MFA Financial Inc (MFA) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc., first quarter earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to Hal Schwartz. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for your patience while we resolve some technological issues on our end.

The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would or similar expressions are intended to identify forward-looking statements.

All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors, including those described in MFA's annual report on Form 10-K for the year ended December 31, 2019, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties and other factors could cause MFA's actual results to differ materially from those projected, expressed or implied in any forward-looking statements it makes.

For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's first quarter 2020 financial results. Thank you for your time.

I would now like to turn the call over to MFA's CEO and President, Craig Knutson.

Thank you, Hal. Good morning, everyone. Little did I know that I would have to compete for airtime with Jerome Powell, who is testifying in the Senate at 10:00 AM. I apologize for those of you who view the short straw and get stuck on our call. I'd like to thank you for your interest in and welcome you to MFA Financial's First Quarter 2020 Financial Results Webcast.

Also dialed in with me today are Steve Yarad, our CFO; Gudmundur Kristjansson and Bryan Wulfsohn, our Co-Chief Investment Officers; and other members of senior management.

Our format this morning will be slightly different from our customary earnings call. We have an earnings presentation on our website and filed as part of an 8-K filing this morning. But unlike our usual earnings calls, this deck will not scroll on the webcast, and we will not follow the earnings deck page by page as we typically do. I encourage you to open the presentation as I will refer at times to various pages in the deck as I deliver prepared remarks before opening up the call to questions.

Before we begin, I want to give a shout out to our entire MFA team. The last 3 months have obviously been extremely challenging and made exponentially more so by the fact that all of our efforts have been remote. The company fully implemented our business continuity plan during the third week of March and successfully completely transitioned to a remote work environment to address the operating risks associated with the global COVID-19 pandemic. The effort and commitment displayed by our entire team over the last 3 months has been extraordinary, and I've been humbled by their dedication. Before we discuss the first quarter of 2020 financial results, which, frankly, at this point, seems like ancient history, I'd like to spend some time discussing what other important work streams have been taking place at MFA since March 23, and I think it will be obvious why we've been silent on so many of these activities.

These critical efforts have been comprised primarily of 3 things: one, forbearance; two, balance sheet and liquidity management; and three, sourcing third-party capital. We have issued several press releases, chronicling forbearance agreements with various of our lending counterparties, and we are presently in the third forbearance plan, which extends to June 26. As arduous as these forbearance agreements have been to negotiate and operate through, they have provided us with the time to manage our balance sheet and liquidity while also working to source third-party capital. And we are grateful to our lending counterparties that stuck with us through 3 versions of forbearance plans.

During April and May, we significantly reduced our balance sheet in an effort to raise liquidity and de-lever. Importantly, because we entered into these forbearance plans, we were able to manage our balance sheet in a more judicious fashion given the time allowed through forbearance.

Many of our asset sales, particularly on mortgage-backed securities, were at prices significantly higher than the price levels that existed in late March. Sales during the month of April alone of Legacy Non-Agencies, CRTs and MSR-related assets generated over $150 million of realized gains versus March 31 marks.

Now while still down significantly from values at the end of February, the patience permitted through forbearance enabled us to work hard to lessen book value erosion. We were also able to manage the sale of a large Non-QM whole loan portfolio that traded in late April and closed in mid-May. While we realized the significant loss on this sale, we were confident that we achieved a much better execution by controlling and managing the trade than we would have realized had the lender just liquidated the pool. In the end, all of our lenders will have been fully repaid with no deficiencies, which is another of the design goals of the forbearance plan. It was clear to us in late March that our situation was not due to bad assets, but to fragile funding, and the path forward would require more durable forms of financing.

