Business Context and Reporting Period
This Form 8-K is filed by Five Oaks Investment Corp. (not Lument Finance Trust, Inc.) for the reporting period ending March 31, 2016. The filing discloses a material change in the company's financing arrangements regarding its subsidiary, Five Oaks Acquisition Corp. (FOAC).
Key Financial Metrics and Liquidity
- Terminated Facility: A Master Repurchase Agreement with Credit Suisse First Boston Mortgage Capital LLC with a maximum capacity of $125,000,000 was not renewed.
- Active Facility: FOAC maintains a warehouse line with Barclays Bank PLC with a maximum capacity of $150,000,000.
- Current Utilization: Approximately $9,400,000 of the Barclays facility is currently used.
- Liquidity Status: Management states the Barclays facility is adequate for foreseeable needs and additional capacity is available if required.
Material Changes Versus Prior Period
The primary material change is the election by FOAC not to renew its $125 million repurchase agreement with Credit Suisse, which expired on March 31, 2016. This reduces the total available warehouse capacity from the prior period, though the company asserts the remaining Barclays facility is sufficient.
Management Commentary and Risk Mitigation
Management notes that FOAC uses warehouse lines to fund the purchase of prime jumbo loans. To mitigate reliance on warehousing, the company employs risk management practices where a significant portion of loans purchased in prior securitization transactions are settled directly into the securitization, removing the need to warehouse them on the balance sheet. The company concluded that the existing Barclays facility adequately supports its operations.
Investor Verification Checklist
- Verify the exact utilization rate of the remaining $150 million Barclays facility.
- Confirm the terms and interest rates of the Barclays repurchase agreement compared to the terminated Credit Suisse agreement.
- Assess the volume of prime jumbo loan originations to ensure the $150 million capacity remains sufficient for future growth.
- Review the proportion of loans settled directly into securitizations versus those requiring warehouse funding.