The borrowing facilities described throughout this Note 12 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, 2020.

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 LIBOR. Loans and MSRs financed under these agreements may be re-pledged by the lenders.

On April 1, 2020, the Company issued a series of variable funding notes, the Series 2020-SPIADVF1 Notes (“GMSR Servicing Advance Notes”), to be sold under agreement to repurchase pursuant to a Master Repurchase Agreement, dated as of April 1, 2020, with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), acting as administrative agent on behalf of Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as buyer (the “GMSR Servicing Advances Repurchase Agreement”).

The GMSR Servicing Advance Notes leverage the GNMA MSR Facility to support a separately defined servicing advance facility within the existing structure and provide the Company enhanced ability to finance its servicing advance obligations to Ginnie Mae and its security holders as necessary. Specifically, the GMSR Servicing Advances Repurchase Agreement provides the Company with financing secured by its servicing advances to pay, in accordance with the Ginnie Mae requirements, in the event borrowers are delinquent: (i) regularly scheduled monthly principal and interest to mortgage-backed securities holders; (ii) taxes, homeowner’s insurance, and other escrowed items; and (iii) other expenses related to servicing delinquent loans as specified by (A) state and federal laws and (B) government agencies, including the FHA, the VA, and the USDA.

The borrowing capacity under the GMSR Servicing Advances Repurchase Agreement, shared with VFN financing capacity, is $600 million, all of which is committed and may be used to finance the servicing advances related to delinquent FHA, VA, and USDA loans, including delinquencies caused by forbearance in accordance with the CARES Act.

(1)

Excludes the effect of amortization of net issuance costs of $4.8 million and $9.2 million for the quarter and nine months ended September 30, 2020, respectively, and net issuance costs and premiums of $0.2 million and $9.2 million for the quarter and nine months ended September 30, 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 $1.6 million and $14.7 million of such incentives as reductions in Interest expense during the quarter and nine months ended September 30, 2019, 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, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral backing the VFN, GMSR Servicing Advance Notes, the 2018 Term Notes described in Notes payable secured by mortgage servicing assets. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the 2018 Term 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 September 30, 2020	Unpaid principal balance
	(dollars in thousands)
Within 30 days	$	1,490,837
Over 30 to 90 days		5,365,208
Over 90 to 180 days		361,001
Over 180 days to one year		50,000
Total assets sold under agreements to repurchase	$	7,267,046
Weighted average maturity (in months)		2.0

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, 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)	$	1,092,694	April 23, 2021	April 23, 2021
Credit Suisse First Boston Mortgage Capital LLC	$	460,264	October 19, 2020	April 23, 2021
Bank of America, N.A.	$	410,222	November 2, 2020	March 11, 2021
JP Morgan Chase Bank, N.A.	$	192,579	December 2, 2020	January 7, 2021
Morgan Stanley Bank, N.A.	$	62,630	November 3, 2020	November 3, 2020
Citibank, N.A.	$	48,231	December 15, 2020	August 3, 2021
Royal Bank of Canada	$	33,343	October 30, 2020	October 30, 2020
BNP Paribas	$	27,646	December 16, 2020	July 30, 2021

(1)

The calculation of the amount at risk includes the VFN and the 2018 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 Term Notes described in Notes payable secured by mortgage servicing assets below. The VFN financing is included in Assets sold under agreements to repurchase and the 2018 Term 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 September 30,						Nine months ended September 30,
	2020			2019			2020			2019

	(dollars in thousands)
Average balance	$	235,713		$	258,169		$	227,460		$	249,023
Weighted average interest rate (1)		1.40	%		3.36	%		1.98	%		3.55	%
Total interest expense	$	999		$	2,304		$	3,870		$	7,034
Maximum daily amount outstanding	$	538,074		$	524,095		$	540,977		$	548,038

(1)	Excludes the effect of amortization of debt issuance costs totaling $172,000 and $135,000 for the quarters ended September 30, 2020 and 2019, respectively, and $490,000 and $405,000 for the nine months ended September 30, 2020 and 2019, respectively.


	September 30,			December 31,
	2020			2019

	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	535,378		$	497,948
Unamortized debt issuance costs		(315)			—
	$	535,063		$	497,948
Weighted average interest rate		1.40	%		3.05	%
Fair value of loans pledged to secure mortgage loan participation purchase and sale agreements	$	558,023		$	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 September 30,						Nine months ended September 30,
	2020			2019			2020			2019

	(dollars in thousands)
Average balance	$	15,179		$	25,812		$	17,253		$	13,380
Weighted average interest rate		2.16	%		4.47	%		2.69	%		4.48	%
Total interest expense	$	83		$	274		$	354		$	476
Maximum daily amount outstanding	$	16,749		$	28,295		$	20,810		$	28,295


	September 30,			December 31,
	2020			2019

	(dollars in thousands)
Unpaid principal balance	$	13,957		$	20,810
Weighted average interest rate		2.15	%		3.74	%
Assets pledged to secure obligations under capital lease:
Furniture, fixtures and equipment	$	6,088		$	20,406
Capitalized software	$	8,862		$	12,192

Notes Payable Secured by Mortgage Servicing Assets

2018 Term Notes

The Company, through the Issuer Trust, issued the 2018 Term Notes to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). The 2018 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.

