020
Bank of America, N.A.	$	82,942	October 28, 2019	October 28, 2019
JP Morgan Chase Bank, N.A.	$	79,142	October 9, 2019	October 11, 2019
Citibank, N.A.	$	41,279	December 17, 2019	August 4, 2020
Morgan Stanley Bank, N.A.	$	40,511	December 16, 2019	August 21, 2020
BNP Paribas	$	12,363	December 17, 2019	July 31, 2020
Royal Bank of Canada	$	9,804	December 31, 2019	December 31, 2019

The Company is subject to margin calls during the period the repurchase agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the fair value (as determined by the applicable lender) of the assets securing those agreements decreases.

Mortgage Loan Participation Purchase and Sale Agreements

Certain of the borrowing facilities secured by loans held for sale are in the form of mortgage loan participation purchase and sale agreements. Participation certificates, each of which represents an undivided beneficial ownership interest in mortgage loans that have been pooled with Fannie Mae, Freddie Mac or Ginnie Mae, are sold to a lender pending the securitization of the mortgage loans and sale of the resulting securities. A commitment to sell the securities resulting from the pending securitization between the Company and a non-affiliate is also assigned to the lender at the time a participation certificate is sold.

The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount that is based on a percentage of the purchase price. The holdback amount is not required to be paid to the Company until the settlement of the security and its delivery to the lender.

The mortgage loan participation purchase and sale agreements are summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(dollars in thousands)
Average balance	$	258,169		$	289,008		$	249,023		$	250,599
Weighted average interest rate (1)		3.36	%		3.31	%		3.55	%		3.14	%
Total interest expense	$	2,304		$	2,533		$	7,034		$	6,450
Maximum daily amount outstanding	$	524,095		$	722,611		$	548,038		$	722,611

(1)

Excludes the effect of amortization of facility fees totaling $135,000 and $92,000 for the quarters ended September 30, 2019 and 2018, respectively, and $405,000 and $475,000 for the nine months ended September 30, 2019 and 2018, respectively.


	September 30,			December 31,
	2019			2018
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	514,625		$	532,466
Unamortized debt issuance costs		—			(215)
	$	514,625		$	532,251
Weighted average interest rate		3.27	%		3.77	%
Fair value of loans pledged to secure mortgage loan participation purchase and sale agreements	$	542,049		$	555,001

Notes Payable

Term Notes

On February 28, 2018, the Company, through the Issuer Trust, issued an aggregate principal amount of $650 million in Term Notes (the “2018-GT1 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2018-GT1 Notes bear interest at a rate equal to one-month LIBOR plus 2.85% per annum. The 2018-GT1 Notes will mature on February 25, 2023 or, if extended pursuant to the terms of the related indenture supplement, February 25, 2025 (unless earlier redeemed in accordance with their terms). Concurrent with issuance of the 2018-GT1 Notes, the Company also redeemed certain notes previously issued by the Issuer Trust.

On August 10, 2018, the Company, through the Issuer Trust, issued an aggregate principal amount of $650 million in Term Notes (the “2018-GT2 Notes”) to qualified institutional buyers under Rule 144A of the Securities Act. The 2018-GT2 Notes bear interest at a rate equal to one-month LIBOR plus 2.65% per annum. The 2018-GT2 Notes will mature on August 25, 2023 or, if extended pursuant to the terms of the related indenture supplement, August 25, 2025 (unless earlier redeemed in accordance with their terms). Concurrent with the issuance of the 2018-GT2 Notes, the Company also redeemed certain notes previously issued by the Issuer Trust.

All of the Term Notes rank pari passu with each other and with the VFN issued by the Issuer Trust to PLS and are secured by certain participation certificates relating to Ginnie Mae MSRs and ESS that are financed pursuant to the GNMA MSR Facility.

Corporate Revolving Line of Credit

On November 1, 2018, the Company, through its subsidiary, PennyMac (the “Borrower”), entered into amendments (the "Amendments") to that certain (i) amended and restated credit agreement, dated as of November 18, 2016, by and among the Borrower, the lenders that are parties thereto and Credit Suisse AG, as administrative agent and collateral agent, and Credit Suisse Securities (USA) LLC, as sole bookrunner and sole lead arranger (the “Credit Agreement”); and (ii) amended and restated collateral and guaranty agreement, dated as of November 18, 2016, by and among the Borrower, as grantor, Credit Suisse AG, Cayman Islands Branch (“CS Cayman”), as collateral agent, and PNMAC Holdings, Inc. (formerly known as PennyMac Financial Services, Inc.) and certain of its subsidiaries, PCM, PLS and PNMAC Opportunity Fund Associates, LLC (“Associates”), as guarantors and grantors (“the “Guaranty”).

Pursuant to the Credit Agreement, the lenders have agreed to make revolving loans to the Borrower in an amount not to exceed $150 million. Interest on the loans shall accrue at a per annum rate of interest equal to, at the election of the Borrower, either LIBOR plus the applicable margin or an alternate base rate (as defined in the Credit Agreement). During the existence of certain events of default, interest shall accrue at a higher default rate. The proceeds of the loans are to be used solely for working capital and general corporate purposes of the Borrower and its subsidiaries.

