Business Context and Reporting Period
Company: Colony NorthStar Credit Real Estate, Inc. (CLNC)
Filing Type: Form 8-K (Current Report)
Date of Report: April 26, 2018
Event: Entry into a Material Definitive Agreement and creation of a direct financial obligation.
Key Financial Metrics and Agreement Terms
This filing details a new financing facility rather than periodic financial results. Key terms include:
- Facility Size: Up to $500.0 million Master Repurchase Agreement.
- Counterparty: Barclays Bank PLC.
- Collateral: First mortgage loans, mezzanine loans, senior loan participations, and other commercial mortgage loan debt instruments secured by commercial real estate.
- Interest Rate: One-month London Interbank Offered Rate (LIBOR) plus a case-by-case spread.
- Maturity: Initial maturity of April 26, 2021, with a one-year extension option and potential further extensions subject to approval.
- Structure: Revolving credit facility allowing pay-downs and re-draws.
- Guaranty: Credit RE Operating Company, LLC provided a guaranty with maximum liability capped at 25% of the aggregate repurchase price of purchased assets.
Material Changes and Covenants
The filing does not report changes in historical revenue or profit. The material change is the establishment of new debt capacity and associated financial covenants requiring the Guarantor to maintain:
- Liquidity: Minimum of the lower of $50.0 million or the greater of $10.0 million and 5% of recourse indebtedness.
- Tangible Net Worth: Not less than 65% of consolidated tangible net worth (as of the last fiscal quarter ended 90+ days prior) plus 75% of net cash proceeds from equity issuances after the agreement date.
- Indebtedness: Not to exceed 75% of total assets.
- EBITDA to Fixed Charges: Ratio of not less than 1.40 to 1.00.
Guidance, Risks, and Contingencies
The filing includes a Safe Harbor Statement regarding forward-looking statements. Key risks and contingencies identified include:
- Ability to comply with representations, warranties, covenants, and conditions precedent to funding.
- Ability to maintain minimum liquidity, equity, and borrowing ratios required under the agreement.
- Availability of investment opportunities and capital.
- Impact of future property values and investment losses on cash flow.
- Changes in economic conditions, real estate markets, and debt markets.
- Changes to accounting principles and REIT policies.
Investor Verification Checklist
- Verify the specific interest rate spread applied to the LIBOR base rate for initial draws.
- Confirm the company's current compliance with the new financial covenants (liquidity, tangible net worth, indebtedness ratio, and EBITDA coverage).
- Review the full text of the Master Repurchase Agreement (Exhibit 10.1) and Guaranty (Exhibit 10.2) for detailed default events and indemnities.
- Assess the impact of the 25% guaranty cap on the company's overall risk exposure.
- Monitor the company's ability to utilize the revolving facility for the intended commercial real estate debt instruments.