Ready Capital Corp 8-K/A, filed Jun 1, 2021
Ready Capital Corp (RC)
About this 8-K/A
Ready Capital Corp filed this 8-K/A on June 1, 2021, reporting on events of March 19, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date Earliest Event
reported):
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
(
(Address, including zip code, and telephone
number,
including area code, of registrant’s principal executive offices)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
EXPLANATORY NOTE
On March 19, 2021, Ready Capital Corporation (“Ready Capital”) filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission (the “SEC”) in connection with the consummation on March 19, 2021 (the “Closing Date”), of the transactions contemplated by that certain Agreement and Plan of Merger, dated as of December 6, 2020 (the “Merger Agreement”), by and among Ready Capital, RC Merger Subsidiary, LLC, a wholly owned subsidiary of Ready Capital (“Merger Sub”), and Anworth Mortgage Asset Corporation (“Anworth”). Pursuant to the Merger Agreement, on the Closing Date, Anworth merged with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Merger”). This Current Report on Form 8-K/A is being filed to amend the Form 8-K to provide the financial statements and pro forma financial information described below, in accordance with the requirements of Item 9.01 of Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The required audited consolidated financial statements of Anworth as of December 31, 2020 and December 31, 2019 and for each of the years ended December 31, 2020, December 31, 2019 and December 31, 2018 are filed as Exhibit 99.1 and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The required unaudited pro forma condensed combined financial information with respect to the Merger is filed as Exhibit 99.2 and incorporated herein by reference.
(d) Exhibits.
* Filed herewith
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed by the undersigned hereunto duly authorized.
| READY CAPITAL CORPORATION | ||
| Date: June 1, 2021 | By: | /s/ Andrew Ahlborn |
| Name: | Andrew Ahlborn | |
| Title: | Chief Financial Officer | |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement Nos. 333-240086, 333-234423, 333-217810 and 333-196296 on Form S-3, Registration Statement No. 333-251863 on Form S-4 and Registration Statement No. 333-216988 on Form S-8 of Ready Capital Corporation of our report dated February 26, 2021, relating to the consolidated financial statements, the financial statement schedules and the effectiveness of internal control over financial reporting of Anworth Mortgage Asset Corporation and its subsidiaries (the Company), appearing in the Annual Report on Form 10-K of the Company for the year ended December 31, 2020 and incorporated by reference into this Form 8-K/A.
/s/ RSM US LLP
Los Angeles, California
June 1, 2021
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On March 19, 2021, Ready Capital Corporation, a Maryland corporation (the “Company” or “Ready Capital”), and RC Merger Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“Merger Sub”), consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of December 6, 2020 (the “Merger Agreement”), with Anworth Mortgage Asset Corporation, a Maryland corporation (“Anworth”), pursuant to which Anworth merged with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Merger”).
Upon completion of the Merger and under the terms of the Merger Agreement, each outstanding share of common stock, par value $0.01 per share, of Anworth (“Anworth Common Stock”) (other than shares held by Ready Capital or Merger Sub or by any wholly-owned subsidiary of Ready Capital, Merger Sub or Anworth, which were automatically cancelled and retired and ceased to exist) was converted into the right to receive from Ready Capital (i) 0.1688 newly issued shares of common stock, par value $0.0001 per share, of Ready Capital (the “Ready Capital Common Stock”), plus (ii) $0.61 in cash (together, the “Per Share Common Merger Consideration”). No fractional shares of Ready Capital Common Stock were issued in the Merger, and the value of any fractional interests to which a former holder of Anworth Common Stock was otherwise entitled was paid in cash.