The primary purposes of the Amendments were to (i) extend the maturity date of the Credit Agreement to October 31, 2019; (ii) name the Company as an additional guarantor under the Credit Agreement; and (iii) release Associates from its obligations as a guarantor under the Credit Agreement. Accordingly, the obligations of the Borrower under the Credit Agreement are now guaranteed by PFSI, PNMAC Holdings, Inc., PCM and PLS, and secured by a grant by each of the referenced grantors of its respective right, title and interest in and to limited and otherwise unencumbered (other than specified permitted encumbrances) specified contract rights, specified deposit accounts, all documents and instruments related to such specified contract rights and specified deposit accounts, and any and all proceeds and products thereof. All other terms and conditions of the Credit Agreement and Guaranty remain the same in all material respects.

MSR Note Payable

On February 1, 2018, the Company issued a note payable in favor of CS Cayman that is secured by Fannie Mae and Freddie Mac MSRs. Interest is charged at a rate based on LIBOR plus the applicable contract margin. The facility expires on February 1, 2020. The maximum amount that the Company may borrow under the note payable is $400 million, less any amount outstanding under the agreement to repurchase pursuant to which the Company finances the VFN. The Company did not borrow under this note payable during the quarter and nine months ended September 30, 2019 or 2018.

Notes payable are summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(dollars in thousands)
Average balance	$	1,300,000		$	1,234,783		$	1,300,000		$	1,125,458
Weighted average interest rate (1)		5.11	%		5.07	%		5.21	%		5.29	%
Total interest expense	$	17,525		$	21,369		$	53,559		$	55,939
Maximum daily amount outstanding	$	1,300,000		$	1,300,000		$	1,300,000		$	1,300,000

(1)

Excludes the effect of amortization of debt issuance costs and non-utilization fees totaling $0.9 million and $2.0 million for the quarters ended September 30, 2019 and 2018, respectively, and $2.7 million and $2.8 million for the nine months ended September 30, 2019 and 2018, respectively, as well as unamortized debt issuance costs of $3.4 million and $8.0 million, recognized in Interest expense due to repayments of certain previously issued notes during the quarter and nine months ended September 30, 2018, respectively.


	September 30,			December 31,
	2019			2018
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	1,300,000		$	1,300,000
Unamortized debt issuance costs		(6,375)			(7,709)
	$	1,293,625		$	1,292,291
Weighted average interest rate		4.90	%		5.07	%
Unused amount	$	150,000		$	150,000
Assets pledged to secure notes payable:
Cash	$	101,773		$	108,174
Servicing advances (1)	$	181,747		$	162,895
Mortgage servicing rights (1)	$	2,489,481		$	2,807,333

(1)

Beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing the VFN, 2018-GT1 Notes and 2018-GT2 Notes. The VFN financing is included in Assets sold under agreements to repurchase and 2018-GT1 Notes and 2018-GT2 Notes are included in Notes payable on the Company's consolidated balance sheet.

Obligations Under Capital Lease

The Company has a capital lease transaction secured by certain fixed assets and capitalized software. The capital lease matures on June 13, 2022 and bears interest at a spread over one-month LIBOR.

Obligations under capital lease are summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(dollars in thousands)
Average balance	$	25,812		$	11,615		$	13,380		$	15,187
Weighted average interest rate		4.47	%		4.09	%		4.48	%		3.87	%
Total interest expense	$	274		$	122		$	476		$	444
Maximum daily amount outstanding	$	28,295		$	13,032		$	28,295		$	20,971


	September 30,			December 31,
	2019			2018
	(dollars in thousands)
Unpaid principal balance	$	23,881		$	6,605
Weighted average interest rate		4.45	%		4.46	%
Assets pledged to secure obligations under capital lease:
Furniture, fixtures and equipment	$	22,172		$	16,281
Capitalized software	$	14,090		$	1,017

Excess Servicing Spread Financing at Fair Value

In conjunction with its purchase from non-affiliates of certain MSRs on pools of Agency-backed residential mortgage loans, the Company has entered into sale and assignment agreements with PMT. Under these agreements, the Company sold to PMT the right to receive ESS cash flows relating to certain MSRs. The Company retained a fixed base servicing fee and all ancillary income associated with servicing the loans. The Company continues to be the servicer of the mortgage loans and retains all servicing obligations, including responsibility to make servicing advances.

Following is a summary of ESS:


	Quarter ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
	(in thousands)
Balance at beginning of period	$	194,156	$	229,470	$	216,110	$	236,534
Issuances of excess servicing spread to PennyMac Mortgage Investment Trust pursuant to recapture agreement		377		499		1,327		1,983
Accrual of interest		2,291		3,740		8,124		11,584
Repayment		(9,819)		(11,543)		(30,901)		(35,852)
Change in fair value		(3,864)		1,109		(11,519)		9,026
Balance at end of period	$	183,141	$	223,275	$	183,141	$	223,275