UPDATE: MFA Financial (MFA) Reports Q1 Loss of $2.02; Announces $500M Capital Raise with Apollo (APO) and Athene Holdings (ATH)
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(Updated - June 16, 2020 8:36 AM EDT)
MFA Financial (NYSE: MFA) reported Q1 EPS of ($2.02), versus $0.19 reported last year. Revenue for the quarter came in at $145.46 million versus the consensus estimate of $152.3 million.
First Quarter 2020 financial results update:
- Unprecedented disruption in residential mortgage markets, due to concerns related to the COVID-19 pandemic, resulted in MFA generating a first quarter net loss of $914.2 million, or $2.02 per common share.
- As pricing dislocations in markets for residential mortgage assets accelerated in the second half of March, MFA sold approximately $2.1 billion of residential mortgage assets to generate liquidity, satisfy margin calls and reduce its leverage, realizing $238.4 million of losses for the quarter. In addition, overall asset prices declined materially during this period, resulting in significant unrealized losses and impairment charges on investments in the amount of $496.9 million for the quarter. Further, following an evaluation of the anticipated impact of the COVID-19 pandemic on economic conditions for the short to medium-term, impairment charges of $65.3 million were recorded on Other assets, including investments in certain loan originators.
- GAAP book value at March 31, 2020, was $4.34 per common share, while Economic book value, a non-GAAP financial measure of MFA's financial position that adjusts GAAP book value by the amount of unrealized market value changes in residential whole loans held at carrying value for GAAP reporting, was $4.09 per common share at quarter-end.
- Subsequent to the end of the first quarter, we continued to reduce leverage through disposals of an additional $3.2 billion of assets, including $2.4 billion of residential mortgage securities and MSR Notes and $0.8 billion of residential whole loans, which has had a positive net impact on second quarter results to date.
Third party capital raise and committed term borrowing facility:
- MFA announced today a $500 million capital raise through a private senior secured loan agreement to be funded by certain funds and accounts managed by subsidiaries of Apollo Global Management, Inc. (NYSE: APO) (together with such funds and accounts), including subsidiaries of Athene Holding Ltd. (NYSE: ATH), to which Apollo provides asset management and advisory services.
- The Company is entering into commitments for a non-mark-to-market term borrowing facility of approximately $1.65 billion from Barclays and Athene.
- Apollo and Athene have committed to purchase the lesser of 4.9% or $50 million of the Company's common stock in the open market over a 12-month period.
- Athene has committed to purchase a portion of the Company's first securitization of Non-QM mortgage loans, subject to certain pricing conditions.
- Finally, in connection with the transactions, Apollo and Athene will receive a warrant package to purchase shares of the Company's common stock at varying prices over a five-year period.
- The Company expects that this capital raise and borrowing facility will enable it to exit the previously announced forbearance agreement entered into on June 1, 2020, and pay accumulated unpaid dividends on its Series B and Series C preferred stock issues.
- The transactions are subject to the completion of definitive documentation relating to the term borrowing facility, completion of documentation relating to the exit from forbearance with the Company's existing repurchase agreement counterparties, and other customary closing conditions.
On the third party capital raise:
Craig Knutson, MFA's CEO and President said, "We are thrilled to enter into this strategic relationship with Apollo and Athene, which we think is a testament to MFA's franchise and our dedicated team. In addition to bolstering our balance sheet and providing MFA with additional flexibility, we view the capital raise as very much a strategic alliance. We believe that Apollo's deep institutional relationships, together with Athene, will provide synergies that will assist us in our business. With approximately $1.65 billion of committed term non-mark-to-market financing for our whole loan portfolio, we can allow asset prices to continue to recover as we look to securitizations to further term out a portion of our financing. After a very difficult year so far, we are committed to continued efforts to generate future long-term value for our shareholders with Apollo and Athene as strategic and significant shareholders."
Neil Mehta, Partner at Apollo, said: "We are pleased to enter into this strategic relationship with MFA, which highlights the breadth and depth of the Apollo franchise as a capital solution provider across Athene and Apollo's credit, private equity and real assets segments, and across the risk-return spectrum." Nancy De Liban, Senior Partner and Head of Consumer & Residential Credit at Apollo, added: "We believe MFA has a high-quality portfolio of residential credit, and with greater capital and an industry-leading financing structure, MFA will be well positioned to deliver long-term value."
For earnings history and earnings-related data on MFA Financial (MFA) click here.
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