Additionally, (i) each outstanding share of 8.625% Series A Cumulative Preferred Stock, par value $0.01 per share, of Anworth (“Anworth Series A Preferred Stock”) was converted into the right to receive one newly issued share of newly designated 8.625% Series B Cumulative Preferred Stock, par value $0.0001 per share, of Ready Capital (“Ready Capital Series B Preferred Stock”), which has the same rights, preferences, and privileges as those of the Anworth Series A Preferred Stock, (ii) each outstanding share of 6.25% Series B Cumulative Convertible Preferred Stock, par value $0.01 per share, of Anworth (“Anworth Series B Preferred Stock”) was converted into the right to receive one newly issued share of newly designated 6.25% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share, of Ready Capital (“Ready Capital Series C Preferred Stock”), which has the same rights, preferences, and privileges as those of the Anworth Series B Preferred Stock, and (iii) each outstanding share of 7.625% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share, of Anworth (“Anworth Series C Preferred Stock”) was converted into the right to receive one newly issued share of newly designated 7.625% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 per share, of Ready Capital (“Ready Capital Series D Preferred Stock”), which has the same rights, preferences, and privileges as those of the Anworth Series C Preferred Stock.
Furthermore, (i) certain outstanding phantom share awards granted by Anworth under its 2014 Equity Compensation Plan or 2004 Equity Compensation Plan, as amended, became fully vested and then were immediately cancelled in exchange for the right to receive the Per Share Common Merger Consideration, (ii) the remaining outstanding non-vesting phantom share awards granted by Anworth were cancelled without consideration, and (iii) all outstanding dividend equivalent rights granted by Anworth under its 2007 Dividend Equivalent Rights Plan were cancelled, provided, that any accrued amounts which have not yet been paid with respect to any such dividend equivalent rights as of the completion of the Merger will be paid to the holders thereof as soon as practicable but in no event later than the first payroll date following the completion of the Merger.
The unaudited pro forma condensed combined balance sheet gives effect to the Merger based on the historical balance sheets of Ready Capital and Anworth as of December 31, 2020. The Ready Capital and Anworth balance sheet information was derived from their audited balance sheets at December 31, 2020 that were included in their Annual Reports on Form 10-K for the year then ended, which were filed with the SEC on March 15, 2021 and February 26, 2021, respectively.
The unaudited pro forma condensed combined statements of income are presented for the twelve months ended December 31, 2020. The historical results of Ready Capital were derived from its audited consolidated statement of income for the twelve months ended December 31, 2020 that was included in its Annual Report on Form 10-K for the year then ended, filed on March 15, 2021. The historical results of Anworth were derived from its audited consolidated statement of income for the twelve months ended December 31, 2020 that was included in its Annual Report on Form 10-K for the year then ended, filed on February 26, 2021.
The adjustments for the unaudited pro forma condensed combined balance sheet as of December 31, 2020 assume the Merger was completed on that date. The adjustments for the unaudited pro forma condensed combined statements of income for the year ended December 31, 2020 were prepared assuming the Merger was completed on January 1, 2020. The unaudited pro forma financial statements may not be indicative of the results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or the results which may be obtained in the future. In preparing the unaudited pro forma financial statements, no adjustments have been made to reflect the potential operating synergies and administrative cost savings or the costs of integration activities that could result from the combination of Anworth and Ready Capital.
The following unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and has been adjusted to reflect certain reclassifications in order to conform to Ready Capital’s financial statement presentation. The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting for business combinations pursuant to ASC 805, Business Combinations, with Ready Capital considered the acquirer for accounting purposes. The statements are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had Ready Capital and Anworth been combined during the specified periods. The following unaudited pro forma condensed combined financial information, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements referred to above and other information relating to Ready Capital and Anworth contained in their respective Annual Reports on Form 10-K for the year ended December 31, 2020 and any subsequent Quarterly Reports on Form 10-Q.
