Business Context and Reporting Period
This Form 8-K Current Report was filed by Five Oaks Investment Corp. (the "Company") on December 23, 2014, with the earliest event reported on that date. The filing details the entry into material definitive agreements related to the Company's strategy to aggregate and securitize residential mortgage loans through its wholly owned subsidiary, Five Oaks Acquisition Corp. ("FOAC").
Key Financial Metrics and Agreements
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period. Instead, it outlines the following financial instruments and capacities:
- Securitization Transaction: FOAC sold mortgage loans to CSMC Trust 2014-OAK1, which issued certificates backed by these loans. The Company purchased all subordinated Class B Certificates and certain Class A Certificates.
- Repurchase Facility: FOAC entered into a Master Repurchase Agreement with Bank of America, N.A. ("BANA") with an aggregate maximum capacity of $100,000,000.
- Term: The repurchase facility has a 364-day term, scheduled to mature on December 29, 2015, unless extended.
Material Changes and New Agreements
The filing reports the execution of several new material agreements:
- Mortgage Loan Purchase and Sale Agreement (MLPSA): Dated December 23, 2014, between FOAC and Credit Suisse First Boston Mortgage Securities Corp. (the "Depositor").
- Certificate Purchase Agreement (CPA): Dated December 22, 2014, involving the Depositor, initial purchasers (Credit Suisse Securities and Wells Fargo Securities), FOAC, and the Company.
- Indemnity Letter: Dated December 23, 2014, wherein the Company agreed to indemnify Credit Suisse Securities and the Depositor against certain civil liabilities.
- Master Repurchase Agreement: Dated December 30, 2014, between BANA and FOAC to finance the acquisition of eligible residential mortgage loans.
- Guaranty: The Company guaranteed FOAC's obligations under the Repurchase Agreement with BANA.
Outlook, Risks, and Contingencies
Management's strategy focuses on aggregating and securitizing residential mortgage loans. The filing highlights several risks and contingencies associated with the new agreements:
- Margin Calls: The Repurchase Agreement with BANA contains margin call provisions. If the market value of purchased mortgage loans declines, BANA may require FOAC to transfer cash or eligible loans to eliminate margin deficits.
- Financial Covenants: As guarantor of the Repurchase Agreement, the Company is subject to certain financial covenants.
- Events of Default: The Repurchase Agreement includes standard events of default, such as payment defaults, breaches of covenants, cross-defaults, and bankruptcy. Remedies include the repurchase of loans and liquidation by BANA.
- Indemnification Obligations: The Company has agreed to indemnify initial purchasers and the Depositor under specific circumstances, creating potential contingent liabilities.
Key Facts for Investor Verification
- Verify the specific financial covenants the Company must maintain as a guarantor of the $100 million BANA facility.
- Confirm the exact volume of mortgage loans securitized in the CSMC Trust 2014-OAK1 transaction and the yield on the Class A and Class B certificates retained by the Company.
- Monitor the Company's liquidity position to ensure it can meet potential margin calls under the BANA Repurchase Agreement if loan values decline.
- Review the full text of the filed exhibits (10.1 through 10.6) for detailed terms regarding indemnification limits and default triggers.