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Edited Transcript of RSO earnings conference call or presentation 4-Mar-20 1:30pm GMT

Q4 2019 Exantas Capital Corp Earnings Call

New York Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Exantas Capital Corp earnings conference call or presentation Wednesday, March 4, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Bryant

Exantas Capital Corp. - Senior VP, CFO & Treasurer

* Matthew J. Stern

Exantas Capital Corp. - President

* Paul Andrew Hughson

Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division

* Robert Cross Lieber

Exantas Capital Corp. - CEO

* Steven Landgraber

Exantas Capital Corp. - IR

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Conference Call Participants

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* Stephen Albert Laws

Raymond James & Associates, Inc., Research Division - Research Analyst

* Steven Cole Delaney

JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q4 and Full Year 2019 Exantas Capital Corp. Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Steve Landgraber, Senior Vice President of Corporate Finance. Sir, you may begin.

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Steven Landgraber, Exantas Capital Corp. - IR [2]

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Good morning, and thank you for joining the call.

Before we begin, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the words believes, anticipates, expects and similar expressions are intended to identify forward-looking statements. While the company believes that these forward-looking statements are based on reasonable assumptions, such statements are based on management's current expectations and beliefs and are subject to a number of trends, risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K and in particular, the Risk Factors section of our Form 10-K. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements.

Furthermore, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in our earnings release for the past quarter.

I will now turn over to CEO of Exantas Capital Corp., Bob Lieber, for opening remarks.

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Robert Cross Lieber, Exantas Capital Corp. - CEO [3]

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Thanks, Steve, and good morning, everybody. Thanks for joining our call today. With me today are Matt Stern, our President; Dave Bryant, our Chief Financial Officer; Paul Hughson, who's the Head of all the Commercial Real Estate Lending; and Steve Landgraber from whom you've already heard. We also may be joined by Andrew Farkas, who is getting off an airplane imminently and may be joining into this call, but we didn't want to go any longer. So if Andrew joins, we'll welcome him as a part when he gets here.

I'd like to start by reviewing the progress Exantas made in 2019. Our full year dividend was -- for 2019 was $0.95 versus $0.475 in 2018, an increase of 100%. We generated core earnings of $1.07, which was well in excess of our dividend. We originated or acquired nearly $1.1 billion of commercial real estate-related debt investments. Economic book value began the year at $13.54 and ended at $13.61. Exantas continues to successfully execute the business plan articulated by our team.

Needless to say, the commercial real estate finance markets are dynamic. As articulated on our calls through 2019, our traditional markets have seen a number of new entrants, and risk-adjusted returns across products consistently evolve. To further differentiate Exantas from our competition and deliver value to our borrowers and our investors, we've announced last week that Exantas will now offer a fixed rate loan product, which expands our platform to provide a full suite of loan products to middle market borrowers. We believe this differentiates Exantas from many of our competitors and is expected to increase capital deployment as well as drive earnings.

Full year 2019 core earnings were $1.07 versus $0.71 of adjusted core earnings in 2018. The growth in core earnings is attributable to $5.9 million or $0.19 improvement in net interest income and an improvement of $2.4 million or $0.08 per share in operating expenses. Deployment for the year was nearly $1.1 billion, with $730 million of loans originated and over $210 million of loans purchased from CM, including the 2,000 -- excuse me, the 211 loans purchased from C-III Commercial Mortgage as well as $147 million of CMBS that was acquired. Excluding the portfolio purchased from C-III, we deployed $878 million of capital, which falls within our original guidance of $850 million to $1 billion, albeit at the lower end of the range. This compared to $862 million of loans originated and $252 million of CMBS purchased in 2018, totaling a little over $1.1 billion. Payoffs and paydowns were $740 million in 2019 versus $596 million for 2018. So outsized payoffs did materially impact some of the things we did to increase our portfolio.

