Business Context and Reporting Period
This Form 8-K Current Report is filed by ZAIS Financial Corp. (the "Company") for the reporting date of September 30, 2016. The filing discloses a material definitive agreement involving the Company's subsidiaries, ZFC Funding, Inc. ("ZFCF") and ZFC Trust, regarding their master repurchase agreement (the "Loan Repo Facility") with Credit Suisse First Boston Mortgage Capital LLC ("Credit Suisse").
Key Financial Metrics and Debt
The filing details specific adjustments to the Company's debt facility rather than reporting period-end financial performance metrics such as revenue or net income.
- Debt Facility Cap: The maximum aggregate purchase price of the Loan Repo Facility was reduced from $36 million to $15 million.
- Facility Maturity: The termination date of the facility was extended from September 30, 2016, to November 11, 2016.
- Liquidity and Covenants: The definition of tangible net worth was amended to accommodate the Company's tender offer related to its expected merger with Sutherland Asset Management Corporation, preventing a potential covenant breach.
The filing text does not provide clear values for revenue, profit, cash flow, or overall liquidity positions outside of the specific facility terms.
Material Changes Versus Prior Period
The primary material change reported is the amendment to the Loan Repo Facility structure:
- Capacity Reduction: A significant reduction in available borrowing capacity (from $36 million to $15 million).
- Structural Change: ZFC Trust joined the facility as the seller/borrower, assuming the rights and obligations previously held by ZFCF, which was released from the agreement.
- Covenant Adjustment: Modifications to tangible net worth covenants to align with the pending merger transaction.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The filing indicates the Company is proceeding with an expected merger with Sutherland Asset Management Corporation. The amendment to the debt facility was executed specifically to ensure the tender offer associated with this merger does not trigger a default on tangible net worth covenants.
Risks and Contingencies: The Company maintains a relationship with Credit Suisse and its affiliates, who act as co-lead managers for the IPO, provide equity research, and engage in securities repurchase agreements and swaps. The filing notes that Credit Suisse receives customary fees for these services.
Unusual Items: The release of ZFCF and the assumption of obligations by ZFC Trust represents a restructuring of the borrowing entity within the facility.
Important Facts for Investor Verification
- Verify the status and timeline of the pending merger with Sutherland Asset Management Corporation.
- Confirm the impact of the reduced $15 million facility cap on the Company's near-term liquidity and funding strategy.
- Review the full text of the Amendment No. 2 and Joinder (Exhibit 10.1) for detailed covenant language regarding tangible net worth.
- Assess the extent of ongoing financial relationships and potential conflicts of interest with Credit Suisse affiliates.