We also recognized that term financing, margin holiday and/or non-mark-to-market financing would necessarily require higher haircuts, and therefore, more capital. Our method for seeking third-party capital began somewhat passively during the last week of March with fielding incoming indications of interest. As this process intensified with more and more parties together with negotiating NDAs and then responding to voluminous data requests, all the while with our hair on fire negotiating a forbearance agreement while managing our balance sheet and liquidity, and we engaged Houlihan Lokey at the end of March to manage this process for us. Initial indications of interest from a number of capital providers came back in mid-April, but as we continue to de-lever and raise liquidity, it became evident that our third-party capital needs had already changed. We extended our initial forbearance agreement at the end of April to June 1. And as we entered May, we began to obtain better price discovery, particularly on our loan portfolio, which gave us more clarity as to our path forward. We sought a second round of proposals from third-party capital providers in mid-May. And as we held due diligence and informational calls with many of these institutions, we found that there was a competitive dynamic at work and a keen interest in pursuing a transaction with MFA.

We signed the term sheet over Memorial Day weekend and have been working since to negotiate and document this agreement. For obvious reasons, we could not communicate publicly about these activities, and it was frustrating to not be able to provide the public disclosure and transparency on which we pride ourselves. We signed these agreements last night, and we're happy to announce today that we have entered into an agreement with Apollo and Athene, an insurance company affiliate of Apollo, to raise $500 million in the form of a senior secured note. But this $500 million note is only part of a holistic solution for MFA and a very strategic partnership with Apollo and Athene.

Apollo and Athene together have arranged a committed term borrowing facility with Barclays of approximately $1.65 billion that includes over $500 million for participation from Athene. This term non-mark-to-market facility will provide us with durable financing for a large portion of our loan portfolio. In addition, Athene has committed to purchase, subject to certain pricing conditions, a portion of our first securitization of Non-QM loans. And finally, Apollo and Athene are engaged with another of our lenders to structure an additional similar lending facility for our fix-and-flip portfolio in which Athene also intends to participate.

Pro forma for these facilities, approximately 60% of the company's financing will be in the form of non-mark-to-market funding, providing shareholders with significant downside protection in the event of future market volatility. We expect that upon closing and funding of these transactions, we'll be able to satisfy remaining margin calls, which were only $32 million as of June 12 and exit from the current forbearance agreement on or before June 26. We also anticipate using some of the proceeds to pay accumulated unpaid dividends on our Series B and C preferred stock issues. And finally, we expect that this transaction will provide us with substantial capital to once again begin to pursue attractive investment opportunities.

As part of this transaction, Apollo and Athene will receive warrants to purchase MFA common stock at varying prices over a 5-year period and will appoint a nonvoting observer to our Board of Directors.

Apollo and Athene have also committed to purchase the lesser of 4.9% or $50 million of MFA stock in the open market over the next 12 months. We are extremely excited about this transaction, which we consider to be much more than a capital raise and very much a strategic alliance. Details of the specific terms of the credit agreement are provided in an 8-K that we filed this morning.

Moving on to the financial results for the first quarter of 2020. As others had -- have described before us, the first quarter of 2020 was literally a tale of 2 distinct and utterly different periods in time. January, February and the first 2 weeks of March were very normal and a good start to the new year. And in only a few days, the financial markets and the mortgage market, in particular, completely collapsed. With the onset of the COVID-19 pandemic, pricing dislocations for markets and residential mortgage assets was so extreme that liquidity evaporated, prices of Legacy Non-Agencies, which has not changed by more than 3 points in the last 2 to 3 years were suddenly lower by 20 points. CRT securities dropped as much as 20 to 50 points, and MSR-related asset prices were lower by 20 to 30 points, all in a few days. MFA received almost $800 million in margin calls during the weeks of March 16 and March 23, and over $600 million of these were on mortgage-backed securities.

In contrast, we received $7 million of margin calls on these portfolios during the entire week of March 2 and $37 million during the week of March 9. And during the months of December, January and February, we received a total of $6 million margin calls, all related to factor changes with a total aggregate amount of $4 million. During those same 3 months, we initiated 10 reverse margin calls totaling $14 million, meaning we received net $10 million more from our lenders due to price increases. While we began selling assets during the week of March 16, the dearth of liquidity made this difficult. We announced on March 24 that we had not met margin calls on March 23 and that we had initiated forbearance discussions with our financing counterparties.