Within this context, Exantas announced that it's expanding its commercial real estate debt platform to include fixed rate commercial real estate loans through the integration of C-III Commercial Mortgage platform. Matt will discuss later the benefits to our borrowers and our shareholders, but we feel this additional product will allow us to deploy more capital at attractive yields and specifically capture some of the demand for permanent financing coming directly from our borrowers. Exantas is now a one-stop solution for borrowers who borrow short term on transitional assets and then can utilize the same lender to provide fixed rate long-term loans, once the business plan is completed. We feel this differentiates us from our competition at the loan size we most commonly originate.

Turning to fourth quarter results. 2019 core earnings were $0.23 per share compared to $0.31 per share last quarter and $0.21 per share during the fourth quarter of 2018. This quarterly decline in core earnings from last quarter was driven primarily by the negative net production during the third quarter, which is consistent with our commentary provided on our third quarter earnings call.

New commercial real estate originations of $203 million increased, as expected in Q4 relative to the $105 million originated in Q3, but we continue to experience higher-than-usual paydown activity as our borrowers achieved their business plans and took advantage of the lower interest rate environment.

Fourth quarter loan payoffs and paydowns were $204.8 million after 205 -- $256.9 million in Q3. We do believe that the introduction of the fixed rate business will allow us to capture some of this refinancing volume.

Net deployment for the fourth quarter was $45.6 million with gross real estate debt investments of $276 million net of the 2 point -- of the $227.7 million of payoffs. As of December 31, 2019, our commercial real estate debt portfolio was $2.3 billion, which consists of $1.8 billion of commercial real estate loans and $556 million of CMBS at par.

Net interest income during the fourth quarter was $14.4 million or $0.45 per share compared to $16.6 million or $0.52 per share during the third quarter of 2019.

GAAP book value per common share was $14, a $0.12 decrease from the third quarter, and economic book value decreased to $13.61 compared to $13.71 last quarter. GAAP net income was $3.8 million or $0.12 per share compared to $10 million or $0.31 per share for the third quarter. GAAP net income was negatively impacted by $0.07 of noncore activity, which Dave will highlight in his comments. GAAP net income for the year was $0.81 versus $0.22 in 2018 prior to any onetime adjustments.

In light of the integration of C-III Commercial Mortgage, we'd like to update our 2020 origination guidance. And I would characterize this under normalized market conditions, we now expect Exantas to originate or acquire at least $1.1 billion of commercial real estate debt in 2020. Of this amount, we would expect about $200 million to come from fixed rate originations. I want to emphasize, though, that this recent market activity has not been normal, and we may need to revisit this guidance later this year.

Our current pipeline looks strong with over $350 million of term sheets returned and $87 million of loans closed this quarter to date. Some of the term sheets returned will close in the second quarter. We still have ample liquidity of $140 million-ish to fund our pipeline and grow net interest income. This translates to roughly $300 million to $350 million of incremental deployment capacity.

Given most of our deployment will be at the end of the first quarter and then into the second quarter, we expect our net interest income in the first quarter to be relatively muted. However, the current pipeline and our confidence in our deployment guidance gives us the comfort with our current dividend of $0.275 per share.

With that, I'd like to turn it over to Matt.

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Matthew J. Stern, Exantas Capital Corp. - President [4]

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Thank you, Bob, and good morning, everyone. I'll first provide some additional information on the integration of C-III Commercial Mortgage's loan platform, after which, I'll review the fourth quarter performance of our CRE and CMBS portfolios.

We are encouraged by the opportunities created for Exantas through the integration of C-III Commercial Mortgage's fixed rate lending business. Since its inception in 2010, C-III Commercial Mortgage has originated $3.2 billion of fixed rate loans and $2.1 billion of floating rate loans. This business has a track record of profitably deploying capital with an excellent credit history.

