WMC - Earnings call transcript Q4 2020 | Western Asset Mortgage Capital Corp

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, everyone, and welcome to the Western Asset Mortgage Capital Corporation's Fourth Quarter and Year-End 2020 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard Time. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following today’s presentation.

Now first I'd like to turn the conference call over to Mr. Relations. Investor Clark, Larry Mr. ahead go Please Clark.

Larry Clark

company Thank Relations you us Corporation's everyone joining at available XXXX. to results yesterday press afternoon www.westernassetmcc.com. and of I to discuss the want it's The of today quarter Capital the the thank its Western earnings for release Investor for in fourth Jamie. issued section Asset financial website Mortgage company's

With the us the Financial has and from Lisa during included website on that Co-Chief Interim company presentation to Officer; you Johnson Officers. addition, Sean Jennifer In the Officer; are slide call. today management Executive Handler Murphy, refer can a both Investment and Chief Greg Chief Meyer,

that now over Murphy. by law. We of statements included required materially our as any that, update differ the available are I'll the I'd Before such the from notice. subject harbor the Risk results obligation review All within be many Act. forward-looking to the This provided included Copies Securities those constitute are meaning Certain safe impact on like the of of of company's safe by factors this in the change in filed the disclaim subject materially Jennifer? statements of turn made are to protection this presentation due in presentation contained Reform statements the All the only statements SEC's to Reform forward-looking forecast website. SEC. forward-looking to XXXX. without company. reports we actual Factors the Act cause factors differ of with Private of date statements call those and could control are statements the harbor to the conference begin, unless Jennifer to to and statement. intended Litigation forward-looking results forward-looking contain the beyond are call section outcomes that the Actual from With could will to

Jennifer Murphy

book X.X%, all earnings momentum, a you finished improved quarter of value WMC XXXX for joining us on share. thank dividend with $X.XX Larry, positive core fourth sequentially per a return delivering Thanks, and to today. increase and economic

focus improved recorded par earnings at operating per XX% margin. lower and net at $X.XX an We to balance our took these on income per repurchasing of fourth exposure attractive recourse net portfolio. the share $X.XX leverage and lowering value. in third the funding the a our important discount quarter and financing improving share. Core of outstanding to portfolio our senior of average our from strengthening in to continue levels mark-to-market power actions including of earnings We We GAAP offset notes by reflecting sheet, or slightly fourth leverage, lower share longer lower to the quarter, extending $X.XX some $XX million our term convertible $XX.X on interest million of partially during per expenses quarter reducing

Investment continued our that and recovery we December, appointed Handler Sean Board and Co-Chief of will has portfolio. our anticipate Johnson of serve Officers. we of what We In book its June X.X% share believe share level increased after pandemic. we're of onset lowest GAAP per the $X.XX the since reported to to quarter Our XX% from by per has during XX, value the well-positioned benefit and values to the sustainability earning announced Interim XXXX, increased as be Directors improved asset Greg

role member Chief Sean at Western Investment at more of company. an company's of since XX the Officer. all expanded and strategy at and team a Head and Sean mortgage as than XXXX XX sector and We're years the Deputy recently WMC years and he's and offering initial been He's public as integral of also Sean U.S. You Western. their Asset's has most Asset. Greg Strategy served part in investing Credit Interim investment the Consumer know for has roles Western the a Mortgage to Broad at welcome than been more is Greg pleased investment the of our in experience critical and Committee. team to is

for an Credit launched protecting the In fill leadership enhancing professional now strategy position support and We experienced commercial and pursue depth to to the we've over We'll Asset's to a turn the value the and portfolio, by an our investment most addition, comprehensive Western real to debt market core drawing attractive the Greg, portfolio call our company of Mortgage which dividend breadth search the team. generating team. the sectors earnings growing discuss deliver estate us sustainable outlook. investment the Sean? and on position to for our on and objectives Consumer continue out of in the and value to of of remain will on I'll attractive that Sean focused long-term shareholders. mortgage