As we begin these negotiations, we continued to sell assets to raise liquidity and reduce leverage. Our first quarter financial results were profoundly affected by realized losses, impairment losses, unrealized losses on loans accounted for at fair value, provisions for credit losses under the new CECL standard and valuation adjustments on assets designated as held for sale and resulted in a loss of $914 million or $2.02 per share. Book value decreased to $4.34 per share at March 31, and economic book value decreased to $4.09 per share.

Page 9 of the earnings presentation provides detail of some of these items, together with the additional information section of the presentation beginning on Page 13. Steve Yarad will be available to discuss the financial results from the first quarter during the question-and-answer session.

I would now like to spend some time discussing balance sheet changes since March 31 and provide some perspective on what we envision after funding of the Apollo and Athene transaction and exit from forbearance.

Page 7 of the earnings deck shows portfolio activity from December 31 to March 31 and then again from March 31 to May 31. As you can see from the pie charts, we have sold substantially all of our mortgage-backed securities and our $6.6 billion portfolio is approximately 94% whole loans. This should not be a surprise as almost all of our portfolio growth and new acquisitions over the last 2 to 3 years has been in whole loans. Mortgage-backed securities are admittedly more liquid and were, therefore, easier to sell, but we saw improvement in securities pricing through April and May, whereas loan pricing changes were less defined and slower to occur, both on the way down and on the way back up.

More importantly, it is more difficult to get non-market -- non-mark-to-market financing on mortgage-backed securities than it is on loans due to certain regulatory issues. So the decision was relatively easy. We view loans as generally more attractive assets and -- than securities and loans are more conducive to more durable financing arrangements. In rough numbers, our whole loan portfolio today is comprised of Non-QM loans, $2.4 billion; loans at fair value, $1.2 billion; fix-and-flip loans, $850 million; purchase credit impaired or reperforming loans, $660 million; single-family rental, $500 million; seasoned performing loans, $150 million and REO or real estate owned of $375 million.

Looking forward, we will finance a significant portion of this portfolio through term non-mark-to-market financing, including securitization. With the committed $1.65 billion in our existing securitizations of approximately $500 million, we will have over $2 billion of such financing. And as mentioned previously, we are working on a similar committed line with Athene and another dealer for our fix-and-flip portfolio.

We will continue to pursue securitization, particularly for Non-QM loans. Spreads for AAA securities widened out from the 100 area, that's 100 over swaps in early March to as wide as plus 400 at the depth of the crisis, but they've been slowly grinding tighter and are now back to mid-100 levels. We expect that following the closing and funding of these transactions we will be able to declare and pay the accumulated dividends on our Series B and Series C preferred stock issues.

As we have disclosed previously, the terms of the forbearance agreement prohibited payments of dividends on any equity interest, including preferred stock. Once the preferred stock dividends are current, we will no longer be prohibited from paying a common dividend. As far as the dividend on MFA's common stock, the Board of Directors will determine our dividend policy going forward. While we do not provide guidance as to expected future dividends, I will share several pertinent facts that will clearly be given consideration in framing dividend discussions with the Board.

One, we presently have undistributed REIT taxable income from 2019 of $0.05 per share. In order to avoid paying corporate income tax, we are required to declare a dividend for this income prior to filing of our 2019 REIT tax return, which we do in October of this year and pay such dividend before the end of the year. Two, estimated retaxable income or ordinary income for the first quarter of 2020 is approximately $0.10 per share. In order to avoid paying a 4% excise tax on this amount, we are required to declare dividends in 2020 for at least 85% of our estimated 2020 REIT taxable income. And three, capital losses, again, for tax purposes, generated from sales of residential mortgage assets to date in 2020 are carried forward and offset future capital gains. However, these capital losses do not offset ordinary REIT taxable income. While we cannot forecast ordinary REIT taxable income for the balance of 2020, any such income generated will be added to the $0.10 in the first quarter in determining the threshold necessary to avoid the 4% excise tax.

One other brief update. At June 12, our unrestricted cash was $242 million. Book value as of May 31 -- GAAP book value is estimated to have increased by approximately 2% to 3% versus March 31. Economic book value is estimated to be flat versus March 31. This is primarily because carrying value loan marks were lower in April than in March. And while we have seen some appreciation from April to May, the May loan marks for carrying value loans, which is what determines economic book value for the difference between GAAP and economic book value, those marks are still below the margin marks.

