SEC Filing Summary: AG Mortgage Investment Trust, Inc. (MITT)
Business Context and Reporting Period
This Form 8-K, dated April 8, 2020, reports material events for AG Mortgage Investment Trust, Inc. (MITT), a real estate investment trust focused on mortgage-backed securities. The filing addresses severe liquidity and solvency challenges triggered by market disruptions from the COVID-19 pandemic, specifically regarding margin calls, defaults, and asset sales.
Key Financial Metrics and Liquidity
- Margin Calls: Approximately $145 million in margin calls received through April 7, 2020, due to mark-to-market declines and haircut changes. The Company has not honored these calls.
- Asset Sales/Forfeitures: Assets subject to $425 million of financing obligations have been sold or taken by lenders through April 2, 2020.
- Deficiency Notices: Counterparties have alleged deficiencies aggregating approximately $34.2 million. Approximately $29.6 million of this amount is alleged by affiliates of Royal Bank of Canada (RBC).
- Cash Proceeds: The sale of the Agency Portfolio (residential mortgage-backed securities) in late March 2020 netted approximately $38 million in cash after satisfying $880 million in repurchase financing obligations.
- Liquidity Status: The Company expects its remaining cash and unencumbered assets to be pledged as collateral upon execution of a forbearance agreement.
Material Changes and Events
- Management Fee Deferral: On April 6, 2020, MITT and its external manager, AG REIT Management, LLC, executed an amendment to defer the payment of the base management fee and reimbursement of expenses.
- Default and Acceleration Risks: The Company has received notifications of alleged events of default. Failure to meet margin calls may lead to the acceleration of financing obligations and forced sales of assets.
- Legal Action: MITT disputes RBC's notices of default and deficiency amounts and has filed a suit in federal district court in New York seeking damages for alleged wrongful conduct.
Outlook, Risks, and Management Commentary
- Forbearance Negotiations: The Company is in final negotiations with financing counterparties for a forbearance agreement. It has received executed signature pages in escrow from two of its larger counterparties but cannot predict if all counterparties will participate.
- Pandemic Impact: Management warns that the COVID-19 pandemic has caused significant market volatility, leading to declines in asset values and adverse financing terms. Elevated borrower delinquency and default rates are anticipated, which could further reduce asset values and income.
- Government Actions: The Company notes Federal Reserve asset purchases and the CARES Act but states there is no assurance these measures will stabilize the markets or benefit the Company's specific business conditions.
- Forward-Looking Uncertainty: Actual results could differ materially from projections due to interest rate changes, default rates, and the ongoing spread of the pandemic.
Investor Verification Checklist
- Verify the status of the forbearance agreement negotiations and whether all major financing counterparties have signed.
- Monitor the outcome of the litigation filed against RBC regarding the $29.6 million deficiency claim.
- Assess the Company's ability to meet future margin calls if the forbearance agreement is not fully executed or if market conditions worsen.
- Review the terms of the Management Agreement Amendment regarding the deferral of fees and expenses.
- Track the valuation of remaining assets and the potential for further forced sales or deficiency judgments.