The estimated fair values for the assets acquired and liabilities assumed are preliminary and are subject to change during the measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available and may result in variances to the amounts presented in the unaudited pro forma condensed combined statements of income.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET
AS OF DECEMBER 31, 2020
| (In Thousands) | Ready Capital Corporation (Accounting Acquirer) | Anworth (Accounting Acquiree) | Anworth Financial Statement Reclass (B) | Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 138,975 | $ | 34,050 | $ | $ | (97,226 | ) | C1 | $ | 75,799 | |||||||||||||
| Restricted cash | 47,697 | 111,069 | 158,766 | |||||||||||||||||||||
| Loans, net | 1,625,555 | — | 109,312 | a | 1,734,867 | |||||||||||||||||||
| Loans, held for sale, at fair value | 340,288 | — | 340,288 | |||||||||||||||||||||
| Mortgage backed securities, at fair value | 88,011 | — | 311,635 | b | 399,646 | |||||||||||||||||||
| Loans eligible for repurchase from Ginnie Mae | 250,132 | — | 250,132 | |||||||||||||||||||||
| Investment in unconsolidated joint venture | 79,509 | — | — | 79,509 | ||||||||||||||||||||
| Purchased future receivables, net | 17,308 | — | 17,308 | |||||||||||||||||||||
| Derivative instruments | 16,363 | 6,974 | — | 23,337 | ||||||||||||||||||||
| Servicing rights | 114,663 | — | 114,663 | |||||||||||||||||||||
| Other assets | 89,503 | — | 11,941 | c, d, e | 101,444 | |||||||||||||||||||
| Available-for-sale Agency MBS at fair value | — | 1,519,652 | 1,519,652 | |||||||||||||||||||||
| Trading Agency MBS at fair value | — | 104,702 | (104,702 | ) | b | — | ||||||||||||||||||
| Trading Non-Agency MBS at fair value | — | 206,933 | (206,933 | ) | b | — | ||||||||||||||||||
| Residential mortgage loans held-for-securitization, net | — | 109,312 | (109,312 | ) | a | — | ||||||||||||||||||
| Residential mortgage loans held-for-investment through consolidated securitization trusts, net | — | 267,107 | (267,107 | ) | g | — | ||||||||||||||||||
| Interest receivable | — | 6,554 | (6,554 | ) | c | — | ||||||||||||||||||
| Real estate, held for sale | 45,348 | — | 12,750 | f | 13,357 | C11 | 71,455 | |||||||||||||||||
| Right to use asset-operating lease | — | 718 | (718 | ) | d | — | ||||||||||||||||||
| Residential real estate | — | 12,750 | (12,750 | ) | f | — | ||||||||||||||||||
| Prepaid expenses and other assets | — | 4,669 | (4,669 | ) | e | — | ||||||||||||||||||
| Assets of consolidated VIEs | 2,518,743 | — | 267,107 | g | 2,785,850 | |||||||||||||||||||
| Total Assets | $ | 5,372,095 | $ | 2,384,490 | $ | — | $ | (83,869 | ) | $ | 7,672,716 | |||||||||||||
| Liabilities | ||||||||||||||||||||||||
| Secured borrowings | 1,370,519 | — | 1,560,805 | h, i | 2,931,324 | |||||||||||||||||||
| Securitized debt obligations of consolidated VIEs, net | 1,905,749 | — | 258,414 | j | 2,164,163 | |||||||||||||||||||
| Convertible notes, net | 112,129 | — | 112,129 | |||||||||||||||||||||
| Senior secured notes, net | 179,659 | — | 179,659 | |||||||||||||||||||||
| Corporate debt, net | 150,989 | — | 37,380 | k | 188,369 | |||||||||||||||||||
| Guaranteed loan financing | 401,705 | — | 401,705 | |||||||||||||||||||||
| Liabilities for loans eligible for repurchase from Ginnie Mae | 250,132 | — | 250,132 | |||||||||||||||||||||
| Derivative instruments | 11,604 | 80,380 | 91,984 | |||||||||||||||||||||
| Dividends payable | 19,746 | — | 7,259 | l, m | 27,005 | |||||||||||||||||||
| Dividends payable on preferred stock | — | 2,297 | (2,297 | ) | l | — | ||||||||||||||||||
