Business Context and Reporting Period
This Form 8-K is a current report filed by AG Mortgage Investment Trust, Inc. (MITT) on May 7, 2020. The filing addresses material events occurring during the first quarter of 2020, specifically focusing on the company's response to the COVID-19 pandemic, which has caused significant market volatility, declines in asset values, and financing disruptions. The report details a proposed asset sale, ongoing forbearance agreements with lenders, and an extension for the filing of the Q1 2020 Form 10-Q.
Key Financial Metrics (as of April 30, 2020)
- Investment Portfolio: Approximately $1.4 billion (83% residential, 16% commercial, 1% agency derivatives).
- Debt Obligations: Approximately $1.1 billion net of cash posted as collateral.
- Recourse Repurchase Obligations: Approximately $690 million, of which $600 million is covered under Forbearance Agreements.
- Liquidity Generation: Approximately $620 million in proceeds generated from asset sales since March 23, 2020 (excluding the proposed Loan Sale).
- Subordinated Loans: $20 million received from the external manager (AG REIT Management, LLC) in April 2020.
- Book Value Per Share: Estimated range of $1.80 to $1.90.
Material Changes and Events
Proposed Loan Sale
On May 1, 2020, a subsidiary of the Company entered into a Bid Terms Acknowledgment Letter to sell a pool of mortgage loans with an unpaid principal balance of approximately $469 million for a purchase price of approximately $383 million. The sale is expected to close on or about May 22, 2020, subject to due diligence and financing conditions. If completed, this transaction would reduce the investment portfolio to approximately $1 billion and recourse repurchase obligations to approximately $300 million.
Forbearance Agreements
Due to an inability to fund margin calls triggered by market disruptions, the Company entered into two Forbearance Agreements with major financing counterparties (including Bank of America, Credit Suisse, Barclays, Wells Fargo, and Goldman Sachs). The second agreement extends forbearance from exercising rights and remedies until the earlier of June 1, 2020, or the occurrence of a Triggering Event.
Asset Sales
Since March 23, 2020, the Company has sold residential and commercial mortgage assets generating approximately $620 million in proceeds to manage liquidity and de-lever the portfolio.
Outlook, Risks, and Contingencies
- COVID-19 Impact: The pandemic continues to negatively impact asset values and financing terms. The Company anticipates increased borrower delinquencies and defaults, which could further reduce asset values and income.
- Financing Risks: The Forbearance Agreements are temporary and may terminate early. Failure to extend these agreements or settle obligations with non-participating counterparties could lead to forced asset sales on unfavorable terms.
- Transaction Uncertainty: There is no assurance the proposed Loan Sale will close as expected. Failure to close could prevent the Company from reducing recourse debt balances as planned.
- Interest Rate Sensitivity: Declines in short-term interest rates by the Federal Reserve have negatively affected results and may continue to do so.
- Filing Delay: The Company has requested an extension to file its Form 10-Q for the quarter ended March 31, 2020, expecting to file by June 25, 2020, due to delays in receiving information from counterparties.
Investor Verification Checklist
- Verify the closing status and final terms of the proposed $383 million Loan Sale.
- Monitor the expiration of the Forbearance Agreements on June 1, 2020, and any potential early termination events.
- Review the upcoming Form 10-Q (expected by June 25, 2020) for audited financial statements and updated asset valuations.
- Assess the progress of negotiations with non-Participating Counterparties regarding the settlement of approximately $90 million in recourse obligations.
- Track the Company's ability to generate sufficient liquidity to meet future margin calls or debt obligations post-forbearance.