Business Context and Reporting Period
This Form 8-K Current Report was filed by Five Oaks Investment Corp. on July 18, 2014 (with events reported through July 29, 2014). The filing details the entry into material definitive agreements to finance the acquisition of prime jumbo residential mortgage loans, supporting the Company's strategy to aggregate and securitize such loans. The transactions involve Five Oaks Acquisition Corp. ("FOAC"), a wholly owned subsidiary of the Company.
Key Financial Metrics and Agreements
The filing discloses two primary financing facilities entered into by FOAC, both guaranteed by Five Oaks Investment Corp.:
- Bank of America Loan Facility: A short-term loan and security agreement with an aggregate maximum capacity of $100,000,000. The facility matures on January 14, 2015, unless extended. It is secured by mortgage loans purchased with advances.
- Barclays Repurchase Agreement: A master repurchase agreement with an aggregate maximum capacity of $100,000,000. The facility has a 364-day term, maturing on July 28, 2015, unless extended. It involves the sale of eligible residential mortgage loans to Barclays.
Both agreements include borrowing base or margin call provisions allowing the lenders to require repayment or transfer of assets if the market value of the collateral declines. Wells Fargo Bank N.A. serves as the mortgage loan custodian for both facilities.
Material Changes and Obligations
The Company has created direct financial obligations through the execution of these agreements. As guarantor, Five Oaks Investment Corp. is subject to certain financial covenants under both the Bank of America and Barclays agreements. The filing notes that the Company already has outstanding master repurchase agreements with affiliates of both Bank of America (Merrill Lynch) and Barclays (Barclays Capital Inc.).
Risks, Contingencies, and Management Commentary
Both agreements contain customary events of default, including payment defaults, breaches of covenants, cross-defaults, and bankruptcy proceedings. Remedies for default include the repayment of advances and the liquidation of the mortgage loans held as collateral by the respective lenders. The filing states that the descriptions of the agreements are qualified by reference to the full text of the exhibits filed with the report.
Important Facts for Investor Verification
- Verify the specific financial covenants imposed on Five Oaks Investment Corp. as guarantor in the full text of Exhibits 10.2 and 10.4.
- Confirm the utilization rates of the $100 million Bank of America facility and the $100 million Barclays facility.
- Review the terms regarding extensions for both facilities, as the current maturities are short-term (January 2015 and July 2015).
- Assess the impact of the borrowing base and margin call provisions on liquidity in the event of a decline in mortgage loan market values.