| Borrowings | 5. Borrowings Our operating partnership and certain of its Delaware statutory trust and/or limited liability company subsidiaries, as applicable, have entered into master repurchase agreements and loan agreements to finance the acquisition and ownership of the SFR properties and other REO properties in our portfolio. We have effective control of the assets associated with these agreements and therefore have concluded these are financing arrangements. We pay interest on all of our borrowings as well as certain other customary fees, administrative costs and expenses each month. As of September 30, 2020, the average annualized interest rate on borrowings under our repurchase and loan agreements was 3.45%, excluding amortization of deferred debt issuance costs and loan discounts. The following table sets forth data with respect to our repurchase and loan agreements as of September 30, 2020 and December 31, 2019 ($ in thousands): Maturity Date Interest Rate Amount Outstanding Maximum Borrowing Capacity Amount of Available Funding Book Value of Collateral September 30, 2020 CS Repurchase Agreement 6/29/2021 1-month LIBOR + 3.50% (1) $ 118,549 $ 200,000 $ 81,451 $ 125,834 HOME II Loan Agreement 11/9/2020 (2) 1-month LIBOR + 2.10% (3) 83,270 83,270 — 96,207 HOME III Loan Agreement 11/9/2020 (2) 1-month LIBOR + 2.10% (3) 89,149 89,149 — 106,619 HOME IV Loan Agreement (A) 12/9/2022 4.00% 114,201 114,201 — 139,095 HOME IV Loan Agreement (B) 12/9/2022 4.00% 114,590 114,590 — 139,983 Term Loan Agreement 4/6/2022 5.00% 99,782 99,782 — 108,820 FYR SFR Loan Agreement 9/1/2028 4.65% 508,700 508,700 — 566,466 MS Loan Agreement 12/7/2023 1-month LIBOR + 1.80% (4) 504,545 504,545 — 584,202 Amherst Promissory Note 5/4/2022 1-month LIBOR + 5.00% — 20,000 20,000 — 1,632,786 $ 1,734,237 $ 101,451 $ 1,867,226 Less: unamortized loan discounts (2,684) Less: deferred debt issuance costs (9,134) $ 1,620,968 December 31, 2019 CS Repurchase Agreement 2/15/2020 1-month LIBOR + 2.30% $ 109,002 $ 250,000 $ 140,998 $ 111,593 Nomura Loan Agreement 4/3/2020 1-month LIBOR + 2.30% 33,671 250,000 216,329 38,423 HOME II Loan Agreement 11/9/2020 1-month LIBOR + 2.10% 83,270 83,270 — 98,150 HOME III Loan Agreement 11/9/2020 1-month LIBOR + 2.10% 89,150 89,150 — 108,860 HOME IV Loan Agreement (A) 12/9/2022 4.00% 114,201 114,201 — 141,787 HOME IV Loan Agreement (B) 12/9/2022 4.00% 114,590 114,590 — 142,620 Term Loan Agreement 4/6/2022 5.00% 99,782 99,782 — 111,061 FYR SFR Loan Agreement 9/1/2028 4.65% 508,700 508,700 — 573,961 MS Loan Agreement 12/7/2023 1-month LIBOR + 1.80% 504,986 504,986 — 595,650 1,657,352 $ 2,014,679 $ 357,327 $ 1,922,105 Less: unamortized loan discounts (3,632) Less: deferred debt issuance costs (9,490) $ 1,644,230 _____________ (1) Subject to a 1-month LIBOR floor of 0.50%. (2) Represents the current maturity date. We have the option to extend the maturity date for up to three successive one-year extensions, the first of which we exercised on October 17, 2019. We intend to exercise our option to extend the maturity date until November 9, 2021. (3) The interest rate is capped at 4.40% under an interest rate cap derivative. See Note 10. (4) The interest rate is capped at 4.30% under an interest rate cap derivative. See Note 10. Additional details regarding the above repurchase and loan agreements are as follows: CS Repurchase Agreement Credit Suisse AG (“CS”) is the lender on the repurchase agreement entered into on March 22, 2013, (the “CS Repurchase Agreement”), which has been amended on multiple occasions. Under the terms of the CS Repurchase Agreement, as collateral for the funds drawn thereunder, subject to certain conditions, our operating partnership and/or one or more of our limited liability company subsidiaries sell to the lender equity interests in the Delaware statutory trust subsidiary or limited liability company, as applicable, that owns the applicable underlying REO assets on our behalf. We may be required to repay a portion of the amounts outstanding under the CS Repurchase Agreement should the loan-to-value ratio of the funded collateral decline. The price paid by the lender for each real estate asset we finance under the CS Repurchase Agreement is based on a percentage of the market value of such asset. With respect to funds drawn under the CS Repurchase Agreement, our applicable subsidiary is required to pay the lender interest monthly and certain other customary fees, administrative costs and expenses to maintain and administer the CS Repurchase Agreement. We do not collateralize our repurchase facility with cash. The CS Repurchase Agreement contains customary events of default and is fully guaranteed by us. Nomura Loan Agreement Nomura Corporate Funding Americas, LLC (“Nomura”) was the lender under a loan agreement dated April 10, 2015 (the “Nomura Loan Agreement”), which was amended on several occasions. Under the terms of the Nomura Loan Agreement, subject to certain conditions, Nomura advanced funds to us from time to time, with such advances collateralized by SFR properties and other REO properties. The advances paid under the Nomura Loan Agreement with respect to the applicable properties from time to time were based on a percentage of the market value of the properties. On May 1, 2020, we refinanced the assets serving as collateral under the Nomura Loan Agreement under the CS Repurchase Agreement and the Nomura