| Dividends payable on common stock | — | 4,962 | (4,962 | ) | m | — | ||||||||||||||||||
| Accrued interest payable | — | 4,130 | (4,130 | ) | n | — | ||||||||||||||||||
| Repurchase agreements | — | 1,470,620 | (1,470,620 | ) | h | — | ||||||||||||||||||
| Warehouse line of credit | — | 90,185 | (90,185 | ) | i | — | ||||||||||||||||||
| Asset-backed securities issued by securitization trusts | — | 258,414 | (258,414 | ) | j | — | ||||||||||||||||||
| Junior subordinated notes | — | 37,380 | (37,380 | ) | k | — | ||||||||||||||||||
| Derivative counterparty margin | — | 5,257 | 5,257 | |||||||||||||||||||||
| Accrued expenses and other liabilities | — | 1,653 | (1,653 | ) | o | — | ||||||||||||||||||
| Long-term lease obligation | — | 718 | (718 | ) | p | - | ||||||||||||||||||
| Accounts payable and other accrued liabilities | 135,655 | — | 6,501 | n, o, p | 142,156 | |||||||||||||||||||
| Total Liabilities | $ | 4,537,887 | $ | 1,955,996 | $ | — | $ | — | $ | 6,493,883 | ||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||
| Preferred stock, par value $0.0001 per share; 50,000,000 shares authorized: | ||||||||||||||||||||||||
| Ready Capital Series C Cumulative Convertible Preferred Stock | — | — | 19,455 | C2 | 19,455 | |||||||||||||||||||
| Ready Capital Series B Cumulative Preferred Stock | — | — | 46,537 | C3 | 46,537 | |||||||||||||||||||
| Ready Capital Series D Cumulative Redeemable Preferred Stock | — | — | 48,626 | C4 | 48,626 | |||||||||||||||||||
| Preferred stock, par value $0.01 per share, 50,000,000 shares authorized: | ||||||||||||||||||||||||
| Anworth Series B Cumulative Convertible Preferred Stock | — | 19,455 | (19,455 | ) | C2 | — | ||||||||||||||||||
| Anworth Series A Cumulative Convertible Preferred Stock | — | 46,537 | (46,537 | ) | C3 | — | ||||||||||||||||||
| Anworth Series C Cumulative Convertible Preferred Stock | — | 48,626 | (48,626 | ) | C4 | — | ||||||||||||||||||
| Ready Capital Common stock | 5 | — | 2 | C5 | 7 | |||||||||||||||||||
| Anworth Common stock | — | 992 | (992 | ) | C5 | — | ||||||||||||||||||
| Ready Capital Additional paid-in capital | 849,541 | — | 245,161 | C5-C9 and C11 | 1,094,702 | |||||||||||||||||||
| Anworth Additional paid-in capital | — | 984,174 | (984,174 | ) | C6 | — | ||||||||||||||||||
| Ready Capital Retained earnings (deficit) | (24,203 | ) | — | (14,730 | ) | C1, C9 | (38,933 | ) | ||||||||||||||||
| Anworth Retained earnings (deficit) | — | (725,770 | ) | 725,770 | C7 | — | ||||||||||||||||||
| Ready Capital Accumulated other comprehensive income (loss) | (9,947 | ) | — | (9,947 | ) | |||||||||||||||||||
| Anworth Accumulated other comprehensive income (loss) | — | 54,480 | (54,480 | ) | C8 | — | ||||||||||||||||||
| Total common stockholders' equity | 815,396 | 428,494 | — | (83,443 | ) | 1,160,447 | ||||||||||||||||||
| Non-controlling interests | 18,812 | — | — | (426 | ) | C1, C9 | 18,386 | |||||||||||||||||
| Total Stockholders’ Equity | $ | 834,208 | $ | 428,494 | $ | — | $ | (83,869 | ) | $ | 1,178,833 | |||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,372,095 | $ | 2,384,490 | $ | — | $ | (83,869 | ) | $ | 7,672,716 | |||||||||||||
| Common shares outstanding | 54,368,999 | 99,241,549 | 16,751,973 | 71,120,972 | ||||||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
| (In Thousands, except share data) | Ready Capital Corporation (Accounting Acquirer) | Anworth (Accounting Acquiree) | Anworth Financial Statement Reclass (B) | Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||||||
