Business Context and Reporting Period
Company: New Residential Investment Corp. (NRZ)
Filing Type: Form 8-K (Current Report)
Date of Report: May 19, 2020
Event: Entry into a Material Definitive Agreement involving a new debt facility and warrant issuance.
Key Financial Metrics and Transaction Details
This filing details a specific financing transaction rather than periodic financial performance metrics (revenue, profit, cash flow). Key transaction metrics include:
- Debt Facility: $600 million Senior Secured Term Loan Facility.
- Funding Schedule: $310 million funded on May 20, 2020; remaining $290 million expected on or about May 27, 2020.
- Interest Rate: 11% annual rate with a 1% original issue discount.
- Maturity: Three years from the Effective Date (May 20, 2020).
- Warrant Issuance: Warrants to purchase up to 43,441,606 shares of Common Stock issued to lenders.
- Use of Proceeds: Repayment of existing credit facilities, working capital, and transaction fees.
Material Changes and Covenants
The transaction introduces significant new obligations and restrictions compared to the prior period:
- Collateral: Obligations are secured by pledges of equity interests in subsidiaries and a lien on a deposit account.
- Financial Maintenance Covenants:
- Tangible Book Value: Must not be less than the lesser of $2.5 billion or 4.17x the sum of term loans and pari passu debt (minimum $2.0 billion).
- Liquidity: Unrestricted cash and cash equivalents must average at least $125 million per calendar week.
- Mandatory Prepayments: Required from net cash proceeds of asset sales, equity issuances, and "Available Excess Cash" if Tangible Book Value falls below specific thresholds ($3.15 billion or 5.25x debt).
- Dividend Restrictions: Distributions are limited to those necessary to maintain REIT status or avoid entity-level taxes, plus excess Core Earnings.
Outlook, Risks, and Unusual Items
Management Commentary and Structure: The transaction was unanimously approved by independent directors and the audit committee. Lenders include funds affiliated with Canyon Partners and Fortress Investment Group (the Company's manager affiliate).
Risks and Contingencies:
- Default Risk: Events of default include nonpayment, covenant breaches, and a change of control (defined as any person acquiring 40% or more beneficial ownership, excluding Fortress).
- Warrant Dilution: Warrants are exercisable between September 19, 2020, and May 19, 2023. Series 1 exercise price is $6.11; Series 2 is $7.94. Exercise is subject to ownership limitations in the Company's charter.
- Registration Rights: The Company must file a resale registration statement by September 19, 2020, for shares issuable upon warrant exercise.
Investor Verification Checklist
- Verify the Company's current Tangible Book Value against the $2.5 billion minimum covenant threshold.
- Confirm the status of unrestricted cash balances to ensure compliance with the $125 million weekly average requirement.
- Review the impact of the 11% interest rate and 1% OID on future interest expense and net income.
- Assess the potential dilution from 43.4 million warrants exercisable at $6.11 and $7.94.
- Monitor the filing of the resale registration statement required by September 19, 2020.