Mfa Financial, Inc. Q1 FY2020 Earnings Call

Thank you for being here. Welcome to MFA Financial, Inc. First Quarter Earnings Conference Call. All participants are currently on mute. We will have a question-and-answer session later. I will now hand it over to Harold Schwartz. Please proceed.

Thank you, operator and good morning everyone, and thank you for your patience while we resolved 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 and 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 AM. I apologize for those of you who drew the short straw and got stuck in 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 three 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 transitioned to a remote work environment to address the operating risks associated with the global COVID-19 pandemic. That effort and commitment displayed by our entire team over the last three 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 23rd 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 three 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. We are grateful to our lending counterparts that stuck with us through three versions of forbearance plans. During April and May, we significantly reduced our balance sheet in an effort to raise liquidity and deleverage. 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. Our 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 home loan portfolio that traded in late April and closed in mid-May. While we realized a significant loss on the sale, we are 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 fragile funding, and the path forward would require more durable forms of financing. We also recognize 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 and negotiating a forbearance agreement while managing our balance sheet and liquidity, 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 continued to deleverage 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 1st, 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 within that day. We signed a 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 not to 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 senior secured notes. 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 12th, and exit from the current forbearance agreement on or before June 26th. 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 five-year period and we'll appoint a non-voting 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 have described for us, the first quarter of 2020 was literally a tale of two distinct and utterly different periods in time. January, February and the first two 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 had not changed by more than 3 points in the last two to three 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 16th and March 23rd, 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 2nd and $37 million during the week of March 9th. And during the months of December, January, and February we received a total of 6 margin calls, all related to factor changes with a total aggregate amount of $4 million. During those same three 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 16th, the dearth of liquidity made this difficult. We announced on March 24th that we had not met margin calls on March 23rd and that we had initiated forbearance discussions with our financing counterparties. As we began 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 31st 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 31st and provide some perspective on what we envision after funding of the Apollo and Athene transactions and exit from forbearance. Page 7 of the earnings deck shows portfolio activity from December 31st to March 31st and then again from March 31st to May 31st. As you can see from the pie charts, we have sold substantially all of our mortgage-backed securities and in our $6.6 billion portfolio, there's approximately 94% whole loans. This should not be a surprise as almost all of our portfolio growth and new acquisitions over the last two to three 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-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 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 of $2.4 billion, loans at fair value of $1.2 billion, fix and flip loans, $850 million, purchase credit impaired or lead performing loans $660 million, single family rental $500 million, season performing loans $150 million, and REL or real estate loans of $375 million. Looking forward, we will finance a significant portion of this portfolio through term, non-mark-to-market financing including securitization with a 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 through 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 interests, 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 to this income prior to the 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 REIT taxable 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 against 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. Other brief updates, at June 12th our unrestricted cash was $242 million, book value as of May 31st, GAAP book value is estimated to have increased by approximately 2% to 3% versus March 31st, economic book value is estimated to be flat versus March 31st. 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 March marks. This concludes my prepared remarks. Stacy, would you please open up the lines for questions.

And our first question will go to Doug Harter with Credit Suisse. Please go ahead.

Thanks. 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. Yes, it is slightly more expensive, but it's not that much more. The significant difference is that advance rates are lower, which requires more capital and results in overall less leverage. We're still in talks about fix-and-flip lines, so it's a bit too early to provide exact spread levels. We will definitely share that information during the second quarter earnings call. However, as I mentioned, the costs are not significantly higher than what we previously paid.

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

Sure. It's a bit early to provide specific figures, but we expect this to be finalized towards the end of June when the forbearance period concludes. A portion of these funds will go towards reducing some of the current repo lines, but it will amount to hundreds of millions of dollars. Therefore, we will have significant resources available to pursue new opportunities.

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

Good morning.

Morning, Stephen.

Good morning. To follow up on Doug's question, you mentioned during the prepared remarks that 60% of the financing, adjusted for the new non-mark-to-market facility, will be non-mark-to-market. With leverage at 1.9, is that the target level for you? Do you anticipate leverage decreasing from this point, or could it increase considering the changes and risks associated with the financing? How do you perceive the optimal portfolio size in the near term—should it be larger, smaller, or remain the same?

