Business Context and Reporting Period
This Form 8-K, filed on August 3, 2020, by Exantas Capital Corp. (trading symbol: XAN), reports material events occurring on July 31, 2020. The filing details a strategic restructuring involving the replacement of the external manager, the establishment of new financing facilities, and significant changes to the Board of Directors and executive leadership.
Key Financial Metrics and Agreements
The filing outlines several material financial agreements entered into on July 31, 2020:
- Senior Secured Financing Facility: A $250 million asset-based revolving loan facility with MassMutual and other lenders. The facility has a 55% advance rate, an interest rate of 5.75% per annum, and a maturity date of July 31, 2027 (contingent on obtaining a BBB rating by October 31, 2020; otherwise, it matures December 1, 2020).
- Senior Notes and Warrants: An agreement to issue up to $125 million in aggregate principal amount of 12% senior unsecured notes due 2027. Initial issuances totaled $50 million ($42 million to Oaktree and $8 million to MassMutual). The notes include warrants to purchase up to 3.5 million shares of common stock at an exercise price of $0.01 per share.
- Promissory Note: A $12 million loan provided by a subsidiary to ACRES Capital Corp. at 3% interest per annum, maturing in six years with extension options.
- Capital Commitments: Separate agreements with MassMutual and an Oaktree fund for new capital commitments aggregating up to $375 million.
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period, as this is a current report on specific events rather than a periodic financial statement.
Material Changes Versus Prior Period
The most significant material change is the transition of the Company's external manager. ACRES Capital, LLC has replaced Exantas Capital Manager Inc. (ECM) under a Fourth Amended and Restated Management Agreement. Key changes to the management agreement include:
- Extension of the agreement term to July 21, 2023.
- ACRES gains the right to designate at least two nominees to the Board of Directors.
- Introduction of a minimum monthly Base Management Fee through July 31, 2022.
- Revision of the Incentive Compensation calculation effective for quarters commencing December 31, 2022, based on 20% of Core Earnings in excess of a 7% return on Book Value Equity.
Guidance, Outlook, and Management Commentary
The filing includes forward-looking statements regarding the Company's future performance and the utilization of new capital. Management commentary is primarily focused on the strategic benefits of the new management structure and financing arrangements to support the core commercial real estate lending business.
Leadership Changes:
- Resignations: Henry Silverman (Director), Jeffrey P. Cohen (Director), Andrew L. Farkas (Director), Robert C. Lieber (CEO), and Matthew J. Stern (President) resigned effective July 31, 2020.
- Appointments: Andrew L. Fentress was appointed Chairman of the Board, and Mark S. Fogel was appointed President and CEO. Both are co-founders of ACRES.
Risks and Contingencies:
- The maturity of the $250 million facility is contingent on achieving a BBB credit rating by October 31, 2020.
- The Senior Notes agreement contains customary events of default, including bankruptcy, covenant breaches, or judgments exceeding $25 million.
- The Company undertakes no obligation to update forward-looking statements contained in the accompanying press release and investor presentation.
Important Facts for Investor Verification
- Verify the Company's ability to obtain a BBB credit rating by October 31, 2020, to extend the maturity of the $250 million revolving facility to 2027.
- Confirm the total amount of Senior Notes issued under the $125 million facility and the associated warrant exercise terms.
- Review the full text of the Fourth Amended and Restated Management Agreement (Exhibit 10.1) for specific details on fee structures and termination provisions.
- Assess the impact of the leadership transition on the Company's strategic direction and operational stability.
- Monitor the utilization of the new $375 million in capital commitments from MassMutual and Oaktree.