Sean Johnson

rates. of double-digit the improving and driven Thank to and number from CMBS improved resulting income stimulus optimism has markets, potential largest and rollout in continues by generally credit forbearance each proportion book rising indices of portfolio from you, Loan the were vaccines across conditions book rapidly. and Contributors Whole metrics across With to package. higher contributors Overall into our have in portfolio credit, The relative large to and continued universe holdings Jennifer. Non-Agency respect improve delinquency on an our loan the the valuations value equity were to new national holdings. the residential of and home our securities, price increase markets for improvement market risk This our residential been the our liquidity non-agency quarter, in of translated credit asset to portfolio a for size class. at our holdings net mortgages transfer rebound fourth Residential annual financial to the government and The been value.

residential than high fairly back on level soft dropping and rates most at to Our Non-QM origination low and forbearance conforming purchase as percentage year. extremely XX% effectiveness have forbearance focused period. last perform X% repayment less were see borrowers for XXXX, their continues in prioritize to from a a obligation. of the X% mortgage experienced and meaningful as in portfolio. We Nearly confirmation we to less equity loans are underwriting, originators the our that in the a a on than residential the of demand, payment high believe, on current The of of again well their them incentive of focus as in half saw. decline those loan that now creates portfolio mortgage for this of May total non-QM in year-end one And we strong loans credit we aren't part homes, plan, represent mortgage of market that of all by given that making loans, the the driven was where it a of refinance their remain of

with originators However, applications, once non-QM modest on in focus recent rise are refinance rates beginning production. to in a corresponding again and decline

We to these expect to to securitization. through opportunity to I'll to now with turn have discuss another over our the goal call in of the portfolio non-QM portfolio. financing commercial add quarters, the Greg? investments the coming our Greg,

Greg Handler

you, Thank Sean.

success. of to the to contributing I'm become to company's first future say team management senior of that and forward WMC Let honored look part the me

COVID full overcome by and challenges as in these the the that properties impacted has their will whole CMBS underlying operating vaccines the are COVID, lift and with fourth the overall particularly adversely flows be Non-Agency equity near-term Many both hotel the positive developments These properties our metrics, commercial COVID Non-Agency and lower loan during in reopening. loans assets. properties. valuations with quarter of eventually our a the cash outlook On to generally economy and and commercial the have portfolios retail restrictions assets, mortgage-backed on strong towards occupancy commercial other high-quality in We benefited the moves securities and sponsors. seen feel begin

So we been believe have collateral impaired. permanently the or that not materially values

and XX% all portfolio remains carries these one commercial but loans approximate Our current. an of mortgage loan-to-value original

$XX hotel loan, placed has in million recently borrower the the the bankruptcy. that is into On property default,

believe We in recourse portfolio, with legal and the there servicer the bankruptcy first high-quality payments we closely added we here million. of underlying been value majority by the and subject a the a capacity The strong be is is benefit this, of in a and in is interest will located XX% this and the no feel asset equity date, of with have working To of of the increased property Within to and only we received has there the foreclosure, the portion a principal mezzanine entertainment which process, The quarter. the to forward operating adversely with operate already of owned expect its property to retail XX% missed New loan we schedule. impacted ultimately impacted about to interest fourth property entertainment approximately behind portion meaningful the guarantee been this in special move pandemic that also also has and reasonable counsel. there is retail sponsor. likelihood although the the borrower. to junior The Jersey has at case. a year complex, the $XX recovered, prominent Because projected able that a the that of lease-up hold face the be a performance asset, quarter, will with value in is asset with

before unless is We end have that. we able raise interest that borrower the interest additional expect by fund to to from an reserve capital receive payments depleted continued to June, be of the

result, have down loan marked we just over to a As million. this of $XX value the

the to that significant stabilize before we asset, bringing the in able the equity recognize time refinance loan While still capital the there believe we still and stack. current being the value to property needs is borrower

have commercial XX%. Our Non-Agency exposures an been improve loans And large assets, of some improved flows cash some loan-to-value and to as delinquency to brought by has and mix a continued loan trends back retail hotel despite of mortgage-backed current infusions. equity original to portfolio

of the We eventual and working many continue real help preserve collateral – be believe to value commercial them be probability borrowers an order in involved of to actively sorry, in with recovery our protect to the we their estate of properties increase asset our continue to to with values.