This concludes my prepared remarks. Stacy, can you please open up the lines for questions?

(Operator Instructions) And our first question will go to Doug Harter with Crédit Suisse.

Can you just talk about the non-mark-to-market facility? I guess how should we think about the incremental cost to have that added protection of non-mark-to-market?

Sure, Doug. Thanks for the question. So without -- yes, it is slightly more expensive, although it's not really that much more expensive. The bigger difference is the advanced rates, as you can imagine, are lower. And so hence, the reason for more capital and overall -- less leverage overall. But without -- and we're still in the process of negotiating a fix-and-flip line. So it's a little bit too early to give you exact spread levels. We'll definitely do that on the second quarter earnings call. But like I said, they're not that much more expensive than what we used to pay.

All right. And you mentioned in your prepared remarks that with the new capital, you might be able to take advantage of investment opportunities. Is there any way you could size how much kind of available liquidity you think you would have to invest following kind of all the actions you've taken?

Sure. Again, it's a little preliminary because there's this probably -- this will likely fund at the end of -- towards the end of June when we get to the end of the forbearance period. And some of that will be used to pay down some of the existing repo lines. But suffice to say, it will be hundreds of millions of dollars. So it will be substantial dry powder to look for new opportunities.

And we'll go to Stephen Laws with Raymond James.

To follow up on Doug's question, I think you commented during the prepared remarks, 60% of the financing once you pro forma for the new non-mark-to-market facility will be non-mark-to-market. Leverage was 1.9. Is that about where you want to be? Do you see the leverage going down from here? Does it go up from here or give a shift in the risk around the financing? Kind of how do you view this optimal portfolio size here for the near term, either bigger, smaller or staying the same?

I don't -- I certainly don't think it needs to be any smaller than it is today. I think there's room to increase it somewhat. I think the leverage number could increase somewhat for several reasons. We still have and will have a number of unencumbered assets, which we could add leverage to. An example of those would be the REO portfolio, which right now we're essentially 100% unencumbered. The other is through securitization. Effectively, we get higher levels of leverage through securitization. And because it's termed out and it's non-mark-to-market, it's a different type of leverage. So I think it could tick hard. Do I see it going back up to 3x where it was before, where we used to say that we were the lowest levered mortgage REIT in the space? Probably not, but certainly within the -- in the 2's is conceivable.

Great. And a couple of things around the Apollo announcement. I saw the filing, and I assumed, again to follow up Doug, the financing facility will get more clarity on pricing there on the new non-mark-to-market. I think it's expected to close January -- 10 days from now. So is that when we'll see pricing? Or will it be after that?

I think what we probably do is endeavor to provide more clarity on our liability cost structure on the earnings call for the second quarter. We'll have the Apollo, Athene numbers, obviously, at the end of June, but some of the other financing may not completely be in place yet. So we're moving as fast as we can to solidify that, we need to renegotiate MRAs with our existing lenders for the post-forbearance lending environment. And so all that will come into place. But at a minimum, we'll provide much more robust disclosure on that cost structure on the second quarter earnings call. And again, keep in mind that none of those numbers will be reflected in the second quarter, so that we won't even begin to be reflected in financial results until the third quarter.

Okay. That's helpful to think about that from timing. On the Athene commitment to buying bonds next securitization. Can you give us any color on where the bonds are and the stacks that they're committed to look at? And when that securitization may come? I mean how should we think about benefits to MFA from that commitment?

So I think the benefits are pretty substantial. They would typically be on the bonds below AAAs. And as far as timing on that securitization, it's hard to say. We were literally 1 or 2 days in March from pricing a securitization on Non-QM loans. So suffice to say, the pools of the loans have teed up to securitize. So we're going to move ahead with that as quickly as we can.