I certainly don't think it needs to be any smaller than it is today. I believe there is room to increase it somewhat. The leverage number could increase for several reasons. We still have a number of unencumbered assets to which we could add leverage, such as the REO portfolio, which is currently almost 100% unencumbered. Another avenue is through securitization, which allows us to achieve higher levels of leverage. Since it's termed out and non-mark-to-market, it represents a different type of leverage. I think it could potentially stabilize, but I don't see it returning to three times like before, when we were considered the lowest leveraged mortgage rate in the space. However, being within the twos is conceivable.

Thank you for the clarification regarding the Apollo announcement. I noticed the filing and wanted to follow up with Doug about the financing facility to gain more insight on the pricing for the new non-mark-to-market. I believe it is expected to close in about ten days. Will we see the pricing then, or will it be after that?

We plan to provide more clarity on our liability cost structure during the second quarter earnings call. We will have the Apollo and Athene numbers by the end of June, but some of the other financing may not be finalized yet. We are working quickly to solidify that. We also need to renegotiate MRAs with our existing lenders for the lending environment after the forbearance period. All of this will come together, but at a minimum, we will offer much more detailed information about the cost structure during the second quarter earnings call. Please note that these numbers will not be included in the second quarter results and will only begin to appear in the financial results from the third quarter onward.

Okay, that's helpful to think about that from timing. On the Athene commitment to buying bonds next year relation, can you give us any color on where the bonds are in the stack that they're committed to look at and when that securitization may come? I mean how should we think about the benefits to the MSA from that commitment?

So I think the benefits are pretty substantial. They would typically be on the bonds below AAA's. And as far as timing on that securitization, it's hard to say. We were literally one or two days in March from pricing a securitization on non-QM loans. So, suffice to say that the pools of the loans are 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 would really appreciate the color around REIT taxable income and carry spillover from last year and distribution dates. I guess the way I understand it is that while the losses on security sales can offset REIT ordinary income, the losses on the hedges and swaps can't 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, tried to what the losses were in line to the swaps, there was $170 million, maybe it'll 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 and unfortunately I don't have Terry Meyers on this call. Steve, I'm not sure if you know the answer to that or maybe, yes, we can get back on that one.

Yes, Craig, Steve’s questions are good ones. We mentioned in the press release that due to the unwound swaps, we have approximately $71 million of losses currently trapped in OCI. Right now, the liabilities we are hedging for accounting purposes have an average life of about 20 months. Assuming everything stays the same, those losses will be recognized over that timeframe for accounting purposes. The timing of loss recognition will depend on the assessment of the likelihood of the hedged items recurring in the future. This will ultimately influence when those losses are recognized for GAAP accounting and taxes. As we renegotiate financing, it could affect the timing of this recognition. Currently, based on our assessment, we expect these losses to be recognized over a 20-month period.

Correct, thanks for the color on that, appreciate taking my questions this morning.

Thanks Steve.

Thanks. We'll go to Rick Shane with JP Morgan. Please go ahead.

Hey guys, thanks for taking my questions and thank you for all of the disclosure and the timeline. It's very helpful. I just want to understand the Apollo work position a little bit better. Typically we talk about words in terms of coverage, what is the coverage in the context of the $500 million facility?

So it's disclosed in the 8-K. It's basically two 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 days 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 listening now, but that's helpful. Look, you guys talk about the, excuse me, 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 the 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 in 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.

Got it, very helpful. Hey, guys. Thank you very much.

Thanks Rick.

And we'll go to Kenneth Lee with RBC Capital Markets. Please go ahead.

Hi, thanks for taking my question. You mentioned that over time you're expected 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, you want to talk about that?

Recently, there has been significant demand for the senior part of the stack. As Craig highlighted in his remarks, spreads were quite wide as we entered March and April, but since May, we've seen a resurgence in securitization. Currently, spreads on the AAA are between 125 and 150. This indicates substantial pent-up demand following the two-month period of low issuance. Therefore, the outlook for the immediate near term appears quite positive.