| Interest income | $ | 258,636 | $ | — | $ | 83,085 | q, r, s, t, u | $ | $ | 341,721 | ||||||||||||||
| Interest- Agency MBS | — | 46,520 | (46,520 | ) | q | — | ||||||||||||||||||
| Interest-Non-Agency MBS | — | 15,673 | (15,673 | ) | r | — | ||||||||||||||||||
| Interest-securitized residential mortgage loans | — | 14,665 | (14,665 | ) | s | — | ||||||||||||||||||
| Interest-residential mortgage loans held-for-securitization | — | 6,034 | (6,034 | ) | t | — | ||||||||||||||||||
| Other interest income | — | 193 | (193 | ) | u | — | ||||||||||||||||||
| Interest expense | (175,481 | ) | — | (44,890 | ) | v, w, x, y | (220,371 | ) | ||||||||||||||||
| Interest expense on repurchase agreements | — | (24,879 | ) | 24,879 | v | — | ||||||||||||||||||
| Interest expense on asset-backed securities | — | (14,025 | ) | 14,025 | w | — | ||||||||||||||||||
| Interest expense on warehouse line of credit | — | (4,457 | ) | 4,457 | x | — | ||||||||||||||||||
| Interest expense on junior subordinated notes | — | (1,529 | ) | 1,529 | y | — | ||||||||||||||||||
| Net interest income before provision for loan losses | $ | 83,155 | $ | 38,195 | $ | — | $ | — | $ | 121,350 | ||||||||||||||
| Provision for loan losses | (34,726 | ) | (670 | ) | (35,396 | ) | ||||||||||||||||||
| Net interest income after provision for loan losses | $ | 48,429 | $ | 37,525 | $ | — | $ | — | $ | 85,954 | ||||||||||||||
| Non-interest income | ||||||||||||||||||||||||
| Residential mortgage banking activities | 252,720 | — | 252,720 | |||||||||||||||||||||
| Net realized gains on financial instruments and real estate owned | 31,913 | — | (39,384 | ) | aa, hh, cc | (7,471 | ) | |||||||||||||||||
| Net unrealized losses on financial instruments | (48,101 | ) | — | (90,029 | ) | bb,dd, ee | (138,130 | ) | ||||||||||||||||
| Servicing income, net | 38,594 | — | 38,594 | |||||||||||||||||||||
| Income on purchased future receivables, net | 15,711 | — | 15,711 | |||||||||||||||||||||
| Income on unconsolidated joint ventures | 2,404 | — | 2,404 | |||||||||||||||||||||
| Other income | 41,516 | — | 1,707 | z | 43,223 | |||||||||||||||||||
| Income-rental properties | — | 1,707 | (1,707 | ) | z | — | ||||||||||||||||||
| Realized net gain on sales of available-for-sale MBS | — | 15,805 | (15,805 | ) | aa | — | ||||||||||||||||||
| Realized net gain on sales of Agency MBS held as trading investments | — | 3,629 | (3,629 | ) | bb | — | ||||||||||||||||||
| Unrealized loss on Agency MBS held as trading investments | — | (15,537 | ) | 15,537 | dd | — | ||||||||||||||||||
| Realized net (loss) on sales of available-for-sale Non-Agency MBS | — | (55,390 | ) | 55,390 | hh | — | ||||||||||||||||||
| Gain on sale of residential properties | — | 201 | (201 | ) | cc | — | ||||||||||||||||||
| Loss on derivatives, net | — | (78,121 | ) | 78,121 | ee | — | ||||||||||||||||||
| Gain on bargain purchase | — | — | 21,445 | C9 | 21,445 | |||||||||||||||||||
| Total non-interest income | $ | 334,757 | $ | (127,706 | ) | $ | — | $ | 21,445 | $ | 228,496 | |||||||||||||
| Non-interest expense | ||||||||||||||||||||||||
| Employee compensation and benefits | (91,920 | ) | — | (91,920 | ) | |||||||||||||||||||
| Allocated employee compensation and benefits from related party | (7,000 | ) | — | (7,000 | ) | |||||||||||||||||||
| Variable expenses on residential mortgage banking activities | (114,510 | ) | — | (114,510 | ) | |||||||||||||||||||
| Professional fees | (13,360 | ) | — | (13,360 | ) | |||||||||||||||||||
| Management fees – related party | (10,682 | ) | (5,591 | ) | 623 | C10 | (15,650 | ) | ||||||||||||||||