Great. And last question, I think, for me, I really appreciate the color around REIT taxable income and carry spillover from last year in distribution dates. I guess what we understand it is that while the losses on security sales can offset REIT ordinary income, the losses on the hedges and swaps can since that's considered part of financing and can offset ordinary income. So I guess first, am I correct with that statement? And if so, can you quantify? I believe I wrote it down -- I tried to. What the losses were on the -- on line with the swap thing was $170 million, maybe that will be amortized in the interest expense over 20 months, I believe. Is that all going to be able to offset ordinary income this year? Or does it carry over next year as well?

So it's a good question. Unfortunately, I don't have Terry Meyers on this call. Steve, I'm not sure if you know the answer to that or maybe we could -- we can get back offline.

Yes, Craig. Steve's question is a good one. I think we disclosed in the press release that as a result of the unwind of the $4.1 billion of swaps, we have roughly, I think, $71 million of losses that are currently trapped in OCI.

That's right.

And so the -- right now, if those -- the liabilities that they were hedging for accounting purposes, the swaps have a 20-month sort of average life. So all things staying as they are right now, those losses will be recognized for accounting purposes over that period of time. It's going to depend on assessment of whether those hedged items will -- the probability of those hedge items recurring in the future. And that will ultimately determine the timing of when those losses are recognized for GAAP accounting purposes and also ultimately for tax. So based on how that assessment plays out, as we renegotiate financing, it could impact the timing of that. So that will remain to be seen as to exactly when that -- those losses are recognized in GAAP income and taxable income. But right now, it's not -- it's based on the assessment that we've done, it would be recognized over about a 20-month period.

We'll go to Rick Shane with JPMorgan.

Thank you for all of the disclosure and the time line. It's very helpful. I just want to understand the Apollo warrant position a little bit better. Typically, we talk about warrants in terms of coverage, what is the coverage in context of the $500 million facility?

So it's disclosed in the 8-K. It's basically 2 warrant packages, a total of 7.5%. And the pricing was struck when the term sheet was signed, although coincidentally, I think the blended exercise price of the warrants is approximately equal to the 60-day VWAP of the stock.

Got it. Okay. That's helpful. And I did not see that in the 8-K. There's a ton of material this morning. So I apologize for missing that, but that's helpful. Look, you guys talk about the strategic nature of the partnership. Obviously, Apollo from a funding and financing perspective is a global leader. They also, frankly, have some history in this space strategically. I'm curious if you see it really as more of a funding relationship or ultimately more of a partnership in terms of asset gathering as well.

I mean frankly, I think it's probably both. I think you've already seen with Athene that Athene has leaned in to lend us money and to lend us attractive term non-mark-to-market money. They're doing the same thing with another dealer on our fix-and-flip portfolio. They're purchasing subordinate bonds and securitizations that we do. I think Athene is obviously a buyer of mortgage assets. So I think we view it very much as a partnership. Within the Apollo complex, there's also an originator, AmeriHome. So I think it remains to be seen where all the possible synergies are. But we think it's very much a strategic relationship, and it's certainly more than just funding.

We'll go to Kenneth Lee with RBC Capital Markets.

You mentioned that over time you're expecting to finance more of the residential whole loans through securitizations. Wondering if you could just give us some color on the current environment that you're seeing in terms of securitizations?

Sure. Bryan, do you want to talk about that?

Yes, sure. Actually, for recent times, there has been a fair amount of demand for the senior part of the stack. As Craig was mentioning in his prepared remarks, you saw spreads really widen out going into March and April. But from May -- and then you've really seen sort of the return of securitization. And now you're seeing sort of spreads on the AAAs anywhere between 125 and 150 at the moment. So there seems to be a lot of pent-up demand from the lack of issuance over that 2-month period. And so there's a lot of demand for the securities. So we're -- the outlook on that, at least in the immediate near term, is pretty positive.

Great. And just one follow-up, if I may. And it sounds like with the term financing facility as well as the capital raise the liquidity position and the general resiliency of the company has been improved significantly. But wondering, with 60% of the portfolio, as you mentioned, now being financed through a non-mark-to-market, is there any way you could just sort of like give us a sense or better yet frame how strong this liquidity position is in terms of being able to withstand any kind of potential market volatility going forward?