As you will recall, in May 2019, C-III Commercial Mortgage sold a $211 million portfolio of floating rate CRE mortgage loans to Exantas, which was immediately accretive to Exantas' earnings. We believe the addition of the fixed rate business will be a valuable differentiator for Exantas as the competition for transactions has increased. We tend to target borrowers with light transitional assets who are often looking for more permanent financing as their business plan gains traction. Exantas' borrowers will now be able to benefit from a full suite of real estate capital market offerings, from short-term floating rate loans to longer-term fixed rate loans as well as preferred equity and mezzanine debt in appropriate situations. We will also be able to capture a share of the maturities in our floating rate book by offering flexible, longer-term fixed rate capital products to our existing floating rate customer base as well as reaching a new universe of borrowers who primarily seek fixed rate loans. Additionally, Exantas will become one of the few public REITs operating a fixed rate securitization business, which will enhance shareholder returns.

Our fixed rate loans will be originated at a taxable REIT subsidiary, or a TRS, as these loans will be targeted for CMBS securitization. Gains on securitization are deemed to be nonqualified income for a REIT, which is why we will be doing this business at a TRS. One item of note is that Exantas has $60 million of gross net operating losses, or NOLs, at our TRS from legacy business activities, which were disposed of as part of the strategic plan. Exantas has a full valuation allowance against these NOLs, so there is no book value currently associated with them. This new business endeavor will allow us to utilize this valuable asset.

In conclusion, the integration meaningfully expands Exantas' precedence in the commercial real estate space and helps to accelerate the deployment of our capital base accretively despite the competitive marketplace.

I'll now address fourth quarter activity in both our commercial real estate and CMBS portfolios. At December 31, 2019, our commercial real estate loan portfolio balance was $1.8 billion and consisted of 98% floating rate assets. The composition of the portfolio remained consistent by both property type and region relative to last quarter.

During the fourth quarter, we originated 12 commercial real estate floating rate loans, totaling $203 million, with an average commitment of $16.9 million and a weighted average spread of 289 basis points over 30-day LIBOR. The weighted average unlevered yield on new loan originations decreased by 68 basis points to 5.04% during the fourth quarter compared to 5.72% during the fourth quarter of 2018. Total CRE loan asset financing was $1.3 billion at quarter end with a weighted average spread of 1.59% compared to a spread of 1.68% during the fourth quarter of 2018.

Our CRE loan portfolio remained flat during the fourth quarter as payoffs and paydowns of $204.8 million offset new loan originations of $203 million. We had 15 loan payoffs in the fourth quarter, 11 of which totaling $163 million were paid off within 25 months of origination. Of the 11, 5 were paid off with fixed rate financing and 4 assets were sold, demonstrating that these properties had sufficiently achieved their business plan to exit the transitional loan market. It is exactly these key types of situations where we feel we can capture some of the refinancings with our own fixed rate loan product.

Turning now to our CMBS portfolio. During the third quarter, we acquired $73 million in face amount of CMBS bonds, including $59 million of floating rate bonds at a spread of LIBOR plus 2.46%. This was partially offset by $22.9 million of paydowns, resulting in net acquisitions of $50.1 million at a weighted average coupon rate of 3.99%.

At December 31, 2019, our $556 million CMBS portfolio at par, which had a carrying value of $520.7 million, was comprised of $382.7 million of floating rate bonds and $138 million of fixed rate bonds. We recognized a net increase from last quarter of $0.02 per common share of book value from our CMBS portfolio, including the impact of mark to market on our interest rate swaps.

With that, I'd like to turn it over to Dave Bryant to discuss our financials.

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [5]

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Thank you, Matt. Good morning.

Our GAAP net income allocable to common shares for the 3 months and year ended December 31, 2019, was $3.8 million or $0.12 per share and $25.6 million or $0.81 per share, respectively. Core earnings were $7.3 million or $0.23 per share for the fourth quarter 2019, and that was relatively flat over the adjusted amount for the same period in 2018. For the calendar year 2019, core earnings were $34 million or $1.07 per share or an increase of $11.6 million or $0.36 per share over adjusted core earnings in calendar 2018. The growth in our core earnings is being driven primarily by our positive net investment production over the last year. Accordingly, we saw a net interest income increased by $5.9 million or 11% for 2019 compared to 2018.