as sponsors that significant there losses high-quality estate continue occur, appreciation, deteriorate. maintaining positioning well We believe commercial the to occur on to stall portfolio we on liquidity with capitalized and from our we pandemic, meantime, reopening should our remain economy our to remains believe the recover although could reopen. enable focused real conditions In sufficient continues focus future financial and the will should portfolio for the which and properties challenges

real, the rising CFO, focus I'll the over benefit our on call hard believe environment. reflationary Lisa interest to our assets exposure rate low current Meyer. that we and portfolio With turn the and in will Additionally, rate

Lisa Meyer

Greg. Thank you,

on we $XX.X is facility, plus million, From loan WMC discuss I the Before X.XX% has we financing benefited had quarter. it the financing fee. of which partners with premium million broader short-term an X.XX% mark-to-market facility to by recapture also improve borrowings significantly sheet to quarter liquidity secured limited At pandemic, there Since floor declined margin our end that XXXX, our financings. platform, at our the strategic our times year, eliminated at whole XXXX. to non-QM improvements in reduce debt our converting At March onset the was our senior of LIBOR October, arrangements notes LIBOR convertible interest to XXXX, at which improve December on to outstanding than repurchasing X.X facilitated of times daily of to by work and rate I the to has our December We results, our of level principal convertible XX, review a was fourth and times X.X leverage Asset $XX.X made December from wanted this of fourth notes XX, balance in facility we residential principal ability this Western amount to proactively the amended XX, average value. an down at million discount at $XX par the from its December million highest end the XXXX. recourse outstanding XX, at our X.X exposure the an XX% lower $XXX in our million, the of to recourse further with loans. $XXX balance mark-to-market our reduced XXXX, additional In a

earnings. to Moving

earnings provided We have our regarding our and and our both and presentation. press full year results great fourth detail portfolio in quarter our release

$X.XX I'm million of focus items only warrant to the earnings or some for going share We core explanations. that on So $X.X quarter. reported per additional

the higher the in core in million came third than Our quarter. generated earnings $X.X

earnings. outlook X.X% for per of a our to including our $X.XX dividend portfolio. Economic to will improved quarter increase of of enabled level core our number increased to core the per quarter on every book earnings value of be XX% Our the the core near-term based Future earnings, dependent the dividend share. us $X.XX We performance sustainability evaluate earnings our factors on of share. course our for

from in we our provides investors in It that believe value the our our not will to debt. to have our enable that our fair useful measure the metric the Arroyo liquidity, the interest increase and we may supplemental reopening financial to of evaluate financial and actions discussed summary, accounting In continue with As that mismatch this focus we the past, non-GAAP actual post-COVID. structure, investments us in capital on all our loans securitization where position. of and a reflects financial we arise participate the economy meaningfully solidify eliminates

we results to the that long-term ahead. open portion we and call margin with believe questions. significant interest financing, please will well-positioned financed improved in investment are financial a healthy Operator, net remains your we ahead. the our year by Our of With that attractive up now for go

Operator

we gentlemen, from at ahead question-and-answer from questions. Securities. comes [Operator And time, will and go first session. our Please begin question JMP the Trevor this Ladies with today Instructions] Cranston your

Trevor Cranston

morning. Thanks. Great. Good

You feel also guys maybe a do the Do a the And for that credit like thank little of if that parts What detail. discussion bit and well. spreads any within opportunities curious or I amount performance you appreciated of loan the in in lot you to CMBS changes you have there? recently there's that maybe in talked the near-term see perform a book upside deploy any more could CRE all portfolio? about of credit seen talk you've performance book? CMBS still of about that you elsewhere, continue significant lot was terms pretty portfolio a capital guys sell and to

Greg Handler

although in think question. been the seen commercial do it's trends positive news for the have we mortgage-backed asset spreads November. the been the have vaccine post the think And Thanks specific. I especially recover Sure. securities majority across very I of

as had In fact, the some had fourth we did that we portfolio positions quarter. in sales meaningfully have some recovered

total have So, that take reopening securities of we're forward. we meaningful the as obviously advantage potential other we we select the believe the landscape versus still return that But the the upside examine trade. feel going at did overall I instances. in opportunities in market looking from

constantly but we're So, evaluating market on conditions. that based

Trevor Cranston

if Okay, at able you us quarters. point mentioned Can over got to if to a place non-QM could that agreements before in or loans significant where the you're something volume that that have would it. be lenders you deploy some loans place flow still capital few remind you would And with again? reestablish also need acquiring become you start of some a next you