Sure. Well, we think it's a substantially more bulletproof financing structure. Given additional liquidity and given the non-mark-to-market nature, we think it's very durable. To your point about the securitizations, I think as some of these securitizations occur, those are loans that will go off those lines because they'll be part of the securitization. And even at current levels, which are 25 or maybe 30 basis points wider than where they were in early March, they're still very attractive levels given how low swap rates are. So I think -- and obviously, the securitization is completely nonrecourse, non-mark-to-market. So I think we're in a substantially better situation. Also keep in mind that, as I said, there were $800 million of margin calls over a 2-week period and $600 million of that was mortgage-backed securities. And our mortgage-backed securities portfolio at this point is very small. So it really was the securities portfolio ironically that caused so much of the pain rather than the loans. And yes, the loans did decline in value, but the loan value decline happened over a much longer period of time. And it was nowhere near as deep as the securities value declines.

Great. That's very helpful. Appreciate it.

(Operator Instructions) And we'll go to Eric Hagen with KBW.

Hope you're all doing well. Can you just tell us the amount of unrealized loss that's remaining in the portfolio now? Like how much of that, I guess, do you think can be recovered? I mean how much of those marks on the loan side are due to things like liquidity that aren't necessarily credit-related or explicitly credit-related and can be recovered?

Sure. Good question. Steve, do you want to tackle that?

Sure, Craig. So on the carrying value loans, which impacts our economic book value, the losses on those at the current position at the end of May, they're in an unrealized loss position of roughly $160 million. And to the extent that prices continue to recover, it's hard to say how much they could recover due to liquidity or whatnot. But this -- as an example, if there was a 1-point increase in pricing across that portfolio, that would reduce those losses by roughly $50 million. And similarly, on the securities side, because of the way we did the accounting on the CRT securities and the MSR notes, right? We're selling those securities, and we impaired those securities and adjusted the amortized costs at the end of March. If there's increases in those prices, again, hard to suggest how much that might be, but as -- just as an example, if they were to revert the par over time, there would be a fairly substantial impact on our book value as much as $70 million if they were to revert the par. So that would have an increase, significant increase impact as well. So hard to say exactly how much recovery could occur, but there could certainly be some uplift in the book value as a result of continued recovery in those prices.

And Steve, what about loan loss reserves?

Yes, that's the other thing. I mean obviously, we applied CECL in the first quarter for the first time, probably the worst possible timing to apply an accounting standard that was really based on projection of future losses. So we obviously took some significant reserves on our carrying value portfolios. And we used, I think, prudently conservative assumptions. The CECL reserve is sort of heavily dependent on economic factors like unemployment and HPA. And we have roughly $140 million -- $140 million to $150 million of CECL reserves. So if our assumptions are a little too conservative, perhaps. I don't know if they will be or they won't be able to depend over time how things progress, but that's another area where there could be some potential uplift in GAAP book value moving forward.

Got it. That's helpful detail. I'm wondering how you guys are thinking about the shape of the capital structure here. I think the intention when you guys raised the preferred in February was to retire the baby bond and maybe some of the crap or maybe have that backwards. But I mean, what's the plan here? Is there still some capacity to be able to do that? Or just your overall thoughts on, I guess, the shape of the capital structure.

So I think we're pretty happy with the shape of the capital structure. I think the timing of that Series C was such that the world changed very quickly in the course of a few days. And so we did not end up calling the baby bond. So I think we'll look at that over time. But we'd like to say, we're not unhappy with our capital structure at this point. I don't think it's overly heavily weighted towards preferred certainly. So we'll just sort of take it quarter-by-quarter and see.

Okay. And I know that there's a lot of, I guess -- it feels like there's moving pieces with the various facilities and what you guys are on the brink of it sounds like obtaining. And I know that 40% of the funding book will be repo, but can you give us detail on what assets that repo will be funding? And what's the terms? I mean is there any risk that, that doesn't roll? And are they all still daily mark-to-market on the remainder -- that remaining repo?