| Incentive fees – related party | (5,973 | ) | — | (5,973 | ) | |||||||||||||||||||
| Loan servicing expense | (30,856 | ) | — | (30,856 | ) | |||||||||||||||||||
| Merger related expenses | (63 | ) | — | (36,600 | ) | C1 | (36,663 | ) | ||||||||||||||||
| Other operating expenses | (54,369 | ) | — | (7,921 | ) | ff, gg | (62,290 | ) | ||||||||||||||||
| General and administrative expense | — | (5,934 | ) | 5,934 | ff | — | ||||||||||||||||||
| Rental properties depreciation and expenses | — | (1,987 | ) | 1,987 | gg | — | ||||||||||||||||||
| Total non-interest expense | $ | (328,733 | ) | $ | (13,512 | ) | $ | — | $ | (35,977 | ) | $ | (378,222 | ) | ||||||||||
| Income before provision for income taxes | $ | 54,453 | $ | (103,693 | ) | $ | — | $ | (14,532 | ) | $ | (63,772 | ) | |||||||||||
| Income tax benefit | (8,384 | ) | — | — | — | (8,384 | ) | |||||||||||||||||
| Net income (loss) | $ | 46,069 | $ | (103,693 | ) | $ | — | $ | (14,532 | ) | $ | (72,156 | ) | |||||||||||
| Less: Dividends on preferred stock | — | 9,189 | — | — | 9,189 | |||||||||||||||||||
| Less: Net income attributable to non-controlling interest | 1,199 | — | — | 10 | 1,209 | |||||||||||||||||||
| Net income attributable to Ready Capital Corporation | $ | 44,870 | $ | (112,882 | ) | $ | — | $ | (14,542 | ) | $ | (82,554 | ) | |||||||||||
| Earnings (loss) per common share - basic | $ | 0.81 | $ | (1.14 | ) | $ | (1.17 | ) | ||||||||||||||||
| Earnings (loss) per common share - diluted | $ | 0.81 | $ | (1.14 | ) | $ | (1.17 | ) | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||||||||||
| Basic | 53,736,523 | 99,048,000 | 16,751,973 | 70,488,496 | ||||||||||||||||||||
| Diluted | 53,818,378 | 99,048,000 | 16,751,973 | 70,570,351 | ||||||||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) Basis of Presentation
Under the terms of the Merger Agreement, in connection with the Merger, each outstanding share of Anworth Common Stock was converted into the right to receive (i) a number of shares of Ready Capital Common Stock based on an assumed exchange ratio of 0.1688 (“Exchange Ratio”), and (ii) $0.61 in cash. In addition, each share of Anworth Series A Preferred Stock was converted into the right to receive one share of newly classified Ready Capital Series B Preferred Stock, each share of Anworth Series B Preferred Stock was converted into the right to receive one share of newly classified Ready Capital Series C Preferred Stock and each share of Anworth Series C Preferred Stock was converted into the right to receive one share of newly classified Ready Capital Series D Preferred Stock.
On March 19, 2021, Ready Capital completed the Merger and issued 16,774,328 shares of Ready Capital Common Stock and approximately $60.6 million in cash to the former holders of Anworth Common Stock. The total purchase price for the Merger of $417.9 million consisted of the Ready Capital Common Stock issued based on a share price of $14.28, or the closing price of a share of Ready Capital common stock on the acquisition date, $0.61 in cash per share and cash paid in lieu of fractional shares.
In addition, the Company issued 1,919,378 shares of newly designated Ready Capital Series B Preferred Stock, 779,743 shares of newly designated Ready Capital Series C Preferred Stock, and 2,010,278 shares of newly designated Ready Capital Series D Preferred Stock, in exchange for all shares of Anworth Series A Preferred Stock, Anworth Series B Preferred Stock and Anworth Series C Preferred Stock outstanding prior to the effective time of the Merger.
