Business Context and Reporting Period
This Form 8-K Current Report was filed by Sutherland Asset Management Corporation (the "Company") on February 14, 2017. The filing discloses the entry into a material definitive agreement involving the Company's subsidiaries, ReadyCap Commercial, LLC, Sutherland Asset I, LLC, and Sutherland Warehouse Trust II (collectively, the "Sellers").
Key Financial Metrics and Agreement Details
- Agreement Type: Third Amendment and Restatement of a Master Repurchase Agreement.
- Counterparties: U.S. Bank National Association (Depositor/Paying Agent) and Deutsche Bank AG, Cayman Island Branch (Buyer).
- Facility Capacity: Up to $275 million in aggregate principal amount of loans.
- Outstanding Balance: $85.1 million as of February 14, 2017.
- Term: One year, with an option to extend for an additional year subject to conditions.
- Collateral: Small balance commercial loans ("SBC loans") secured by first mortgage liens.
- Guaranty: Obligations are fully guaranteed by Sutherland Partners, L.P.
Material Changes and Covenants
The filing details the amendment of the repurchase agreement to finance SBC loans. The agreement includes specific financial maintenance covenants applicable to the Guarantor:
- Adjusted Tangible Net Worth: Cannot decline more than 25% in a quarter, 35% in a year, or 50% from the highest adjusted tangible net worth.
- Liquidity: Minimum of the greater of $5 million or 3% of the sum of outstanding recourse indebtedness plus the aggregate repurchase price.
- Debt-to-Assets Ratio: Must not exceed 80%.
- Tangible Net Worth: Must meet specific thresholds based on non-recourse and recourse indebtedness.
The agreement also contains margin call provisions allowing the Buyer to require collateral transfers if the market value of loans declines, and standard events of default including payment defaults, covenant breaches, and insolvency.
Guidance, Outlook, and Risks
The filing does not provide forward-looking guidance, management commentary on future performance, or specific risk factors beyond the standard contractual risks inherent in the repurchase agreement (e.g., margin calls, acceleration of debt upon default). The interest rates on the loans are variable, based on the London Interbank Offered Rate (LIBOR) plus a spread.
Investor Verification Checklist
- Verify the full text of the Third Amended and Restated Master Repurchase Agreement (Exhibit 10.1) for specific loan eligibility criteria.
- Review the Second Amended and Restated Guaranty (Exhibit 10.2) to confirm the scope of Sutherland Partners, L.P.'s obligations.
- Monitor the Company's compliance with the financial maintenance covenants, specifically the adjusted tangible net worth and liquidity thresholds.
- Assess the impact of variable interest rates (LIBOR + spread) on the Company's cost of borrowing.
- Confirm the current status of the $85.1 million outstanding balance and any subsequent drawdowns or repayments.