PennyMac Financial Services, Inc. (NYSE:PFSI) Files An 8-K Entry into a Material Definitive AgreementItem 1.01Entry into a Material Definitive Agreement.
On August 21, 2017, PennyMac Financial Services, Inc. (the “Company”), through its indirect controlled subsidiary, PennyMac Loan Services, LLC (“PLS”), entered into a Master Repurchase Agreement by and amongDeutsche Bank AG, Cayman Islands Branch (“Deutsche Bank”)and PLS (the “Repurchase Agreement”), to which PLS may sell to Deutsche Bank, and later repurchase, newly originated mortgage loans in an aggregate principal amount of up to $750 million. The Repurchase Agreement is set to expire on August21, 2019, unless terminated earlier in accordance with its terms. The obligations of PLS under the Repurchase Agreement are fully guaranteed by Private National Mortgage Acceptance Company, LLC (“PNMAC”), which is the parent company of PLS and a controlled subsidiary of the Company.
The Repurchase Agreement will be used by PLS to fund newly originated mortgage loans originated through its consumer direct lending channel or purchased from correspondent lenders through a subsidiary of PennyMac Mortgage Investment Trust (NYSE: PMT) and, in either case, serviced and held by PLS pending sale and/or securitization. Under the Repurchase Agreement, the principal amount paid by Deutsche Bank for each eligible mortgage loan is based on a percentage of the least of (i) the market value, as determined by Deutsche Bank in its sole discretion; (ii) the unpaid principal balance; or (iii) the takeout price of such mortgage loan. Upon the repurchase of a mortgage loan, PLS is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued interest (at a rate reflective of the current market and based on LIBOR plus a margin) to the date of such repurchase. PLS also may be entitled to receive from Deutsche Bank a per loan credit for eligible mortgage loans that possess certain consumer relief characteristics.
The Repurchase Agreement requiresPLS to make certain representations and warranties and to maintain various financial and other covenants, whichinclude maintaining (i)a minimum tangible net worth at all times greater than or equal to $500 million; (ii)a minimum in unrestricted cash and cash equivalents at all times greater than or equal to $40 million; (iii)a ratio of total indebtedness to tangible net worth at all times less than or equal to 10:1; and (iv)profitability of no less than $1.00 for at least one of the two most recent calendar quarters.
The Repurchase Agreement also contains margin call provisions that provide Deutsche Bank with certain rights where there has been a decline in the market value of the purchased mortgage loans.Under these circumstances, Deutsche Bank may require PLS to transfer cash and/or additional eligible mortgage loans with an aggregate market value in an amount sufficient to eliminate any margin deficit resulting from such a decline.
In addition, the Repurchase Agreement containsevents of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for these types of transactions and include the acceleration of the principal amount outstanding under the Repurchase Agreement and the liquidation by Deutsche Bank of the mortgage loans then subject to the Repurchase Agreement.
The Company, through PLS, is required to pay Deutsche Bank certain administrative costs and expenses in connection with the structuring of the Repurchase Agreement.
The foregoing descriptions of the Repurchase Agreement and the related guaranty by PNMAC do not purport to be complete and are qualified in their entirety by reference to the full text of the Master Repurchase Agreement and the Guaranty, which have been filed with this Current Report on Form 8-K as Exhibit 10.1 and Exhibit 10.2, respectively.
Item 2.03Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