So there's always danger that repo won't roll. Although we have -- we're down to 6 counterparties in the current forbearance plant and suffice to say we're very familiar with all 6 of them and have had many discussions with them about this. I think to give you an example, I think some of the -- and some of the way that we create a little bit more durable financing on, let's say, loans, for instance, is even if it is a daily mark-to-market, if the permitted advance rate is, let's say, 70%, which is probably lower than it used to be, but let's say the permitted advance rate is 70%. If we -- instead of borrowing 70% if we borrow 65% or even 60%. It creates a little bit of a margin holiday in that the price of the loans could decline, but it wouldn't generate a margin call until you actually made up the difference between the actual borrowing rate and the advance rate. So that's one way to create slightly more durable financing out of daily mark-to-market financing.

Right. Can I press you for where that repo is going to be seeing and what it's going to be funding? I mean it sounds like maybe the Non-QM has committed funding at this point. But where -- I guess, what I'm asking is, were you still trying to tie up some potential term funding? Where you not able to get term funding on potentially?

I mean we can get term funding. It's just a question of we have more loans than we have term funding. So we just have to figure out how to allocate. So I think substantial portion of Non-QM will be termed out, non-mark-to-market, but a substantial portion will be more traditional as well. I think, as I mentioned, the goal is to put this facility in place for fix and flip, which will be term non-mark-to-market, and that would be for that whole portfolio. The rest of the loan portfolio is spread around. I think more of the nonperforming loans are better suited to the existing facility with Barclays and Athene. But as far as reperforming and season performing, they're all somewhat fungible.

Okay. And there's flexibility for what you guys can pledge on the line with Apollo and Athene and Barclays? Or is it pretty strict.

No, it doesn't mean that we can pledge everything, but there's a fair amount of flexibility.

And we'll go to Steve Delaney with JMP Securities.

Sorry to be late getting in the queue. I had the code wrong. So first, just congratulations on the refi package. 2 points there, strong strategic partners and by (inaudible), it looked like the dilution from the warrants was far less than we've seen in some other financing. So great job on that. Craig, can you -- I guess, eventually, we'll see this, but just quickly trying to run through the 8-K. I didn't see a reference to the rate index? Or what you'd be paying on these 2 facilities, the $500 million senior secured and the borrowing facility? Could you let us know what the payment terms are on those facilities?

Sure. Thanks for the question, and good to finally talk to you again. So we talked about this earlier in the call. We'll report more robustly on the cost structure of our liability structure when we report our second quarter earnings, if not in the 8-K. So don't kill yourself looking for it?

Okay. I stopped after a few minutes.

But as I said to another question earlier on the call, it is somewhat more expensive than what we used to pay for financing, but it's not much more expensive. It's the advance rates on more durable financing are obviously lower. And so the implications are that overall leverage numbers, even though we thought our leverage was pretty low and poor, will probably be somewhat lower. So I guided to the -- somewhere in the 2s earlier (inaudible) sort of target future leverage?

All right. That's helpful. And we'll keep an eye out for that. We can certainly plug something in the model update for now. And I listened closely to your comments about the tax situation and the dividends. And just given where you are with trying to clean up the forbearance and catch up on the press, it struck me that the message you were sending is that the Board certainly intends to reestablish a common dividend. In fact, you likely will be required to. But my read on it is, and what I think I'm going to advise clients that ask is look forward maybe to 3Q in the second half of the year as far as the reestablishment and let the -- for a common payout and let the company completely clean up their repositioning. And that's -- I'm just a -- that's the way I think I heard your comments, and you didn't say that specifically that there would be no 2Q common but it seems more likely to me that it makes more sense in the third quarter?

Again, you're right. I didn't say that specifically, but I think your count is probably well-founded.

Okay. Great. Well, listen, congrats, I know it's been a brutal 3 months, but congratulations on getting through it, and we'll all live to fight another day.

Thanks a lot, Steve. Good to talk to you.

And at this time, there are no questions in queue.

All right. Thanks, Stacy. So thanks, everyone, for joining us. We look forward to speaking with you again fairly soon in early August to talk about the second quarter. Thanks again.

Thank you, ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference service. You may now disconnect.