Item 1.01. Entry into a Material Definitive Agreement.
Credit Agreement
On June 15, 2020 (the
“Effective Date”), MFA FINANCIAL, INC. (“MFA” or the “Company”) and
MFRESIDENTIAL ASSETS HOLDING CORP. (the “Borrower”), a wholly-owned subsidiary of the Company, entered
into a credit agreement (the “Credit Agreement”) with the lenders party thereto and WILMINGTON TRUST,
NATIONAL ASSOCIATION, as administrative agent and collateral agent (in such capacities, including any successor thereto, the
“Agent”), providing for a $500 million senior secured term loan facility (the “Term Loan
Facility”). The loans under the Term Loan Facility are expected to be funded on or about June 26, 2020 (the
“Funding Date”). Proceeds from the Term Loan Facility are expected to be used to (a) repay a portion of
the outstanding repurchase agreement financing obligations of the Company’s subsidiaries, (b) pay accumulated but
unpaid dividends in respect of the Company’s outstanding 7.50% Series B Cumulative Redeemable Preferred Stock and 6.50%
Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, (c) provide the Borrower with working capital and (d)
pay the fees and expenses related to the transactions contemplated thereby. The maturity date for the term loans is the sixth
anniversary of the Funding Date.
Guarantees and Collateral
The Borrower’s obligations under the
Term Loan Facility will be guaranteed by the Company and certain of its subsidiaries (such subsidiaries, collectively, the “Subsidiary
Guarantors”). The obligations of the Company, the Borrower and the Subsidiary Guarantors under the Term Loan Facility
will be secured by pledges of certain equity interests held by the Company, the Borrower and the Subsidiary Guarantors.
Interest and Fees
The term loans will be issued with
original issue discount of 1%. Interest on the outstanding principal amount of the term loans will accrue at a rate of 11%
per annum until the third anniversary of the Funding Date. Prior to the third anniversary of the Funding Date, a portion of such interest, in an amount equal to up to 3% per annum, may be capitalized, compounded and
added to the unpaid principal amount of the term loans. The interest rate on the term loans will increase by 1% per annum on
the third anniversary of the Funding Date and by an additional 1% per annum on each subsequent anniversary of the Funding
Date. Upon the occurrence and during the continuance of an event of default under the Term Loan Facility, the principal
amount of all term loans outstanding and, to the extent permitted by applicable law, any interest payments on such term
loans or any fees or other amounts owing under the Term Loan Facility that, in either case, are then overdue, would
thereafter bear interest at a rate that is 2% per annum in excess of the interest rate otherwise payable on the term
loans.
Voluntary Prepayments, Installment Payments and Mandatory
Prepayments
Under the terms of the Credit
Agreement, the Borrower will be permitted to voluntarily prepay the term loans at any time without premium or penalty.
Installment payments of principal as specified in the Credit Agreement, together with accrued and unpaid interest on such
principal amount, will be required to be made on the last business day of each March, June, September and December beginning
on September 30, 2020. Mandatory prepayments of the term loans will be required to be made from net cash proceeds received in
connection with certain events, including the following:
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the incurrence of any indebtedness not permitted by
the Credit Agreement; and
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insurance proceeds or condemnation awards in excess
of $10 million in connection with theft, damage or other similar events with respect to any property of assets of the Borrower
or any Subsidiary, subject to customary reinvestment rights.
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Upon the occurrence of a Change of
Control (as defined in the Credit Agreement), the Borrower will be required to make an offer to each lender to repay 100% of
such lender’s outstanding term loans at par, plus the Special Redemption Premium (as defined in the Credit Agreement)
that is due and payable, plus accrued and unpaid interest, if any, on such outstanding loans.
Covenants
The Credit Agreement provides for certain
affirmative and negative covenants, which are applicable to the Company, the Borrower and their subsidiaries. The negative covenants
in the Credit Agreement include, among other things, limitations (subject to exceptions) on the Company’s, the Borrower’s
and their subsidiaries’ ability to:
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incur
liens on their assets;
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wind
up, liquidate or dissolve affairs or consummate any merger or consolidation, or convey,
sell, lease or otherwise dispose of all or any part of property or assets;
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make
or pay dividends or other distributions with respect to their equity interests;
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make
advances, loans or investments;
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enter
into transactions with their affiliates on a non-arm’s length basis;
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amend,
modify, change or waive the terms of the Company’s existing notes or any convertible
debt or prepay such debt; and
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engage
directly or indirectly in any business other than the businesses engaged in by the Company
and the subsidiaries as of the Funding Date and reasonable extensions and developments
thereof and businesses reasonably similar, ancillary or complimentary to any of such
businesses.
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Liquidity Covenant
The Borrower must not permit the aggregate
sum of (i) unrestricted cash and unrestricted cash equivalents of the Company, the Borrower and the subsidiaries plus (ii) the
aggregate amount of unused committed availability as of such date under facilities for permitted repurchase agreement indebtedness
of the Company, the Borrower and the subsidiaries to be less than $100,000,000 at any time.
Events of Default
Events of default under the Credit Agreement
include, without limitation, events of default with respect to nonpayment of principal, interest or any fee or other amount due
under the Term Loan Facility; breach of representations; breach of covenants; default in other agreements; bankruptcy, appointment
of a receiver and other insolvency events; occurrence of an ERISA event, material judgments and attachments; and any guarantee,
security documents or other loan documents no longer being in full force and effect.
Forward Commitment Agreement
In connection with the Credit
Agreement and
in accordance with the terms of a forward purchase and sale commitment agreement, dated as of June 15, 2020, by and between the
Company and ATHENE USA CORPORATION (“Athene”) has agreed to purchase certain
securities backed by residential mortgage loans that the Company or one or more of its subsidiaries may issue in the future.
Investment Agreement
On the Effective Date, the Company
also entered into an Investment Agreement (the “Investment Agreement”) with OMAHA EQUITY AGGREGATOR, L.P.
(the “Apollo Purchaser”) and Athene (together with the Apollo Purchaser, the
“Purchasers” and each a “Purchaser”). Pursuant to the Investment Agreement, (i) the
Company has agreed to issue to the Purchasers warrants (the “Warrants”) to purchase 37,039,106 shares in the
aggregate (subject to adjustment in accordance with their terms) of the common stock, par value $0.01 per share, of the
Company (the “Common Stock”), and (ii) the Purchasers or one or more of their affiliates have agreed to
purchase, prior to the first anniversary date of the Investment Agreement, in one or a series of open market or privately
negotiated transactions, a number of shares of Common Stock (the “New Shares”) equal to the lesser of (a)
such number of shares representing 4.9% of the outstanding shares of Common Stock on the Effective Date or (b) such number of
shares as the Purchasers may purchase for an aggregate gross purchase price of $50 million, subject to (1) reduction upon
prepayment of the Term Loan Facility and (2) extension beyond one year if there are less than 15 trading weeks during that
year in which the Company’s policies permit the Purchasers to purchase the New Shares. On terms and subject to the
conditions set forth in the Investment Agreement, including certain customary closing conditions, the issuance of the
Warrants will occur on the Funding Date.
Designee Appointment Rights
Following the Funding Date and until
the later of (i) the first day on which the Apollo Purchaser and its affiliates no longer own, in the aggregate, 2.5% of the
then-outstanding shares of Common Stock and (ii) the first day on which the Term Loan Facility is no longer outstanding, the
Apollo Purchaser may elect to have a designee of the Apollo Purchaser (the “Apollo Designee”) be a
non-voting observer of the Company’s Board of Directors (the “Board”) or to be appointed as a member
of the Board. If the Apollo Purchaser elects to have the Apollo Designee appointed as a member of the Board, the Company has
agreed to (a) nominate such designee to be elected at each annual meeting of the Company’s stockholders at which the
class of directors, of which the Apollo Designee is a part of, is subject to election (or re-election), (b) recommend that
the holders of Common Stock vote to elect such designee and (c) use its reasonable efforts to cause the election to the Board
of a slate of directors that includes such designee.
Standstill Restrictions
From the Effective
Date and until the later of (i) the second anniversary of the Funding Date and (ii) three months following the date on which
the Apollo Designee is no longer serving on the Board or as an observer (and as of such time the Apollo Purchaser no longer has
rights to designate a designee or otherwise has irrevocably waived in a writing delivered to the Company its rights under the Investment
Agreement to nominate a designee), the Purchasers and certain of their affiliates will be subject to certain custom standstill obligations
that restrict them from, among other things, purchasing additional securities of the Company, subject to certain exceptions set
forth in the Investment Agreement.
The Warrants
Pursuant to the
Investment Agreement, the Company has agreed to issue the Warrants to the Purchasers. The exercise price per share for
one-half of the Warrants is $1.66, the closing price of the Company’s Common Stock on May 22, 2020 (the last closing
price per share immediately preceding execution of the term sheet between the Company and APOLLO MANAGEMENT HOLDINGS L.P.
relating to the transactions described in this Form 8-K), and the exercise price per share for the remaining half of the
Warrants is $2.08, which is 125% of the closing price per share of the Common Stock on May 22, 2020. The exercise price of
the Warrants and shares of Common Stock issuable upon exercise of the Warrants are subject to adjustments. The Warrants are
exercisable at the holder’s option at any time and from time to time after the Funding Date, until the date that is the
later of (i) the fifth anniversary of the Effective Date and (ii) the first anniversary of the date on which all obligations
in respect of the Credit Agreement, including payment in full of the Term Loan Facility thereunder, have been satisfied.
Registration Rights Agreement
Pursuant to the Investment
Agreement, the Company and the Purchasers will enter into a registration rights agreement, whereby the Purchasers are entitled
to customary registration rights with respect to the New Shares and shares of Common Stock for which the Warrants may be exercised.
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The transactions contemplated by the
Credit Agreement, the Investment Agreement and the Asset Level Debt Facility (as defined below) are subject to and
conditioned on, among other things, the completion of definitive documentation relating to the Asset Level Debt Facility,
completion of documentation relating to the Company’s exit from the previously-reported Forbearance Agreement,
dated as of June 1, 2020, with the its existing repurchase agreement counterparties and other customary closing
conditions.