PennyMac Financial Services, Inc. (NYSE:PFSI) Files An 8-K Entry into a Material Definitive AgreementItem 1.01Entry into a Material Definitive Agreement.
Loan and Security Agreement
On February 1, 2018, PennyMac Financial Services, Inc. (the “Company”), through two of its controlled subsidiaries, PennyMac Loan Services, LLC (“PLS”) and Private National Mortgage Acceptance Company, LLC (“PNMAC”), entered into a Loan and Security Agreement with Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as lender (the “CS Loan Agreement”). to the CS Loan Agreement, PLS may finance certain of its mortgage servicing rights relating to mortgage loans pooled into Fannie Mae and Freddie Mac securities (the “Conventional MSRs”). The obligations of PLS are fully guaranteed by PNMAC, and the mortgage loans relating to the Conventional MSRs are serviced by PLS to the terms of the CS Loan Agreement and the Fannie Mae and Freddie Mac guidelines, as applicable. The CS Loan Agreement is committed to February 1, 2020.
to the terms of the CS Loan Agreement, the Company may borrow up to a committed amount of $407 million, which amount is reduced by the aggregate outstanding purchase price under a Master Repurchase Agreement dated as of December 19, 2016, among Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), CSCIB, and PLS (the “VFN Repurchase Agreement”). The VFN Repurchase Agreement is part of a structured finance transaction that PLS uses to finance Ginnie Mae mortgage servicing rights (“Ginnie MSRs”) and related excess servicing spread. The available facility amount is also reduced to the extent that the combined borrowed and/or purchased amounts outstanding under all of the credit agreements provided to the Company by CSFB, CSCIB and their affiliates (collectively, the “CS Buyers”) exceed (i) a maximum combined purchase price of $1.5 billion, or (ii) a maximum combined committed purchase price of $700 million. The CS Loan Agreement further provides that PLS may only borrow amounts thereunder to the extent the VFN Repurchase Agreement is fully drawn based on the terms of the structured finance transaction.
The principal amount of the borrowings under the CS Loan Agreement is based upon a percentage of the market value of the Conventional MSRs pledged by PLS (the “collateral value”), subject to the maximum loan amount described above. Under the CS Loan Agreement, PLS granted to CSCIB a security interest in all of its right, title and interest in, to and under the Conventional MSRs. The pledge of the Conventional MSRs and the related security interest are subject to separate acknowledgement agreements by and among CSCIB, PLS and Fannie Mae or Freddie Mac, respectively, to which CSCIB and PLS acknowledge and reaffirm that such security interest is subordinated to all rights, powers and prerogatives of Fannie Mae or Freddie Mac, respectively, under its various agreements with PLS.
On a monthly basis, or upon the loan repayment date, PLS will be required to pay CSCIB accrued interest (at a rate reflective of the current market and based on LIBOR plus a margin) to the monthly settlement date or the date of such repayment, as applicable. PLS is also required to pay CSCIB a fee for the structuring of the CS Loan Agreement, as well as certain other administrative fees, costs and expenses in connection with CSCIB’s management and ongoing administration of the CS Loan Agreement.
The CS Loan Agreement contains margin call provisions that provide CSCIB with certain rights where there has been a decline in the market value of the Conventional MSRs. Under these circumstances, CSCIB may require PLS to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.
The CS Loan Agreement requires PLS to maintain various financial and other covenants, which include maintaining (i) a minimum adjusted 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 adjusted tangible net worth not to exceed 10:1; and (iv) profitability for at least one (1) of the prior two (2) fiscal quarters, as of the end of each fiscal quarter.
In addition, the CS Loan Agreement contains events 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, subservicer termination events, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default include the acceleration of the principal amount outstanding under the CS Loan Agreement and the liquidation by CSCIB of the pledged Conventional MSRs then securing the borrowings.
The foregoing descriptions of the CS Loan Agreement and the related guaranty do not purport to be complete and are qualified in their entirety by reference to the full text of the Loan and Security Agreement, which has been filed with this