Business Context and Reporting Period
Company: Ready Capital Corporation (Ready Capital)
Filing Type: Form 8-K (Current Report)
Date of Report: December 6, 2020
Event: Entry into a Material Definitive Agreement (Merger) and Amendment to Management Agreement.
On December 6, 2020, Ready Capital entered into an Agreement and Plan of Merger with Anworth Mortgage Asset Corporation (Anworth). Under the agreement, Anworth will merge with a Ready Capital subsidiary, with Anworth shareholders receiving a mix of Ready Capital common stock and cash. Concurrently, Ready Capital amended its management agreement to reduce fees contingent on the merger's closing.
Key Financial Metrics and Transaction Terms
This filing details a corporate transaction rather than periodic financial results. Specific revenue, profit, or cash flow figures for the reporting period are not provided in this document.
- Merger Consideration (Per Anworth Share): 0.1688 shares of Ready Capital Common Stock plus $0.61 in cash, minus the "Per Share Excess Amount."
- Per Share Excess Amount: Defined as the amount by which Anworth's termination and transaction expenses exceed $32.5 million.
- Preferred Stock Conversion: Anworth's Series A, B, and C preferred stock will convert one-for-one into new Ready Capital Series B, C, and D preferred stock, respectively.
- Special Dividend: Anworth and Ready Capital agreed to pay a special cash dividend prior to the merger closing.
- Termination Fees: $15,000,000 payable by the terminating party under specific circumstances (e.g., change of recommendation, superior proposal).
- Expense Reimbursement: $3,000,000 payable upon termination under specified circumstances.
- Management Fee Reduction: The Manager's base fee will be reduced by $1,000,000 per quarter for the first four full quarters following the Effective Time.
Material Changes and Conditions
The filing outlines significant structural changes pending the consummation of the Merger:
- Board Composition: Ready Capital's board will increase by one member, with Dominique Mielle (Anworth director) appointed to the board.
- Conditions to Closing: The merger is subject to stockholder approval from both companies, regulatory approvals, absence of material adverse effects, and the effectiveness of management agreement amendments.
- Deadlines: The agreement includes a termination right if the merger is not completed by September 30, 2021.
- No-Shop Provisions: Both parties are restricted from soliciting competing proposals, subject to standard fiduciary out exceptions.
Outlook, Risks, and Management Commentary
Outlook: Management expects the merger to create a combined entity with enhanced scale. The transaction is subject to the filing of a registration statement on Form S-4 and a joint proxy statement/prospectus.
Risks and Contingencies:
- Transaction Risk: The merger may not be consummated due to failure to obtain stockholder approval, regulatory hurdles, or material adverse effects.
- Operational Disruption: Risks related to management distraction and integration challenges.
- Market Conditions: Exposure to interest rate changes, prepayment rates, and the impact of the COVID-19 pandemic on liquidity and operations.
- Legal Proceedings: Potential litigation regarding the merger terms.
Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to various uncertainties.
Investor Verification Checklist
- Verify the final terms of the merger in the upcoming Form S-4 and joint proxy statement/prospectus.
- Confirm the outcome of the stockholder votes required for both Ready Capital and Anworth.
- Monitor the calculation of the "Per Share Excess Amount" to determine the final cash consideration for Anworth shareholders.
- Review the impact of the $1.0 million quarterly management fee reduction on future operating expenses.
- Assess the status of regulatory approvals and the absence of material adverse effects as of the closing date.