In terms of significant items impacting the fourth quarter GAAP earnings, we incurred $3.3 million or $0.10 per share of charges on a noncore legacy asset held for sale comprised of $2.2 million or $0.07 per share that Bob mentioned from a valuation adjustment based on an updated property appraisal, and the balance of $0.03 per share is from protective operating advances, both reflected in other income.

As we stated during last quarter's call, we expected a decline in net interest income during the fourth quarter as a result of outsized loan payoffs in the second half of 2019. We had substantial loan payoffs at the end of the third quarter and beginning of the fourth quarter, which was only partially offset by our net positive fourth quarter production. This combined to cause a $0.06 decline to earnings per share.

We accelerated deferred costs related to our 2018 securitization of approximately $700,000 or $0.02 per share, reflected in interest expense that resulted from loan payoffs of $125 million within our 2018 CLO. These items were offset by a nonrecurring adjustment from a former investment that was exited as part of the strategic plan in which we recovered $600,000 or $0.02 per share, resulting from a revaluation of an indemnification obligation recorded from the 2017 disposal of a JV investment.

The net negative impact from these items combined in 2019 was approximately $5.3 million or $0.16 per share. With the net positive investment production in the fourth quarter and a strong start to production toward the first quarter of 2020, we expect our run rate earnings profile to increase as we see the full impact of our production from the current pipeline to begin in the second quarter. For 2019, our GAAP net income is $0.81 compared to $1.07 of core earnings per share. Net income includes a net $0.10 of charges, which I outlined, related to the asset in our strategic plan. The other significant difference of $0.16 in core adjustments for the year are predominantly from the combination of noncash amortization on our equity compensation expense and the noncash amortization of the value of the convertible option on our 4.5% notes. GAAP book value declined to $14 per common share at December 31 from $14.12 at September 30 and represents a $0.02 decrease from our December 31, 2018, book value of $14.02 per common share.

Economic book value, a non-GAAP metric, was $13.61 per share at December 31, a decline from $13.71 at September 30. However, the economic book value per share of $13.61 at year-end represents an increase of $0.07 from $13.54 at December 31, 2018. GAAP book value per common share of $14, less the adjustment for unamortized discounts on our convertible notes and redemption value of our preferred stock, which totaled $0.39 per share, reconciles the calculation of economic book value per share. As a further point of comparison, our economic book value at December 31, 2017, was $13.63 per common share and reflects our relative book value stability.

Impacting our financials starting January 1, 2020, will be the implementation of CECL, which is new accounting guidance on loan loss reserves that require us to estimate expected credit losses over the life of our loans. In determining our credit losses -- expected credit losses, we evaluate it by property type and loan type, available, relevant, historical and current loan loss data as well as future macroeconomic information. We have evaluated the impact of CECL on our going forward reserve policy with our advisers, and it results in a 25 basis point reserve or $4.5 million on our $1.8 billion loan portfolio. Since we had reserved $1.5 million at year-end 2019, the charge to retained earnings will be $3 million or $0.10 per share upon adoption in the first quarter of 2020.

Our GAAP debt-to-equity ratio remained flat from last quarter at 3.4x at December 31. We saw our securitizations experienced debt paydowns of $138 million, which was offset by a net increase in our recourse borrowings of $120 million as we ramped up our loan book for our new CLO and acquired additional CMBS during the period.

Stockholders' equity decreased by $3.6 million as GAAP earnings were below our dividend this quarter, partially offset by a net increase in our mark to markets, which Matt had discussed. As an experienced issuer in CRE, CLO markets, we find the CLO market an attractive source of non mark-to-market, cost-efficient financing. During 2019, we issued the largest CLO in our history of Exantas Capital 2019-RSO7 deal at $687.2 million. In addition, we were able to liquidate and recycle capital in our 2017 CLO with only $63 million of the original loan collateral of $377 million that remains on our balance sheet as of today.

