Business Context and Reporting Period
This Form 8-K filing by AG Mortgage Investment Trust, Inc. (MITT) covers events occurring between March 23, 2020, and March 27, 2020. The Company, a real estate investment trust focused on residential mortgage-backed securities, reported significant portfolio liquidation and liquidity challenges driven by market volatility associated with the COVID-19 pandemic.
Key Financial Metrics and Liquidity
- Portfolio Sale: The Company sold its entire Agency Portfolio of residential mortgage-backed securities on March 23, 2020.
- Debt Repayment: Approximately $880 million of repurchase financing obligations related to the sold portfolio were satisfied.
- Cash Proceeds: The transaction netted approximately $38 million in cash proceeds via T+0 settlement.
- Liquidity Position: As of the close of business on March 27, 2020, the Company held approximately $78 million in cash and cash equivalents.
- Dividends: The Board approved the suspension of quarterly dividends on common stock and all series of preferred stock (Series A, B, and C).
Material Changes and Events
- Portfolio Disposition: The Company no longer owns any whole pool Agency MBS following the March 23 sale.
- Default Notices: On March 24, 2020, the Company received notices from affiliates of Royal Bank of Canada (RBC) alleging events of default. Notices were also received from other financing counterparties.
- Margin Calls: The Company notified counterparties on March 23, 2020, that it could not fund margin calls received that day or anticipated future calls due to market disruptions.
- Legal Action: The Company filed a suit in federal district court in New York against RBC, alleging wrongful conduct and seeking to enjoin the sale of collateral securities.
- Board Changes: Andrew L. Berger, an independent director and Audit Committee member, resigned effective March 25, 2020, due to personal health issues.
Outlook, Risks, and Management Commentary
Management stated the portfolio sale was executed to prudently manage the portfolio through unprecedented market volatility and preserve long-term stockholder value. The suspension of dividends reflects a focus on conserving capital and improving liquidity.
Risks and Contingencies:
- Acceleration of Obligations: Counterparties may demand immediate payment of outstanding financing obligations if defaults are not resolved or margin calls are not met.
- Collateral Seizure: Counterparties may sell pledged securities or take ownership if obligations are not paid. Some counterparties have already informed the Company of such sales.
- Shortfall Liability: The Company may be liable for any shortfall if the proceeds from the sale of securities are less than the financing obligation.
- Forbearance Uncertainty: The Company is discussing forbearance agreements with counterparties but cannot predict if agreements will be reached, their timing, or their terms.
Investor Verification Checklist
- Verify the status of ongoing litigation against Royal Bank of Canada and other counterparties.
- Confirm the outcome of forbearance negotiations with financing counterparties.
- Monitor for any additional notices of default or acceleration of debt obligations.
- Review the Company's remaining asset base and liquidity runway given the suspension of dividends and potential liability for collateral shortfalls.
- Check for updates on the resignation of Director Andrew L. Berger and any subsequent Board composition changes.