Great, thanks. And just one follow-up, if I may. And it sounds like we would see this from financing facilities, as was the capital ways that 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 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? Thanks.

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 is 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 non-recourse, 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 two-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 and thank you very much.

And we'll now hear from Eric Hagen with KBW. Please proceed.

Hey, thanks. Good morning, everyone. Could you please share the current amount of unrealized loss in the portfolio and your thoughts on how much of that could potentially be recovered? Specifically, how much of the valuations on the loan side are related to liquidity issues rather than credit issues, and could those be recovered?

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

Sure, Craig. On the carrying value of loans affecting our economic book value, the current unrealized losses are approximately $160 million. If prices continue to recover, it's difficult to predict the extent, but for instance, a one-point increase in pricing could lower those losses by about $50 million. On the security side, due to our accounting treatment of the CRT Securities and MSR notes, we sold those securities and impaired them, adjusting the amortized costs at the end of March. If their prices increase, it's hard to estimate how much, but if they were to return to par over time, it could significantly impact our net book value by as much as $70 million. Therefore, while it's challenging to determine the exact recovery potential, the ongoing price recovery could positively affect our book value.

And Steve what about loan loss reserves?

Yeah, 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 special reserve is sort of heavily dependent on macroeconomic factors like unemployment and GDP. And, we have roughly $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 paying down as things progress. But that's another area where there could be some potential uplift in capital value moving forward.

Got it, that’s helpful detail. And 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 press 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 bonds. So I think, we'll look at that over time. But like I 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, you know, take it quarter by quarter and see.

It seems there are many moving parts with different facilities and what you are approaching. It sounds challenging, and I recognize that 40% of the funding work will be involved. Could you provide details on which assets the Repo will be funding and the terms? Is there any risk that it won't proceed as planned and that the remaining Repo will still barely be aligned with the market value?

So there's always danger that repo won't roll, although, we're down to six counterparties in the current forbearance plan and suffice to say, we're very familiar with all six of them and have had so many discussions with them about this. I think, to give you an example, I think 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 a slightly more durable financing out of daily mark-to-market financing.

Can you clarify where the repo will be located and what it will be used for? It seems that non-QM has secured funding at this stage. However, what I'm trying to understand is where you are beginning to seek potential term funding and which areas you might be struggling to secure term funding for?

I mean, we can get term funding, it is 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 a 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, not 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 non-performing loans are better suited to the existing facility with Barclays and Athene. But as far as re-performing 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…

Yeah, it doesn’t mean that we can pledge everything but there's a fair amount of flexibility.

Got it, hey thanks for the comments. Appreciate it.

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

Thanks. Hey, good morning everyone and sorry to be late getting in the queue. I had the code wrong. So first, just congratulations on the ReFi package. Two points there. Strong strategic partners and buyer mouth, 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 which you'd be paying on these two facilities the $500 senior secured and the borrowing facility, could you let us know what the payment terms are on those facilities?

Sure Steve, thanks for the question. Good to finally talk to you again. So, we talked about this earlier in the call. Well, 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 15 minutes.

As I mentioned earlier in the call, the financing is somewhat more expensive than what we previously paid. It's not significantly more expensive, but the advance rates on more durable financing are lower. This suggests that our overall leverage numbers, which we initially thought were quite low, will likely be a bit lower now. I indicated that our target future leverage would be in the low twos.

That's helpful, and we'll keep an eye on that. We can definitely include something in the model update for now. I'm closely considering your comments about the tax situation and the dividends. Given your efforts to address the forbearance and catch up on the press, it seems that the message you are conveying is that the Board definitely plans to re-establish a common dividend, and it's likely a requirement. My interpretation is that I will advise clients to look forward to the third quarter and the latter half of the year regarding the re-establishment of the common payout, allowing the company to fully address their repositioning first. That’s how I understood your comments. While you didn't specifically say there would be no second-quarter comment, it seems more logical to me that it makes more sense for the third quarter.

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

Okay, great. Well, listen, congrats. I know it's been a brutal, brutal three 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. Thank you.

Alright, 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.