Following is a summary of the issued and outstanding 2018 Term Notes:


Issuance Date	Principal		Stated interest rate (1)	Maturity date (2)
	(in thousands)		(Annually)
February 28, 2018 (the "2018-GT1 Notes")	$	650,000	2.85%	2/25/2023
August 10, 2018 (the "2018-GT2 Notes")		650,000	2.65%	8/25/2023
	$	1,300,000

(1)	Spread over one-month LIBOR.

(2)	The 2018 Term Notes indentures provide the Company with the option to extend the maturity of the 2018 Term Notes by two years after the stated maturity.

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 October 21, 2020. The maximum amount that the Company may borrow under the note payable is $600 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 periods presented.

Notes payable are summarized below:


	Quarter ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019

	(dollars in thousands)
Average balance	$	1,300,000		$	1,300,000		$	1,300,000		$	1,300,000
Weighted average interest rate (1)		2.99	%		5.11	%		3.57	%		5.21	%
Total interest expense	$	10,177		$	17,044		$	36,131		$	52,118
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 totaling $459,000 and $445,000 for the quarters ended September 30, 2020 and 2019, respectively, and $1.4 million and $1.3 million for the nine month periods ended September 30, 2020 and 2019, respectively.


	September 30,			December 31,
	2020			2019

	(dollars in thousands)
Carrying value:
Unpaid principal balance	$	1,300,000		$	1,300,000
Unamortized debt issuance costs		(4,857)			(5,930)
	$	1,295,143		$	1,294,070
Weighted average interest rate		2.93	%		4.46	%
Assets pledged to secure notes payable (1):
Servicing advances	$	232,519		$	207,460
Mortgage servicing rights	$	2,213,344		$	2,861,442
Deposits	$	192,597		$	—

(1)

Beneficial interests in the Ginnie Mae MSRs, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral backing the VFN, GMSR Servicing Advance Notes and the 2018 Term Notes. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the 2018 Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheet.

Unsecured Senior Notes

On September 29, 2020, the Company issued $500 million aggregate principal amount of 5.375% senior notes (the “Unsecured Notes”). Interest on the Unsecured Notes accrues beginning on September 29, 2020 at a rate of 5.375% per year. Interest on the Unsecured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2021. The Unsecured Notes mature on October 15, 2025.

Before October 15, 2022, the Company may, at its option and on any one or more occasions redeem:

●

some or all of the Unsecured Notes at a price equal to 100% of the principal amount of the Unsecured Notes redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a make-whole premium; and

●

up to 40% of the aggregate principal amount of the Unsecured Notes with an amount equal to or less than the net proceeds from certain equity offerings at a redemption price of 105.375% plus accrued and unpaid interest to, but excluding, the redemption date.

On or after October 15, 2022, the Company may, at its option and on any one or more occasions, redeem some or all of the Unsecured Notes at the applicable redemption prices set forth in the indenture under which the Unsecured Notes were issued, plus accrued and unpaid interest to, but excluding, the redemption date.

If a “change of control” (as defined in the indenture under which the Unsecured Notes were issued) occurs, the holders of the Unsecured Notes may require the Company to purchase for cash all or a portion of their Unsecured Notes at a purchase price equal to 101% of the principal amount of the Unsecured Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

The Unsecured Notes are senior unsecured obligations of the Company and will rank senior in right of payment to any future subordinated indebtedness of the Company, equally in right of payment with all existing and future senior indebtedness of the Company and effectively subordinated to any future secured indebtedness of the Company to the extent of the value of collateral securing such indebtedness.

The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of PFSI’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries). The guarantees are senior unsecured obligations of the guarantors and will rank senior in right of payment to any future subordinated indebtedness of the guarantors, equally in right of payment with all existing and future senior indebtedness of the guarantors and effectively subordinated to any future secured indebtedness of the guarantors to the extent of the value of collateral securing such indebtedness. The Unsecured Notes and the guarantees are structurally subordinated to the indebtedness and liabilities of the Company’s subsidiaries that do not guarantee the Unsecured Notes.

Corporate Revolving Line of Credit

The Company, through its subsidiary PennyMac, entered into an amended and restated credit agreement on November 18, 2016, as amended (the “Credit Agreement”) under which PennyMac established a revolving line of credit in an amount not to exceed $150 million. Certain cash accounts with balances totaling $52.6 million at December 31, 2019, were pledged to secure this revolving line of credit. PennyMac did not borrow under the revolving line of credit during the periods presented and terminated the Credit Agreement on September 29, 2020 concurrent with the issuance the Unsecured Notes. Debt issuance costs and non-utilization fees totaled $561,000 and $481,000 for the quarters ended September 30, 2020 and 2019, respectively, and $1.5 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively.