PennyMac Financial Services, Inc. Debt Disclosure
Note 12—Borrowings
The borrowing facilities described throughout this Note 12 contain various covenants, including financial covenants governing the Company’s net worth, debt-to-equity ratio, profitability and liquidity. Management believes that the Company was in compliance with these covenants as of December 31, 2020.
Assets Sold Under Agreements to Repurchase
The Company has multiple borrowing facilities in the form of asset sales under agreements to repurchase. These borrowing facilities are secured by loans held for sale at fair value or participation certificates backed by MSRs. Eligible loans and participation certificates backed by MSRs are sold at advance rates based on the fair value (as determined by the lender) of the assets sold. Interest is charged at a rate based on the lender’s overnight cost of funds rate or on LIBOR depending on the terms of the respective agreements. Loans and MSRs financed under these agreements may be re-pledged by the lenders.
On April 1, 2020, the Company issued a series of variable funding notes, the Series 2020-SPIADVF1 Notes (“GMSR Servicing Advance Notes”), to be sold under agreement to repurchase pursuant to a Master Repurchase Agreement, dated as of April 1, 2020, with Credit Suisse First Boston Mortgage Capital LLC (“CSFB”), acting as administrative agent on behalf of Credit Suisse AG, Cayman Islands Branch (“CSCIB”), as buyer (the “GMSR Servicing Advances Repurchase Agreement”).
The GMSR Servicing Advance Notes leverage the Company’s GNMA MSR Facility to support a separately defined servicing advance facility within the existing structure and provide the Company enhanced ability to finance its servicing advance obligations to Ginnie Mae and its security holders as necessary. Specifically, the GMSR Servicing Advances Repurchase Agreement provides the Company with financing secured by its servicing advances to pay, in accordance with the Ginnie Mae requirements, in the event borrowers are delinquent: (i) regularly scheduled monthly principal and interest to mortgage-backed securities holders; (ii) taxes, homeowner’s insurance, and other escrowed items; and (iii) other expenses related to servicing delinquent loans as specified by (A) state and federal laws and (B) government agencies, including the FHA, the VA, and the USDA.
The borrowing capacity under the GMSR Servicing Advances Repurchase Agreement, shared with VFN financing capacity, is $600 million, all of which is committed and may be used to finance the servicing advances related to delinquent FHA, VA, and USDA loans, including delinquencies caused by forbearance in accordance with the CARES Act.
Assets sold under agreements to repurchase are summarized below:
Year ended December 31, | ||||||||||
2020 | 2019 | 2018 | ||||||||
(dollars in thousands) | ||||||||||
Average balance of assets sold under agreements to repurchase | $ | 3,348,928 | $ | 2,185,830 | $ | 1,626,729 | ||||
Weighted average interest rate (1) | 2.91 | % | 3.74 | % | 3.87 | % | ||||
Total interest expense (2) | $ | 112,778 | $ | 74,215 | $ | 22,463 | ||||
Maximum daily amount outstanding | $ | 9,663,995 | $ | 4,141,680 | $ | 2,380,121 | ||||
December 31, | |||||||
2020 |
| 2019 | |||||
(dollars in thousands) | |||||||
Carrying value: | |||||||
Unpaid principal balance | $ | 9,663,995 |
| $ | 4,141,680 |
| |
Unamortized debt issuance costs | (9,198) | (627) | |||||
$ | 9,654,797 |
| $ | 4,141,053 | |||
Weighted average interest rate | 1.90 | % | 3.29 | % | |||
Available borrowing capacity (3): | |||||||
Committed | $ | 372,803 | $ | 125,810 | |||
Uncommitted | 2,163,202 | 782,510 | |||||
$ | 2,536,005 | $ | 908,320 | ||||
Fair value of assets securing repurchase agreements: | |||||||
Loans held for sale | $ | 10,912,178 | $ | 4,322,789 | |||
Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell | $ | 80,862 | $ | 107,512 | |||
Servicing advances (4) | $ | 413,484 | $ | 207,460 | |||
Mortgage servicing rights (4) | $ | 2,490,267 | $ | 2,902,721 | |||
Deposits (4) | $ | 153,054 | $ | — | |||
Margin deposits placed with counterparties (5) | $ | 5,625 | $ | 5,000 | |||
| (1) | Excludes the effect of amortization of net issuance costs totaling $15.3 million for the year ended December 31, 2020 and the effect of amortization of net debt issuance premiums of $7.5 million and $40.5 million for the years ended December 31, 2019 and 2018, respectively. |
| (2) | In 2017, PFSI entered into a master repurchase agreement that provided the Company with incentives to finance mortgage loans approved for satisfying certain consumer relief characteristics as provided in the agreement. The Company included $14.7 million and $48.1 million of such incentives as a reduction in Interest expense during the years ended December 31, 2019 and 2018, respectively. The master repurchase agreement expired on August 21, 2019. |
| (3) | The amount the Company is able to borrow under asset repurchase agreements is tied to the fair value of unencumbered assets eligible to secure those agreements and the Company’s ability to fund the agreements’ margin requirements relating to the assets financed. |
| (4) | Beneficial interests in the Ginnie Mae MSRs, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral backing the VFN, GMSR Servicing Advance Notes and the 2018 Term Notes described in Notes payable secured by mortgage servicing assets. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the 2018 Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. |
| (5) | Margin deposits are included in Other assets on the Company’s consolidated balance sheets. |
Following is a summary of maturities of outstanding advances under repurchase agreements by maturity date:
Remaining maturity at December 31, 2020 |
| Unpaid principal balance | |
(dollars in thousands) | |||
Within 30 days | $ | 2,512,553 | |
Over 30 to 90 days | 4,973,242 | ||
Over 90 to 180 days | 2,178,200 | ||
Total assets sold under agreements to repurchase | $ | 9,663,995 | |
Weighted average maturity (in months) | 3.3 | ||
The amount at risk (the fair value of the assets pledged plus the related margin deposit, less the amount advanced by the counterparty and interest payable) relating to the Company’s assets sold under agreements to repurchase is summarized by counterparty below as of December 31, 2020:
Weighted average | |||||||
Counterparty |
| Amount at risk |
| maturity of advances |
| Facility maturity | |
(in thousands) | |||||||
Credit Suisse First Boston Mortgage Capital LLC (1) | $ | 1,484,391 | April 23, 2021 | April 23, 2021 | |||
Credit Suisse First Boston Mortgage Capital LLC | $ | 484,937 | February 3, 2021 | April 23, 2021 | |||
Bank of America, N.A. | $ | 334,772 | January 31, 2021 | March 11, 2021 | |||
JP Morgan Chase Bank, N.A. | $ | 136,523 | June 4, 2021 | September 30, 2022 | |||
JP Morgan Chase Bank, N.A. | $ | 117,491 | February 28, 2021 | April 7, 2021 | |||
Barclays Bank PLC | $ | 76,062 | March 21, 2021 | November 3, 2022 | |||
Royal Bank of Canada | $ | 41,107 | April 17, 2021 | December 14, 2021 | |||
Citibank, N.A. | $ | 35,370 |
| March 17, 2021 |
| August 3, 2021 | |
Morgan Stanley Bank, N.A. | $ | 27,808 | March 17, 2021 | November 2, 2022 | |||
BNP Paribas | $ | 26,136 | March 13, 2021 | July 30, 2021 | |||
Wells Fargo Bank, N.A. | $ | 13,474 | March 19, 2021 | October 6, 2022 | |||
| (1) | The calculation of the amount at risk includes the VFN and the 2018 Term Notes because beneficial interests in the Ginnie Mae MSRs and servicing advances are pledged to the Issuer Trust and together serve as the collateral backing the VFN and 2018 Term Notes described in Notes payable secured by mortgage servicing assets below. The VFN financing is included in Assets sold under agreements to repurchase and the 2018 Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheets. |
The Company is subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the fair value (as determined by the applicable lender) of the assets securing those agreements decreases.
Mortgage Loan Participation Purchase and Sale Agreements
Certain of the borrowing facilities secured by mortgage loans held for sale are in the form of mortgage loan participation purchase and sale agreements. Participation certificates, each of which represents an undivided beneficial ownership interest in mortgage loans that have been pooled with Fannie Mae, Freddie Mac or Ginnie Mae, are sold to a lender pending the securitization of the mortgage loans and sale of the resulting securities which generally occurs within 30 days. A commitment to sell the securities resulting from the pending securitization between the Company and a non-affiliate is also assigned to the lender at the time a participation certificate is sold.
The purchase price paid by the lender for each participation certificate is based on the trade price of the security, plus an amount of interest expected to accrue on the security to its anticipated delivery date, minus a present value adjustment, any related hedging costs and a holdback amount that is based on a percentage of the purchase price. The holdback amount is not required to be paid to the Company until the settlement of the security and its delivery to the lender.
The mortgage loan participation and sale agreements are summarized below:
Year ended December 31, | ||||||||||
| 2020 |
| 2019 |
| 2018 | |||||
(dollars in thousands) | ||||||||||
Average balance | $ | 226,689 | $ | 244,203 | $ | 248,539 | ||||
Weighted average interest rate (1) | 1.88 | % | 3.42 | % | 3.29 | % | ||||
Total interest expense | $ | 4,933 | $ | 8,874 | $ | 8,754 | ||||
Maximum daily amount outstanding | $ | 540,977 | $ | 548,038 | $ | 722,611 | ||||
| (1) | Excludes the effect of amortization of debt issuance costs totaling $662,000, $514,000 and $588,000 for the years ended December 31, 2020, 2019 and 2018, respectively. |
| December 31, | December 31, | ||||||||
2020 |
| 2019 | ||||||||
(dollars in thousands) | ||||||||||
Carrying value: | ||||||||||
Unpaid principal balance | $ | 521,477 | $ | 497,948 | ||||||
Unamortized debt issuance costs | — | — | ||||||||
$ | 521,477 |
| $ | 497,948 | ||||||
Weighted average interest rate | 1.39 | % | 3.05 | % | ||||||
Fair value of loans pledged to secure mortgage loan participation purchase and sale agreements | $ | 545,500 | $ | 523,349 | ||||||
Obligations Under Capital Lease
The Company has a capital lease transaction secured by certain fixed assets and capitalized software. The capital lease matures on June 13, 2022 and bears interest at a spread over one-month LIBOR.
Obligations under capital lease are summarized below:
Year ended December 31, | ||||||||||
| 2020 |
| 2019 |
| 2018 | |||||
(dollars in thousands) | ||||||||||
Average balance | $ | 16,224 | $ | 17,021 | $ | 13,498 | ||||
Weighted average interest rate | 2.62 | % | 4.07 | % | 3.96 | % | ||||
Total interest expense | $ | 425 | $ | 693 | $ | 536 | ||||
Maximum daily amount outstanding | $ | 20,810 | $ | 28,295 | $ | 20,971 | ||||
December 31, | December 31, | ||||||
2020 |
| 2019 | |||||
(dollars in thousands) | |||||||
Unpaid principal balance | $ | 11,864 |
| $ | 20,810 | ||
Weighted average interest rate | 2.15 | % | 3.74 | % | |||
Assets pledged to secure obligations under capital lease: | |||||||
Capitalized software | $ | 7,675 | $ | 12,192 | |||
Furniture, fixtures and equipment | $ | 5,689 | $ | 20,406 | |||
Notes Payable Secured by Mortgage Servicing Assets
2018 Term Notes
The Company, through the Issuer Trust, issued the 2018-GTI Notes and 2018-GT2 Notes (the “2018 Term Notes”) to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”). The 2018 Term Notes rank pari passu with each other and with the VFN issued by the Issuer Trust to PLS and are secured by certain participation certificates relating to Ginnie Mae MSRs and ESS that are financed pursuant to the GNMA MSR Facility. The 2018 Term Notes are included in Notes payable secured by mortgage servicing assets.
Following is a summary of the issued and outstanding 2018 Term Notes:
Issuance Date | Principal balance | Stated interest rate (1) | Maturity date (2) | ||||
(in thousands) | (Annual) | ||||||
February 28, 2018 (the "2018-GT1 Notes") | $ | 650,000 | 2.85% | 2/25/2023 | |||
August 10, 2018 (the "2018-GT2 Notes") | 650,000 | 2.65% | 8/25/2023 | ||||
$ | 1,300,000 | ||||||
| (1) | Spread over one-month LIBOR. |
| (2) | The 2018 Term Notes indentures provide the Company with the option to extend the maturity of the 2018 Term by two years after the stated maturity. |
MSR Note Payable
On February 1, 2018, the Company issued a note payable that is secured by Freddie Mac MSRs. Interest is charged at a rate based on LIBOR plus the applicable contract margin. The facility expires on April 23, 2021. The maximum amount that the Company may borrow under the note payable is $600 million, less any amount outstanding under the agreement to repurchase pursuant to which the Company finances the VFN. The Company did not borrow under this note payable during the periods presented.
Notes payable are summarized below:
Year ended December 31, | ||||||||||
| 2020 |
| 2019 |
| 2018 |
| ||||
(dollars in thousands) | ||||||||||
Average balance | $ | 1,300,000 | $ | 1,300,000 | $ | 1,169,452 | ||||
Weighted average interest rate (1) | 3.42 | % | 5.08 | % | 5.29 | % | ||||
Total interest expense | $ | 46,222 | $ | 67,789 | $ | 71,697 | ||||
Maximum daily amount outstanding | $ | 1,300,000 | $ | 1,300,000 | $ | 1,300,000 | ||||
| (1) | Excludes the effect of amortization of debt issuance costs totaling $1.8 million, $1.8 million and $9.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. |
December 31, | |||||||
2020 |
| 2019 | |||||
(dollars in thousands) | |||||||
Carrying value: | |||||||
Unpaid principal balance | $ | 1,300,000 |
| $ | 1,300,000 | ||
Unamortized debt issuance costs | (4,160) | (5,930) | |||||
$ | 1,295,840 | $ | 1,294,070 | ||||
Weighted average interest rate | 2.93 | % | 4.46 | % | |||
Assets pledged to secure notes payable (1): | |||||||
Servicing advances | $ | 413,484 | $ | 207,460 | |||
Mortgage servicing rights | $ | 2,421,326 | $ | 2,861,442 | |||
Deposits | $ | 153,054 | $ | — | |||
| (1) | Beneficial interests in the Ginnie Mae MSRs, servicing advances and deposits are pledged to the Issuer Trust and together serve as the collateral backing the VFN, GMSR Servicing Advance Notes and the 2018 Term Notes. The VFN financing and the GMSR Servicing Advance Notes are included in Assets sold under agreements to repurchase and the 2018 Term Notes are included in Notes payable secured by mortgage servicing assets on the Company's consolidated balance sheet. |
Unsecured Senior Notes
On September 29, 2020, the Company issued $500 million in principal amount of 5.375% senior notes (the “Unsecured Notes”). On October 19, 2020, the Company issued an additional $150 million in principal amount under a supplemental indenture governing the Unsecured Notes. Interest on the Unsecured Notes is payable semi-annually on April 15 and October 15, beginning on April 15, 2021. The Unsecured Notes mature on October 15, 2025.
Before October 15, 2022, the Company may, at its option and on any one or more occasions redeem:
| ● | some or all of the Unsecured Notes at a price equal to 100% of the principal amount of the Unsecured Notes redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a make-whole premium; and |
| ● | up to 40% of the aggregate principal amount of the Unsecured Notes with an amount equal to or less than the net proceeds from certain equity offerings at a redemption price of 105.375% plus accrued and unpaid interest to, but excluding, the redemption date. |
On or after October 15, 2022, the Company may, at its option and on any one or more occasions, redeem some or all of the Unsecured Notes at the applicable redemption prices set forth in the indenture under which the Unsecured Notes were issued, plus accrued and unpaid interest to, but excluding, the redemption date.
If a “change of control” (as defined in the indenture under which the Unsecured Notes were issued) occurs, the holders of the Unsecured Notes may require the Company to purchase for cash all or a portion of their Unsecured Notes at a purchase price equal to 101% of the principal amount of the Unsecured Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.
The Unsecured Notes are senior unsecured obligations of the Company and will rank senior in right of payment to any future subordinated indebtedness of the Company, equally in right of payment with all existing and future senior indebtedness of the Company and effectively subordinated to any future secured indebtedness of the Company to the extent of the value of collateral securing such indebtedness.
The Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of PFSI’s existing and future wholly-owned domestic subsidiaries (other than certain excluded subsidiaries). The guarantees are senior unsecured obligations of the guarantors and will rank senior in right of payment to any future subordinated indebtedness of the guarantors, equally in right of payment with all existing and future senior indebtedness of the guarantors and effectively subordinated to any future secured indebtedness of the guarantors to the extent of the value of collateral securing such indebtedness. The Unsecured Notes and the guarantees are structurally subordinated to the indebtedness and liabilities of the Company’s subsidiaries that do not guarantee the Unsecured Notes.
The Unsecured Notes are summarized below:
Year ended December 31, 2020 | ||||
(in thousands) | ||||
Average balance | $ | 158,743 | ||
Weighted average interest rate (1) | 5.38 | % | ||
Total interest expense | $ | 8,774 | ||
Maximum daily amount outstanding | $ | 650,000 | ||
| (1) | Excludes the effect of amortization of debt issuance costs of $225,000. |
December 31, | ||||
2020 |
| |||
(in thousands) | ||||
Carrying value: | ||||
Unpaid principal balance | $ | 650,000 |
| |
Unamortized debt issuance costs, net of issuance premium | (4,180) | |||
$ | 645,820 | |||
Corporate Revolving Line of Credit
The Company, through its subsidiary PennyMac, entered into an amended and restated credit agreement on November 18, 2016, as amended (the “Credit Agreement”) under which PennyMac established a revolving line of credit in an amount not to exceed $150 million. Certain cash accounts with balances totaling $52.6 million at December 31, 2019, were pledged to secure this revolving line of credit. PennyMac did not borrow under the revolving line of credit during the periods presented and terminated the Credit Agreement on September 29, 2020 concurrent with its issuance of the Unsecured Notes. Debt issuance costs and non-utilization fees totaled $1.5 million, $1.9 million and $1.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
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About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.