Business Context and Reporting Period
Company: KKR Real Estate Finance Trust Inc. (KREF)
Filing Type: Form 8-K (Current Report)
Date of Report: June 27, 2019
Event: Entry into a Material Definitive Agreement and creation of a direct financial obligation.
Key Financial Metrics and Facility Details
This filing details a new financing facility rather than reporting period-end financial results (revenue, profit, or cash flow).
- Facility Size: Up to $900,000,000.
- Structure: Master Repurchase and Securities Contract Agreement (Term Lending Agreement).
- Counterparty: Morgan Stanley Bank, N.A. (via Morgan Stanley Mortgage Capital Holdings LLC as Administrative Agent).
- Collateral: Portfolio of eligible loans acquired by KREF Lending V LLC.
- Interest Rate: One-month LIBOR plus a specified margin.
- Maturity: Initial maturity of June 25, 2021, with five one-year extension options.
- Valuation Method: Non-mark to market.
Material Changes and Guaranty Terms
The Company entered into a new $900 million facility to finance pre-identified assets. A direct wholly-owned subsidiary, KKR Real Estate Finance Holdings L.P., provided a Guaranty with the following liability caps:
- Standard Liability: Maximum of 25% of the outstanding Repurchase Price of purchased assets.
- "Bad Boy" Defaults: Maximum liability increases to 100% in specific default scenarios.
Covenants, Risks, and Management Commentary
The agreement includes affirmative and negative covenants applicable to the Guarantor. Key financial covenants include:
- Interest Coverage: Ratio of interest income to interest expense must not be less than 1.5 to 1.0 over any four fiscal quarter period.
- Leverage: Ratio of total indebtedness to total assets must not exceed 75%.
- Liquidity: Cash liquidity must not be less than the greater of $10 million or 5.0% of recourse indebtedness.
- Tangible Net Worth: Must not be less than $880,208,000 plus 75% of aggregate net cash proceeds from equity issuances or capital contributions post-closing.
Risks: The filing does not provide specific risk factors beyond the standard obligations of the agreement. The facility is subject to customary conditions for future advances and extensions.
Investor Verification Checklist
- Verify the specific margin added to LIBOR for interest rate calculations.
- Confirm the initial drawdown amount on the Closing Date versus the total $900 million facility.
- Review the specific definition of "bad boy" defaults that trigger 100% guaranty liability.
- Monitor compliance with the 1.5x interest coverage and 75% leverage covenants in subsequent quarterly reports.
- Check for any future equity issuances that would adjust the tangible net worth covenant threshold.