Ras holds a number of second mortgages that are close to default. Perhaps one or two went into default and rather than taking over the first mortgage (perhaps it wasn't permitted) Ras decided to pay the first off, take over the property and then refinance it.
Then take the cash and put it into the lending business where they say they can make 18%.
Yes, again poor wording on my part. The banks will lend $3 to every $1 that Ras has at risk within the warehouse lines of credit for temporarily financing the loans before the loans are either sold into the UBS or Citi fixed rate securitizations, or put into ras's floating rate bridge loan securitizations. Previously, it was only $1 for $1. Much more potential leverage.
These wholesale lines are recourse to Ras.
One can tell how much is in the equity tranche whenever they create the securitization. They always announce the amount of investment grade bonds sold, and the rest of the securitization is ras's equity. FL-4 had about 18% Ras money in the equity tranche. This money can't be removed until the securitization winds up. All interest income and interest expense shows up on the consolidated books. I don't think the numbers are broken out deal by deal. Hope I answered your questions.
I worded something above very poorly. Ras sells floating rate investment grade bonds to finance its securitizations. These securitizations FL-1 through FL4 (so far) have been about 80% investment grade debt, and 20% Ras equity.
So, interestingly, the longer term permanent financing has permitted significantly more leverage than the short term financing (until now). That is usually not the case.
Ras and a number of its subsidiaries have two main securities purchase agreements with two major banks. UBS and Citi.
As part of these agreements, the banks provide wholesale lines of credit in order to help Ras subsidiaries originate loans on a leveraged basis. Up until now, the LTV on these lines was only 50%.
Ras originated two main types of commercial loans. The first is a fixed rate loan with loan maturities of 5 to 10 years. These loans are sold into securitizations created by the two banks. The second is a floating rate commercial loan that Ras puts into its own securitizations. Ras sells floating rate bonds that have typically been at 80% LTV.
The basic feature of the NEW agreement is that the banks will now lend on its wholesale warehousing lines provided to Ras ...........at 75% LTV. The main benefit to Ras is it ties up less company cash.
I hope that does an adequate job of explaining the deal.
I wish they had done this before issuing more shares......
We will see how management explains how the $ for the issue was used.
It would seem, based on this new agreement, that they are doing more lending than before. Or they are just planing on doing more and don't want to raise more capital to do it.
I will try to summarize in a separate thread.
Amazing that I get 3 thumbs down when I mearly state facts about the company activities...no opinion. It tells us something about some of the readers here.
I don't think the company will last that long. I know I won't.
Ok, how about they foreclose, the local area continues to deteriorate. Rents go down, and renters are hard to find......is that a better bad scenario?
Hey, they already own some bad real estate. Look at their malls.
What will happen if the loan(s) within the securitization stop paying? Ras will foreclose. There will be less cash flow generated from the securitization and therefore Ras will make less money from the securitization.
Ras plans/believes that the foreclosed real estate will retain enough value to pay off the loans or generate enough cash to keep paying the bonds that the securitization issued. This is what happened with Rait 1 & 2.
To paint a negative picture and see how terrible things could go........Ras could foreclose and find that there is toxic waste on the property and not only do they get no money for it, but they need to pay money to clean up the sight😀
In any case, I think the point DF is that the leverage is somewhat misleading.
You are thinking of the conduit loans (fixed rate 5 to 10 year loans) that Ras originates and then sells off into larger securitizations.
The bridge loans(3 to 5 year floating rate loans) are bundled into securitizations that are nonrecourse to Ras. The whole securitization shows up on Ras books because Ras controls the equity portion of the entity. The reality of these securitizations is that Ras has about 20% of the entity at risk.......the equity portion.
That's a big jump in price. I'm not certain I get the point you are trying to make. The latest move you are pointing to would appear to be having the exactly the opposite affect (whatever the exact opposite of biting in the butt......maybe kissing in the?)
I only draw conclusions based on what you post. I know nothing about you except for what you post. You could be my brother or sister for all I know.
Maybe EQR & AVB are viewed as a haven. So, all those flying to quality are headed there as well as government bonds. IRT, while almost doubling in size, remains a pipsqueak relatively.
Oh, yeah, I can see window dressing for Ras, but not sure on Irt.