Loan Agreement was terminated and repaid in full. Seller Financing Arrangements We have entered into the following facilities, each of which were initially seller financing arrangements: • In connection with the seller financing related to an acquisition of SFR properties on March 30, 2017, our wholly owned subsidiary, HOME SFR Borrower II, LLC (“HOME Borrower II”), entered into the HOME II Loan Agreement with entities sponsored by Amherst Holdings, LLC (“Amherst”). On November 13, 2017, HOME Borrower II entered into an amended and restated loan agreement, which was acquired by Metropolitan Life Insurance Company (“MetLife”). HOME Borrower II has the option to extend the HOME II Loan Agreement beyond the initial maturity date for three successive one-year extensions, provided, among other things, that there is no event of default under the HOME II Loan Agreement on each maturity date. The HOME II Loan Agreement is cross-defaulted and cross-collateralized with the HOME III Loan Agreement. • In connection with the seller financing related to an acquisition of SFR properties on June 29, 2017, our wholly owned subsidiary, HOME SFR Borrower III, LLC (“HOME Borrower III”), entered into the HOME III Loan Agreement with entities sponsored by Amherst. On November 13, 2017, HOME Borrower III entered into an amended and restated loan agreement, which was acquired by MetLife. HOME Borrower III has the option to extend the HOME III Loan Agreement beyond the initial maturity date for three successive one-year extensions, provided, among other things, that there is no event of default under the HOME III Loan Agreement on each maturity date. The HOME III Loan Agreement is also cross-defaulted and cross-collateralized with the HOME II Loan Agreement. • In connection with the seller financing related to an acquisition of SFR properties on November 29, 2017, our wholly owned subsidiary, HOME SFR Borrower IV, LLC (“HOME Borrower IV”), entered into two separate loan agreements with entities sponsored by Amherst (collectively, the “HOME IV Loan Agreements”). The HOME IV Loan Agreements were acquired by MetLife on November 29, 2017. Under the terms of the HOME II Loan Agreement, the HOME III Loan Agreement and the HOME IV Loan Agreements, each of the facilities are non-recourse to us and are secured by a lien on the membership interests of HOME Borrower II, HOME Borrower III, HOME Borrower IV and the acquired properties and other assets of each entity, respectively. The assets of each entity are the primary source of repayment and interest on their respective loan agreements, thereby making the cash proceeds of rent payments and any sales of the acquired properties the primary sources of the payment of interest and principal by each entity to the respective lenders. Each loan agreement also includes customary events of default, the occurrence of which would allow the respective lenders to accelerate payment of all amounts outstanding thereunder. We have limited indemnification obligations for wrongful acts taken by HOME Borrower II, HOME Borrower III or HOME Borrower IV under their respective loan agreements in connection with the secured collateral. Even though the HOME II Loan Agreement, the HOME III Loan Agreement and the HOME IV Loan Agreements are non-recourse to us and all of our subsidiaries other than the entities party to the respective loan agreements, we have agreed to limited bad act indemnification obligations to the respective lenders for the payment of (i) certain losses arising out of certain bad or wrongful acts of our subsidiaries that are party to the respective loan agreements and (ii) the principal amount of each of the facilities and all other obligations thereunder in the event we cause certain voluntary bankruptcy events of the respective subsidiaries party to the loan agreements. Any of such liabilities could have a material adverse effect on our results of operations and/or our financial condition. Term Loan Agreement On April 6, 2017, RESI TL1 Borrower, LLC (“TL1 Borrower”), our wholly owned subsidiary, entered into a credit and security agreement (the “Term Loan Agreement”) with American Money Management Corporation, as agent, on behalf of Great American Life Insurance Company and Great American Insurance Company as initial lenders, and each other lender added from time to time as a party to the Term Loan Agreement. We may be required to make prepayments of a portion of the amounts outstanding under the Term Loan Agreement under certain circumstances, including certain levels of declines in collateral value. The Term Loan Agreement includes customary events of default, the occurrence of which would allow the lenders to accelerate payment of all amounts outstanding thereunder. The Term Loan Agreement is non-recourse to us and is secured by a lien on the membership interests of TL1 Borrower and the properties and other assets of TL1 Borrower. The assets of TL1 Borrower are the primary source of repayment and interest on the Term Loan Agreement, thereby making the cash proceeds received by TL1 Borrower from rent payments and any sales of the underlying properties the primary sources of the payment of interest and principal by TL1 Borrower to the lenders. We have limited indemnification obligations for wrongful acts taken by TL1 Borrower and RESI TL1 Pledgor, LLC, the sole member of TL1 Borrower, in connection with the secured