Great Ajax(US:AJX)2024-02-27 16:00Financial Agreements and Capital Structure - Great Ajax Corp. terminated its merger agreement with Ellington Financial, receiving $16.0 million in total, including $5.0 million in cash and $11.0 million for approximately 1,666,666 shares at $6.60 per share[27][29]. - The company entered into a Credit Agreement with Rithm, providing a delayed draw term loan facility of up to $70.0 million, maturing on February 25, 2025, with an interest rate of 10.0% per annum[33][34]. - Proceeds from the Credit Agreement will be used to repay outstanding 2024 Notes upon their maturity in April 2024[35]. - The Credit Agreement includes financial covenants, such as a minimum net asset value of $240.0 million plus 65% of positive net equity capital activity[36]. - The company entered into a securities purchase agreement with Rithm to issue shares of Common Stock at a price of $4.87 per share, resulting in gross proceeds of approximately $14.0 million[43]. - The company plans to use the net proceeds from the private placement for repayment of amounts borrowed under the Facility and/or repayment of the 2024 Notes[44]. - The company agreed to file a shelf registration statement with the SEC to register for resale the Shares and the Warrant Shares as soon as practicable[45]. - The company will issue an aggregate of 12,046,222 shares of Common Stock in exchange for outstanding Series A and Series B Preferred Stock[48]. - The company is limited to issuing up to 19.99% of its outstanding shares of Common Stock until stockholder approval is obtained[49]. Corporate Governance and Management - Great Ajax Corp. plans to reconstitute its Board of Directors to a five-member board, including two existing directors and three new members, subject to stockholder approval[38][39]. - The company will issue five-year warrants to Rithm at an exercise price of $5.36, representing a 10% premium to the trailing five-day average closing price[40]. - The number of Warrant Shares will be capped at 19.99% of the current outstanding Common Stock unless stockholder approval is obtained[42]. - The company has established investment guidelines that may be changed by the Board of Directors without stockholder approval[72]. - The company has a broad investment policy allowing the Manager significant discretion in asset selection, which may involve lower returns or higher risks than anticipated[73]. - The Board of Directors periodically reviews the investment policy but does not approve each investment unless it deviates from the approved policy or involves related parties[73]. - The company may change its business strategy and investment policy without stockholder consent, potentially increasing exposure to various risks[74]. - The company intends to raise additional funds through equity or debt offerings, with the Board having the authority to issue additional stock without stockholder approval[76]. Investment Strategy and Market Conditions - The company aims to generate attractive current yields and risk-adjusted total returns for stockholders through its REIT structure[52]. - The company targets a 5% and above return on Residential Performing Loans (RPLs) and a 7% and above return on Non-Performing Loans (NPLs)[56]. - The company focuses on acquiring loans in urban centers where home price appreciation is expected to outpace the national market[57]. - The company expects to borrow to finance acquisitions and may use leverage based on the Manager's assessment of financial conditions and market factors[77]. - Investments exceeding 15% of equity require approval from the Investment Supervisory Committee[78]. - The company may incur termination fees equal to the aggregate servicing fees payable under the Servicing Agreement for the preceding 12-month period if terminated[102]. - The company believes that loan re-performance followed by refinancing generates near-term cash flows and provides stable economic outcomes[105]. - The business model relies on acquiring a steady supply of RPLs and NPLs, with potential adverse effects from legislative actions and economic conditions[147]. Financial Performance and Risks - For the year ended December 31, 2023, the company incurred a net loss attributable to common stockholders of $49.3 million[132]. - The market value of the company's RPLs, NPLs, and SBC loans has significantly deteriorated, leading to substantial operating losses[132]. - The company expects to continue incurring significant and increasing operating losses due to current market conditions for mortgage asset holdings[132]. - Increasing interest rates have negatively affected the company's loan assets, extending duration and resulting in significant decreases in fair market value[133]. - A significant portion of the company's mortgage loans may become non-performing loans (NPLs), increasing the risk of substantial losses[140]. - The company primarily owns higher risk loans, which are more expensive to service and may incur higher compliance costs due to regulatory changes[141]. - The principal and interest payments on the company's retained MBS are not guaranteed, exposing it to increased credit risk[145]. - Difficult conditions in the mortgage and real estate markets continue to adversely affect the value of the company's assets and are expected to persist[138]. - Extended forbearance and foreclosure timelines may lead to lower yields and losses on mortgage loan portfolios[148]. - The ability to repay SBC loans is dependent on the net operating income of the underlying properties, which is subject to various risks[153]. - Concentration in specific geographic regions increases the risk of loss due to adverse local conditions[155]. - The company may face liabilities related to mortgage loans, including potential repurchase obligations if representations are breached[163]. - The company may face additional risks when acquiring portfolios of whole mortgage loans that include less desirable mortgage assets, potentially impairing performance and reducing returns[165]. Regulatory and Compliance Issues - The company operates in a highly regulated industry, and changes in U.S. federal, state, and local laws could materially affect its business and financial condition[20]. - The company has elected to treat GA-TRS as a taxable REIT subsidiary under the Code, impacting its tax obligations[21][26]. - The complexity and variability of U.S. federal, state, and local regulations may increase compliance costs and adversely affect operational expenses[191]. - Higher risk mortgage loans serviced by the Servicer incur increased servicing costs due to more frequent customer interactions and regulatory scrutiny[193]. - Legislative changes aimed at preventing foreclosures may reduce the value of mortgage loans and increase servicing costs, impacting financial performance[192]. - Stricter underwriting standards by agencies like Freddie Mac and Fannie Mae could complicate refinancing efforts[156]. Market Competition and Economic Factors - The company competes with larger mortgage and hybrid REITs, hedge funds, and other financial institutions, which may affect its market position[109]. - The company faces significant competition in acquiring targeted assets, including mortgage REITs, financial companies, and hedge funds, which may adversely affect its business strategy[210]. - Future actions by the Federal Reserve could have a material adverse effect on the company's financial condition and ability to pay distributions[217]. - Rising interest rates may reduce the availability of target assets for acquisition, adversely affecting the company's ability to generate income and pay dividends[187]. - Increased interest rates may hinder borrowers' ability to refinance existing mortgages, leading to decreased cash collections and extended resolution timelines[188]. Cybersecurity and Operational Risks - The company is highly dependent on third-party communications and information systems, and any system failures could disrupt business operations[212]. - Security breaches could compromise sensitive data and expose the company to liability, negatively impacting its reputation and operations[213][214]. - Cybersecurity incidents could result in data loss and increased costs, adversely affecting the company's business and results of operations[218].