| Item 1.01. | Material Definitive Agreement. |
On June 3, 2019, MFA Financial, Inc., a Maryland corporation (the “Company”), completed the issuance and sale of $230.0 million aggregate principal amount of its 6.25% Convertible Senior Notes due 2024 (the “Notes”), including $30.0 million aggregate principal amount of the Notes issued upon exercise of the underwriters’ over-allotment option to purchase additional Notes, in a public offering pursuant to the Company’s registration statement onForm S-3ASR (FileNo. 333-214659) (the “Registration Statement”) and a related prospectus, as supplemented by a preliminary prospectus supplement, filed with the Securities and Exchange Commission (the “SEC”) on May 29, 2019 and a final prospectus supplement filed with the SEC on May 31, 2019 pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).
The Notes were sold pursuant to an underwriting agreement (the “Underwriting Agreement”), dated as of May 29, 2019, by and between the Company and Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC, as representatives of the several underwriters named therein (collectively, the “Underwriters”), whereby the Company agreed to sell to the Underwriters and the Underwriters agreed to purchase from the Company, subject to and upon the terms and conditions set forth in the Underwriting Agreement, the Notes. Pursuant to Underwriting Agreement, the Company granted the Underwriter the option to purchase, exercisable within a30-day period, up to an additional $30.0 million aggregate principal amount of the Notes solely to cover over-allotments, if any, which option the Underwriters exercised in full on May 30, 2019. The Company made certain customary representations, warranties and covenants concerning the Company and the Registration Statement in the Underwriting Agreement and also agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act.
The Notes were issued at 99% of the principal amount, bear interest at a rate equal to 6.25% per year, payable in cash semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2019, and are expected to mature on June 15, 2024 (the “Maturity Date”), unless earlier converted, redeemed or repurchased. The Company will not have the right to redeem the Notes prior to maturity except to the extent, and only to the extent, necessary to preserve the Company’s status as a REIT.
Holders of the Notes will be permitted to convert their Notes into shares of the Company’s common stock at any time prior to the close of business on the business day immediately preceding the Maturity Date. The conversion rate initially equals 125.7387 shares of the Company’s common stock per $1,000 principal amount of Notes, which is equivalent to a conversion price of approximately $7.95 per share of the Company’s common stock, based on a $1,000 principal amount of the Notes. The conversion rate will be subject to adjustment upon the occurrence of certain specified events. In addition, following certain corporate events that occur prior to the Maturity Date, which are referred to as a “make-whole fundamental change,” the Company may be required to increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event determined by reference to a table included in the Supplemental Indenture (as defined below), based on the effective date of, and the price paid (or deemed paid) per share of the Company’s common stock in, such corporate event. Finally, if the Company undergoes a “fundamental change” (as defined in the Supplemental Indenture), holders of the Notes may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Notes were issued under the indenture, dated June 3, 2019 (the “Base Indenture”), as supplemented by the first supplemental indenture, dated June 3, 2019 (the “Supplemental Indenture” and together with the Base Indenture, the “Indenture”), among the Company and Wilmington Trust, National Association, as trustee. The Notes are senior unsecured obligations of the Company that rank senior in right of payment to any future indebtedness of the Company that is expressly subordinated in right of payment to the Notes, equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated, including the Company’s 8.00% Senior Notes due 2042, effectively junior to any future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior to all existing and future indebtedness and any preferred equity of the Company’s subsidiaries as well as to any of the Company’s existing or future indebtedness that may be guaranteed by any of the Company’s subsidiaries (to the extent of any such guarantee).
The Indenture contains customary events of default. If there is an event of default under the Notes, the principal amount of the Notes, plus accrued and unpaid interest (including additional interest, if any), may be declared immediately due and payable, subject to certain conditions set forth in the Indenture. These amounts automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving the Company.
The net proceeds to the Company from the sale of the Notes, after deducting the underwriter’s discounts and commissions and estimated offering expenses, are expected to be approximately $223.4 million. The Company intends to add the net proceeds from this offering to its general corporate funds, which the Company may use for general working capital purposes, including to invest in additional residential mortgage-related assets, including but not limited to, residential whole loans, MBS, CRT securities and investments related to mortgage servicing rights, and for working capital, which may include, among other things, the repayment of amounts outstanding under the Company’s repurchase agreements.