collateral for the Term Loan Agreement. FYR SFR Loan Agreement On August 8, 2018, FYR SFR Borrower, LLC (“FYR SFR Borrower”), our wholly owned subsidiary, entered into a loan agreement (the “FYR SFR Loan Agreement”) with Berkadia Commercial Mortgage LLC, as lender (“Berkadia”) secured by 2,798 properties acquired on August 8, 2018 (the “RHA Acquired Properties”) as well as 2,015 other properties already owned by us and previously financed on our existing warehouse facilities with other lenders (together, the “FYR SFR Collateral Properties”). The FYR SFR Loan Agreement was originated as part of the Federal Home Loan Mortgage Corporation’s (“Freddie Mac”) single-family rental pilot program and has been purchased from Berkadia by Freddie Mac. The FYR SFR Loan Agreement contains customary events of default and is secured by the equity interests of FYR SFR Borrower and mortgages on the collateral properties. In connection with the FYR SFR Loan Agreement, we maintained $4.1 million and $0.6 million in escrow for future payments of property taxes and repairs and maintenance as of September 30, 2020 and December 31, 2019, respectively. MS Loan Agreement On December 7, 2018, our wholly owned subsidiary, HOME SFR Borrower, LLC (“HOME Borrower”), entered into a loan agreement (the “MS Loan Agreement”) with Morgan Stanley Bank, N.A. (“Morgan Stanley”) and such other persons that may from time to time become a party to the MS Loan as lenders. The MS Loan Agreement can be prepaid without penalty at any time after December 7, 2021. The MS Loan Agreement contains customary events of default and is secured by the equity interests in HOME Borrower and mortgages on its 4,258 SFR properties. In connection with the MS Loan Agreement, we maintained $10.5 million and $4.9 million in escrow for future payments of property taxes, insurance, HOA dues, repairs and maintenance and other amounts as required by the MS Loan Agreement as of September 30, 2020 and December 31, 2019, respectively. Amherst Promissory Note On May 4, 2020, in connection with the Termination and Settlement Agreement, we also entered into a Non-Negotiable Promissory Note (the “Promissory Note”) between Front Yard and Amherst SFRP VI REIT, LLC (the “Amherst Noteholder”), pursuant to which, among other things, the Amherst Noteholder committed to make advances from time to time to Front Yard in an aggregate principal amount of up to $20 million. Advances under the Promissory Note are available in multiple draws with minimum draw increments of $500,000, subject to prior written notice and absence of an event of default. Amounts under the Promissory Note can be repaid at any time and from time to time, without premium or penalty, and amounts repaid may be reborrowed. The Promissory Note contains a limited set of customary representations and warranties, covenants and events of default and does not contain any financial covenants. Compliance with covenants Our repurchase and loan agreements require us and certain of our subsidiaries to maintain various financial and other covenants customary to these types of indebtedness. The covenants of each facility may include, without limitation, the following: • reporting requirements to the agent or lender, • minimum adjusted tangible net worth requirements, • minimum net asset requirements, • limitations on the indebtedness, • minimum levels of liquidity, including specified levels of unrestricted cash, • limitations on sales and dispositions of properties collateralizing certain of the loan agreements, • various restrictions on the use of cash generated by the operations of properties, • a requirement to maintain positive net income, after adjustment to add back non-cash items, for any two consecutive quarters, and • a minimum fixed charge coverage ratio. We are currently in compliance with the covenants and other requirements with respect to our repurchase and loan agreements. Counterparty risk We monitor our lending partners’ ability to perform under the repurchase and loan agreements, including the obligation of lenders under repurchase agreements to resell the same assets back to us at the end of the term of the transaction, and have concluded there is currently no reason to doubt that they will continue to perform under the repurchase and loan agreements as contractually obligated. Reliance on financing arrangements Our business model relies to a significant degree on both short-term financing and longer duration asset-backed financing arrangements, and we generally do not carry sufficient liquid funds to retire any of our short-term obligations upon their maturity. Prior to or upon such short-term maturities, management generally expects to (1) refinance the remaining outstanding short-term facilities, obtain additional financing or replace the short-term facilities with longer-term facilities and (2) continue to liquidate certain non-core real estate assets, which will generate cash to reduce the related financing. We are in continuous dialogue with our lenders, and we are currently not aware of any circumstances that would adversely affect our ability to complete such refinancings. We believe we will be successful in our efforts to refinance or obtain additional financing based on our recent success in renewing our outstanding facilities and obtaining additional financing with new counterparties and our ongoing relationships with lenders. |