Sean Johnson

Yes COVID remain agreements place that place. a had And fact with we before purchase added agreements couple in we've of in it's the crisis Hey, Sean. originators in the agreements. all actually

offense that the opportunity We think on staying definitely we're an with So, there's there. non-QM. definitely

Trevor Cranston

guys. Okay. Appreciate the you Thank comments.

Operator

go [Operator JonesTrading. with Instructions] And Please our ahead from Jason question. next question Stewart your comes from

Jason Stewart

the in in of a a balance you if helpful. you could where that you growing comfortable Trevor's about materially think you're Hey non-QM? quick on that is put could When And would sheet, sort spot good follow-up number size morning. around you. A Thank think question. what be be it

Sean Johnson

Yes. Sure.

non-QM it to done think, we're As billion-sized grow. have right a now, the loans is past. like we'll find of but we we've targeting, the room it's don't $X quality that in to deal I difficult do do

did is we in range. $XXX one the to the $XXX million million like more be will it think I June, which

be the would then bring securitization that back in leverage leverage again. So increase that a would down in And a portfolio. small very

potential lower and we're keep going definitely to COVID at the we So until all the end fallbacks. clear of feel the leverage range, that, try through we

Jason Stewart

loss to that million was was investors more see we the is a makes that focusing continue the think could unrealized. compression number on, recapture, be potentially of that CMBS and of That sort sense. we look I $XX-odd it. market, then Is number should like broad that or there? spread if we when at of there it bigger recapture something part Got unrealized And Okay. in

Lisa Meyer

yes. balance related Honestly, sheet the to on unrealized portfolio. as as what losses have we far that That's

the be potential those positions. would that So, in upside

Jason Stewart

loan, hoping And – is in could to $XX equity debt would service date? to it. was any in color the the be terms Is additional of more a then of provide mezz cash? the If what little you bit the Got generating percentage kick had sponsors million I Any color. on property additional Okay. helpful.

Greg Handler

been the year. I Sure. The positive, debt be to has throughout improve that asset. the dramatically continues reopening can take the to fairly awaiting we one. XXXX for we service however, weak on expect do and coverage still financials and updated very are But that

all And and asset with in return is closely with with to sponsor property this working that, best are senior we're lenders the parties. and – to sponsor, the profitability. believes communication all positioned everyone We landmark

this coming not So optimistic, but case. deal, point, new if are that the we to is equity any at we the have seen

Jason Stewart

Okay.

So is capital restructuring here right-sized structure the end the puts and more the into June? of a of goal at scenario to end get a sponsor here it in sort equity of the debt

Greg Handler

is That the correct. is That case. Yeah.

Jason Stewart

Okay. more, then I'll All jump for Thanks right. that. and One out.

the sort timing first in occurring and process the of of like? look the can XXXX? something loan, is On for half hotel bankruptcy the see Is that the you foreclosures realistically it what

Greg Handler

to borrower. the could that We I think decide that, definitely eventual take with the has a negotiations plan. courts the to – remain provide in borrower the outcome the But until with June courts the extent

that good could to that, there's the So a outside quarter we good XXXX third negotiate it a courts, half it second can to event. of the the – But gets of I extent a second dragged chance more something scenario, think, courts. be

Jason Stewart

Thanks the questions. Appreciate the updates. for Okay.

Operator

of to Murphy the for end remarks. the question-and-answer that call over I'm closing today's gentlemen, like And ladies any conference reached I'd Jennifer and turn at time this to showing we've session.

Jennifer Murphy

your great a and Thanks for joining today, week. us of rest have

Operator

concluded. today's do you the now We conference and has for thank presentation. Ladies gentlemen, attending

You may your lines. now disconnect

Western Asset Mortgage Capital (WMC) 4 Mar 212020 Q4 Earnings call transcript