Upon the closing of the transaction and after giving effect to the issuance of shares of Ready Capital Common Stock as consideration in the Merger, Ready Capital’s historical stockholders owned approximately 77% of the outstanding Ready Capital Common Stock, while historical Anworth stockholders owned approximately 23% of the outstanding Ready Capital Common Stock.
| Calculation of Preliminary Estimated Total Consideration Transferred (in thousands, except share and per share data) | ||||
| ANH total stockholders' equity at December 31, 2020 | $ | 428,494 | ||
| Less: Merger transaction expenses - ANH | (30,293 | ) | ||
| Real estate, held for sale fair value adjustment | $ | 13,357 | ||
| ANH adjusted book value | $ | 411,558 | ||
| Shares issued | 16,774,328 | |||
| Market price as of March 19, 2021 | x | 14.28 | ||
| Estimated total consideration transferred based on value of shares issued | $ | 239,537 | ||
| Preferred Shares transferred | 117,735 | |||
| Cash Transferred | 60,626 | |||
| Estimated total consideration transferred | $ | 417,898 | ||
| Total estimated goodwill | $ | (6,340 | ) | |
(B) Accounting Presentation and Policies
Financial Statement Reclassifications
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Ready Capital. Certain balances from the consolidated financial statements of Anworth were reclassified to conform the presentation to that of Ready Capital.
The following Balance Sheet reclassifications have been made from Anworth’s balance sheet information derived from its audited balance sheet at December 31, 2020 that was included in its Annual Report on Form 10-K for the year then ended, which was filed with the Securities and Exchange Commission on February 26, 2021:
Assets:
| a) | Reclassified Residential mortgage loans held-for-securitization, net to Loans, net |
| b) | Reclassified Trading Non-Agency MBS and Trading Agency MBS at fair value to Mortgage backed securities, at fair value |
| c) | Reclassified Interest receivable to Other assets |
| d) | Reclassified Right to use asset-operating lease to Other assets |
| e) | Reclassified Prepaid expenses and other assets to Other assets |
| f) | Reclassified Residential real estate to Real estate, held for sale |
| g) | Reclassified Residential mortgage loans held-for-investment through consolidated securitization trusts, net to Assets of consolidated VIEs |
Liabilities:
| h) | Reclassified Repurchase agreements to Secured borrowings |
| i) | Reclassified Warehouse line of credit to Secured borrowings |
| j) | Reclassified Asset-backed securities issued by securitization trusts to Securitized debt obligations of consolidated VIEs, net |
| k) | Reclassified Junior subordinated notes to Corporate debt, net |
| l) | Reclassified Dividends payable on preferred stock to Dividends payable |
| m) | Reclassified Dividends payable on common stock to Dividends payable |
| n) | Reclassified Accrued interest payable to Accounts payable and other accrued liabilities |
| o) | Reclassified Accrued expenses and other liabilities to Accounts payable and other accrued liabilities |
| p) | Reclassified Long-term lease obligation to Accounts payable and other accrued liabilities |
The following Statement of Income reclassifications have been made from Anworth’s income statement information derived from its audited statement of operations for the twelve months ended December 31, 2020 that was included in its Annual Report on Form 10-K for the year then ended, which was filed with the Securities and Exchange Commission on February 26, 2021:
| q) | Reclassified Interest-Agency MBS to Interest income |
| r) | Reclassified Interest-Non-Agency MBS to Interest income |
| s) | Reclassified Interest-securitized residential mortgage loans to Interest income |
| t) | Reclassified Interest-residential mortgage loans held-for-securitization to Interest income |
| u) | Reclassified Other interest income to Interest income |
| v) | Reclassified Interest expense on repurchase agreements to Interest expense |
| w) | Reclassified Interest expense on asset-backed securities to Interest expense |
| x) | Reclassified Interest expense on warehouse line of credit to Interest expense |
| y) | Reclassified Interest expense on junior subordinated notes to Interest expense |
| z) | Reclassified Income-rental properties to Other income |
| aa) | Reclassified Realized net gain on sales of available-for-sale MBS to Net realized gains on financial instruments and real estate owned |
