Business Context and Reporting Period
Company: Colony NorthStar Credit Real Estate, Inc. (CLNC)
Filing Type: Form 8-K (Current Report)
Date of Report: April 20, 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 revolving credit facility.
- Counterparty: Morgan Stanley Bank, N.A.
- Collateral: First mortgage 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 20, 2021, with annual one-year extensions at the Seller's option (subject to Morgan Stanley's discretion).
- Guaranty Liability: Maximum liability capped at 25% of the aggregate repurchase price of purchased assets.
Material Changes and Covenants
The filing establishes new financial covenants that the Guarantor (Credit RE Operating Company, LLC) must 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 $2,105.0 million plus 75% of net cash proceeds from any equity issuance by CLNC 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.
Note: This filing does not provide comparative financial performance data (revenue, profit, cash flow) for the period.
Outlook, Risks, and Contingencies
Management includes a Safe Harbor statement regarding forward-looking statements. Key risks and contingencies identified include:
- Ability to comply with representations, warranties, and covenants in the Repurchase Agreement.
- Ability to maintain minimum liquidity, total equity, and borrowing ratios.
- Availability of investment opportunities and capital.
- Future property values and potential losses from investments impacting cash flow.
- Changes in economic conditions, real estate markets, and debt markets.
- Changes to GAAP and REIT policies.
Investor Verification Checklist
- Verify the current utilization of the $500.0 million facility against the company's total asset base.
- Confirm compliance with the new tangible net worth covenant ($2,105.0 million threshold).
- Review the specific spread over LIBOR applied to advances under the agreement.
- Assess the impact of the 25% guaranty liability cap on the company's off-balance sheet obligations.
- Monitor the company's ability to maintain the 1.40 to 1.00 EBITDA to fixed charges ratio.