Business Context and Reporting Period
This Form 8-K, filed on April 27, 2020, by AG Mortgage Investment Trust, Inc. (MITT), reports the entry into a new material definitive agreement and the creation of a direct financial obligation. The filing addresses the company's ongoing liquidity challenges and refinancing efforts during the COVID-19 pandemic.
Key Financial Metrics and Agreements
- Forbearance Extension: Entered into a "Second Forbearance Agreement" with major financing counterparties (including Bank of America, Credit Suisse, Barclays, and Wells Fargo) extending the forbearance period until June 1, 2020, or the occurrence of a Triggering Event.
- Interest Rate Adjustment: During the forbearance period, the interest rate on obligations to Participating Counterparties is set at LIBOR plus 5.00%.
- Subordinated Debt Increase: Amended a secured promissory note with its Manager (AG REIT Management, LLC) to increase the total principal from $10 million to $20 million.
- Additional Advance Terms: The new $10 million advance is due July 27, 2020, and accrues interest at 6.0% per annum.
- Cash Margin Requirement: The Company agreed to make an additional cash margin payment of $40 million (allocated pro rata) to Participating Counterparties within two business days of the agreement's effective date.
- Liquidity Restrictions: The Company is prohibited from paying management fees or dividends on preferred or common stock during the forbearance period.
Material Changes and Operational Constraints
The filing details significant operational constraints imposed by the Second Forbearance Agreement to protect lenders:
- Triggering Events: Defined events that would terminate the forbearance include bankruptcy filings, failure to comply with the agreement, the CMBX.NA.AAA.13 Index dropping 20% below its commencement level for three consecutive days, or the payment of any dividends.
- Asset Sales: The Company may sell assets to terminate repurchase transactions, but sales are restricted to arm's-length terms with loss limits (1% of Loan Balance or 10% of Securities Balance) unless approved by Required Counterparties.
- Deleveraging Mandate: The Company must make a good faith effort to undertake a deleveraging process and provide weekly reports on recapitalization and refinancing progress.
- Security Interest: A lien on all Company assets remains in full force and effect for the benefit of the Participating Counterparties.
Outlook, Risks, and Management Commentary
Management's outlook is heavily contingent on the successful execution of a deleveraging and recapitalization process. The filing includes extensive forward-looking statements warning that actual results may differ due to:
- Changes in interest rates, default rates, and prepayment speeds.
- Market conditions for Agency RMBS, Non-Agency RMBS, and CMBS securities.
- The ongoing economic effects of the novel coronavirus (COVID-19).
- The ability to negotiate further extensions of the forbearance period or the maturity of the additional advance.
The Company explicitly states it undertakes no duty to update forward-looking statements to reflect changes in expectations or events.
Investor Verification Checklist
- Verify the Company's ability to fund the required $40 million additional cash margin payment within the two-day deadline.
- Monitor the CMBX.NA.AAA.13 Index to ensure it does not fall 20% below the commencement level for three consecutive trading days, which would trigger a default.
- Confirm the status of the "deleveraging process" and weekly progress reports on recapitalization.
- Review the Company's cash budget and liquidity position to assess the risk of a Triggering Event prior to June 1, 2020.
- Check for any subsequent filings regarding the extension of the forbearance period or the maturity of the $10 million additional advance due in July 2020.