Business Context and Reporting Period
This Form 8-K is filed by Exantas Capital Corp. (not ACRES Commercial Realty Corp. as indicated in the metadata) on March 24, 2020. The report addresses triggering events related to direct financial obligations arising from financial market turmoil caused by the global COVID-19 pandemic.
Key Financial Metrics and Liquidity
- Margin Calls: The Company received margin calls from Commercial Mortgage-Backed Securities (CMBS) repo financing counterparties.
- Default Status: As of the close of business on March 23, 2020, the Company did not meet all margin calls.
- Disputed Obligations: On March 24, 2020, the Company received notices from affiliates of Royal Bank of Canada (RBC) alleging events of default. The Company disputes these notices.
- Aggregate Exposure: The Company estimates aggregate obligations subject to the default notices are approximately $225 million.
- Liquidity Action: The Board of Directors rescinded previously declared dividends on common stock and 8.625% Series C Cumulative Redeemable Preferred Stock.
Material Changes and Events
The primary material change is the acceleration of financial obligations due to market volatility. Counterparties may demand immediate payment of outstanding financing obligations if margin calls are not met. If unpaid, counterparties may sell securities or take ownership of collateral. The Company is actively pursuing forbearance agreements to prevent the exercise of these rights.
Outlook, Risks, and Management Commentary
- Forbearance Discussions: The Company is negotiating forbearance agreements with CMBS repo counterparties but cannot predict the timing or terms of such agreements.
- Strategic Options: Management is evaluating strategic options to respond to margin calls and market volatility.
- Dividend Policy: The Company will continue to evaluate liquidity and the advisability of paying dividends in the future.
- Legal Stance: The Company intends to vigorously assert rights and defenses against RBC's alleged events of default.
Investor Verification Checklist
- Verify the status of forbearance negotiations with CMBS repo counterparties.
- Confirm the outcome of the dispute regarding the $225 million in alleged default obligations with RBC affiliates.
- Monitor the Company's ability to meet future margin calls or provide additional collateral.
- Review the attached press release (Exhibit 99.1) for further details on the dividend rescission.
- Assess the impact of potential collateral liquidation on the Company's asset base.