| bb) | Reclassified Realized net gain on sales of Agency MBS held as trading investments to Net realized gains on financial instruments and real estate owned |
| cc) | Reclassified Gain on sale of residential properties to Net realized gains on financial instruments and real estate owned |
| dd) | Reclassified Unrealized loss on Agency MBS held as trading investments to Net unrealized losses on financial instruments |
| ee) | Reclassified Loss on derivatives, net to Net unrealized losses on financial instruments |
| ff) | Reclassified General and administrative expenses to Other operating expenses |
| gg) | Reclassified Rental properties depreciation and expenses to Other operating expenses |
| hh) | Reclassified Realized net (loss) on sales of available-for-sale Non-Agency MBS to Net realized gains on financial instruments and real estate owned |
(C) Transaction Accounting Adjustments
The unaudited pro forma financial statements reflect the following adjustments:
| C1) | Adjustment relates to the recognition and payment of estimated one-time merger obligations and estimated total costs of $97.2 million including: |
| a) | transaction costs related to the Merger of $36.6 million paid by Ready Capital, the accounting acquirer, allocated $35.8 million to common stockholders and $0.8 million to Non-controlling interests |
| b) | cash consideration of $60.6 million paid by Ready Capital, the accounting acquirer, of $0.61 per historical Anworth common share |
| C2) | Adjustment of $19.5 million relates to the elimination of Anworth Series B Preferred Stock and the issuance of Ready Capital Series C Preferred Stock |
| C3) | Adjustment of $46.5 million relates to the elimination of Anworth Series A Preferred Stock and the issuance of Ready Capital Series B Preferred Stock |
| C4) | Adjustment of $48.6 million relates to the elimination of Anworth Series C Preferred Stock and the issuance of Ready Capital Series D Preferred Stock |
| C5) | Adjustment of $992 thousand relates to the elimination of Anworth historical common stock, $0.01 par value, and the issuance of new Ready Capital Common Stock, $0.0001 par value |
| C6) | Adjustment of $984.2 million relates to the elimination of Anworth historical additional paid-in capital |
| C7) | Adjustment of $725.8 million relates to the elimination of Anworth historical retained deficit |
| C8) | Adjustment of $54.5 million relates to the elimination of Anworth historical accumulated other comprehensive income |
| C9) | Adjustment relates to bargain purchase gain of $21.4 million., allocated $21.1 million to common stockholders and $0.3 million to Non-controlling interest |
| C10) | Adjustment relates to the impact of the management fees under the Ready Capital management agreement |
C11) Adjustment relates to the estimated fair value of Residential real estate
Ready Capital believes, with the exception of Residential real estate , all Anworth balance sheet accounts approximate fair value. There is no tax impact relating to income items, as they are included in non taxable entities.
Earnings Per Share
The unaudited pro forma adjustment to shares outstanding used in the calculation of basic and diluted earnings per share are based on the combined basic and diluted weighted average shares, after giving effect to the assumed Exchange Ratio, as follows (in thousands, except share data):
| For the year ended December 31, 2020 | ||||
| Numerator: | ||||
| Net income attributable to common stockholders - Ready Capital | $ | 44,870 | ||
| Net loss attributable to common stockholders - Anworth | (112,882 | ) | ||
| Pro Forma Merger Adjustments | (14,542 | ) | ||
| Net income attributable to common stockholders - Combined Company | $ | (82,554 | ) | |
| Denominator: | ||||
| Ready Capital weighted average common shares outstanding - basic | 53,736,523 | |||
| Ready Capital Common Stock issued to Anworth stockholders | 16,751,973 | |||
| Pro forma weighted average common shares outstanding - basic | 70,488,496 | |||
| Effect of dilutive shares | 81,855 | |||
| Pro forma weighted average common shares outstanding - diluted | 70,570,351 | |||
| Basic per common share data: | ||||
| Net income per weighted average common share | $ | (1.17 | ) | |
| Diluted per common share data: | ||||
| Net income per weighted average common share | $ | (1.17 | ) | |