Business Context and Reporting Period
Company: Inpoint Commercial Real Estate Income, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 10, 2021
Reporting Period: Event date March 10, 2021; Signed March 16, 2021.
Context: The Company, an emerging growth company, entered into a material definitive agreement to establish a new credit facility for financing commercial mortgage loans.
Key Financial Metrics and Obligations
- Facility Name: Western Alliance Facility (Loan and Security Agreement and Promissory Note).
- Maximum Advance Amount: Up to $75 million or the Borrowing Base, whichever is less.
- Borrowing Base Calculation: Lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of loan-to-appraised value, depending on property type.
- Interest Rate: One-month LIBOR plus 3.25% with a floor of 4.0%.
- Maturity Date: March 10, 2023 (initial).
- Guaranty: The Company guarantees up to 30% of the amount owed under the facility plus certain additional amounts.
- Liquidity Covenant: Maintenance of an average unrestricted aggregate deposit account balance with the Lender of not less than $3.75 million.
Material Changes and New Obligations
This filing represents the creation of a new direct financial obligation. The Company's operating partnership subsidiary, InPoint REIT Operating Partnership, LP, entered into the facility with Western Alliance Bank. This facility functions as a revolving credit facility, allowing repayment as mortgage loan assets are paid off and re-drawing against new assets. The filing does not provide comparative financial data (revenue, profit, cash flow) as it is a current report regarding a specific transaction rather than a periodic financial statement.
Guidance, Risks, and Covenants
- Use of Proceeds: Financing the acquisition or origination of commercial mortgage loans.
- Conversion Option: Borrower may convert the facility to a term loan at maturity for an additional two years upon payment of a 0.25% conversion fee.
- Financial Covenants: The agreement requires maintenance of minimum debt service coverage ratio, tangible net worth, and global debt to tangible net worth ratio.
- Penalties: Failure to maintain the $3.75 million deposit balance results in a 0.25% per annum interest rate increase per quarter. Exceeding the Borrowing Base requires immediate repayment or provision of additional collateral within 15 days of notice.
- Risks: Forward-looking statements are subject to risks including borrower defaults, changing interest rates, and the effects of the COVID-19 pandemic on hospitality and retail properties.
Investor Verification Checklist
- Verify the specific composition of the "Borrowing Base" and eligible assets pledged to Western Alliance Bank.
- Confirm the Company's current ability to meet the $3.75 million average deposit balance covenant.
- Review the Company's current debt service coverage ratio and tangible net worth to ensure compliance with new covenants.
- Assess the impact of the 4.0% interest rate floor on future borrowing costs given current LIBOR rates.
- Examine the 30% guaranty exposure and its effect on the Company's balance sheet liabilities.