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 March 31, 2020.

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 March 31,
	2020			2019
	(dollars in thousands)
Average balance of assets sold under agreements to repurchase	$	3,139,328		$	1,437,957
Weighted average interest rate (1)		3.07	%		4.47	%
Total interest expense (2)	$	25,684		$	8,635
Maximum daily amount outstanding	$	4,446,795		$	2,152,588


		March 31,			December 31,
	2020			2019
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	4,446,795		$	4,141,680
Unamortized debt issuance costs		(2,250)			(627)
	$	4,444,545		$	4,141,053
Weighted average interest rate		2.54	%		3.29	%
Available borrowing capacity (3):
Committed	$	—		$	125,810
Uncommitted		1,403,205			782,510
	$	1,403,205		$	908,320
Fair value of assets securing repurchase agreements:
Loans held for sale	$	4,937,094		$	4,322,789
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell	$	99,766		$	107,512
Servicing advances (4)	$	182,531		$	207,460
Mortgage servicing rights (4)	$	2,151,501		$	2,902,721
Margin deposits placed with counterparties (5)	$	5,000		$	5,000

(1)

Excludes the effect of amortization of net issuance costs of $1.6 million and premiums of $7.4 million for the quarters ended March 31, 2020 and 2019, 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 $9.3 million of such incentives as reductions in Interest expense during the quarter ended March 31, 2019. 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 secured by mortgage servicing assets. 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 secured by mortgage servicing assets on the Company's consolidated balance sheets.

(5)

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

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


Remaining maturity at March 31, 2020	Unpaid principal balance
	(dollars in thousands)
Within 30 days	$	1,585,379
Over 30 to 90 days		2,614,849
Over 90 to 180 days		246,567
Total assets sold under agreements to repurchase	$	4,446,795
Weighted average maturity (in months)		1.2

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 March 31, 2020:


			Weighted average
			maturity of advances
			under repurchase
Counterparty	Amount at risk		agreement	Facility maturity
	(in thousands)
Credit Suisse First Boston Mortgage Capital LLC (1)	$	983,098	April 26, 2020	April 26, 2020
Credit Suisse First Boston Mortgage Capital LLC	$	245,618	April 24, 2020	April 24, 2020
JP Morgan Chase Bank, N.A.	$	97,688	June 1, 2020	October 9, 2020
Citibank, N.A.	$	67,788	April 10, 2020	August 4, 2020
Bank of America, N.A.	$	61,809	May 4, 2020	March 11, 2021
Morgan Stanley Bank, N.A.	$	26,408	June 12, 2020	August 21, 2020
Royal Bank of Canada	$	24,012	April 30, 2020	April 30, 2020
BNP Paribas	$	15,575	June 16, 2020	July 31, 2020

(1)

The calculation of the amount at risk includes the VFN and the Term Notes because 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 secured by mortgage servicing assets below. 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 secured by mortgage servicing assets on the Company's consolidated balance sheets.

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 March 31,
	2020			2019
	(dollars in thousands)
Average balance	$	247,811		$	236,667
Weighted average interest rate (1)		2.64	%		3.68	%
Total interest expense	$	1,810		$	2,311
Maximum daily amount outstanding	$	530,220		$	548,038

(1)

Excludes the effect of amortization of facility fees totaling $173,000 and $135,000 for the quarters ended March 31, 2020 and 2019, respectively.


	March 31,			December 31,
	2020			2019
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	528,750		$	497,948
Unamortized debt issuance costs		—			—
	$	528,750		$	497,948
Weighted average interest rate		2.18	%		3.05	%
Fair value of loans pledged to secure mortgage loan participation purchase and sale agreements	$	556,238		$	523,349

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 March 31,
	2020			2019
	(dollars in thousands)
Average balance	$	19,406		$	5,848
Weighted average interest rate		3.36	%		4.50	%
Total interest expense	$	167		$	66
Maximum daily amount outstanding	$	20,810		$	6,605


	March 31,			December 31,
	2020			2019
	(dollars in thousands)
Unpaid principal balance	$	18,145		$	20,810
Weighted average interest rate		3.18	%		3.74	%
Assets pledged to secure obligations under capital lease:
Furniture, fixtures and equipment	$	7,392		$	20,406
Capitalized software	$	10,606		$	12,192

Notes Payable Secured by Mortgage Servicing Assets

Term Notes

On February 28, 2018, the Company, through PNMAC GMSR ISSUER TRUST (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 of 1933, as amended (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.

MSR Note Payable

On February 1, 2018, the Company issued a note payable that is secured by Freddie Mac MSRs. Interest is charged at a rate based on LIBOR plus the applicable contract margin. The facility expires on April 24, 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 quarters ended March 31, 2020 or 2019.

Notes payable are summarized below:


	Quarter ended March 31,
	2020			2019
	(dollars in thousands)
Average balance	$	1,300,000		$	1,300,000
Weighted average interest rate (1)		4.43	%		5.25	%
Total interest expense	$	14,846		$	17,510
Maximum daily amount outstanding	$	1,300,000		$	1,300,000

(1)

Excludes the effect of amortization of debt issuance costs totaling $445,000 and $734,000 for the quarters ended March 31, 2020 and 2019, respectively.


	March 31,			December 31,
	2020			2019
	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	1,300,000		$	1,300,000
Unamortized debt issuance costs		(5,486)			(5,930)
	$	1,294,514		$	1,294,070
Weighted average interest rate		4.38	%		4.46	%
Assets pledged to secure notes payable:
Servicing advances (1)	$	182,531		$	207,460
Mortgage servicing rights (1)	$	2,117,619		$	2,861,442

(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 secured by mortgage servicing assets on the Company's consolidated balance sheet.

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. The Company did not borrow under this facility during the quarter ended March 31, 2020 or the year ended December 31, 2019.

Corporate revolving line of credit is summarized below:


	Quarter ended March 31,
	2020		2019
	(dollars in thousands)
Interest expense (1)	$	503	$	485

	March 31,		December 31,
	2020		2019
	(dollars in thousands)
Carrying value	$	—	$	—
Unused amount	$	150,000	$	150,000
Cash pledged to secure corporate revolving line of credit	$	773,361	$	52,599

(1)

Interest expenses represent debt issuance costs and non-utilization fees.

Excess Servicing Spread Financing at Fair Value

In conjunction with the Company’s 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 March 31,
	2020		2019
	(in thousands)
Balance at beginning of quarter	$	178,586	$	216,110
Issuances of excess servicing spread to PennyMac Mortgage Investment Trust pursuant to recapture agreement		379		508
Accrual of interest		1,974		3,066
Repayment		(9,308)		(10,552)
Change in fair value		(14,522)		(4,051)
Balance at end of quarter	$	157,109	$	205,081