After the quarter, we announced the pricing of our newest real estate CLO, Exantas Capital 2020-RSO8. The transaction finances $522.6 million of CRE loans with $435.7 million of investment-grade nonrecourse floating rate notes. We priced the deal at a weighted average spread of 1.43% when the investment grade notes and we'll close with a leverage factor of 83.4%.

However, at closing, we plan to purchase $42.4 million of the BBB notes, and after financing those notes, we expect our leverage to be 81.9% at a weighted average spread of 1.28%. This is our 10th real estate CLO, and we have sponsored $4.3 billion of CLO transactions over our 15-year history.

At December 31, our $1.8 billion floating rate CRE loan portfolio at par has a weighted average LIBOR floor of 1.89% and weighted average spread over LIBOR of 3.49%. To mitigate the impact of the decline in LIBOR, we have historically included LIBOR floors on our loans, along with minimum interest period productions, typically ranging from 12 to 18 months at the time of origination.

At the end of December, we had $1.3 billion or 71% of our loan book with LIBOR floors that are in the money. That is with 30-day LIBOR at 1.76% at the end of 2019. We expect to continue to see a benefit to net interest income during 2020, as we have seen LIBOR decline over the past week and the forward LIBOR curve projects a further decrease in rates.

Lastly, we redeemed the remaining $21 million of our 8% convertible notes in January 2020 and have sufficient liquidity at the end of February to fund a robust real estate loading and fixed rate debt investment pipeline.

With that, I'll turn the call back to Bob for some final comments.

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Robert Cross Lieber, Exantas Capital Corp. - CEO [6]

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Thanks, Dave. These are certainly interesting times, particularly in the capital markets. The current market dislocations create uncertainty. But for us, we believe this creates new opportunities, and we think 2020 will be a great year for Exantas, particularly with the addition of the fixed rate business and remain optimistic about our long-term operating strategy and its ability to produce results.

With that, I would like to ask the operator to open it up for any potential questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Steve Delaney of JMP Securities.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [2]

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I appreciate the color on the C-III Commercial Mortgage. We saw the initial announcement and because we -- obviously, other -- a couple other commercial mortgage REITs have this activity, and it's been very positive to return on common equity. But just to clarify a couple of things. It strikes me that, what I'm hearing now, and it wasn't clear initially from the press release, is that any gain on sale revenue net, and we certainly hope that will be positive, but that is -- that stays in the TRS. And the manager is not receiving any share in that. Can you just kind of clarify? What I'm trying to get at is if you record the sale of the loans in the TRS somehow another. Is there any expenses paid or fees paid to the manager other than the existing management agreement with the REIT?

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Matthew J. Stern, Exantas Capital Corp. - President [3]

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Yes. So there -- I guess, there are 2 parts to that. One was an income question as it pertains to the REIT, Steve. I'll touch on that first, and then I'll hit your second. So the answer is the income would occur at the TRS level. And then if the income or the money and income is distributed up to the QRS, that would produce income at the REIT level. So that's the first piece. It's really the upstreaming of the cash -- right from the securitization gain. As part of the broader arrangements, there is a significant cost profile to bringing over the team in order to execute this business at Exantas. And as you might have seen in our press release, 1% of loans that are made -- fixed rate loans only that are made on behalf of Exantas, there will be an expense reimbursement associated with that to the manager.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [4]

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Got it. And that -- I probably missed that, Matt.

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Matthew J. Stern, Exantas Capital Corp. - President [5]

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Sure. And if you look at our 8-K and our press release, I think it's explained there. And that really is just an effort to partially mitigate the cost profile of bringing over the entirety of the fixed and floating rate team from commercial mortgage.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [6]

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Got it. And I guess the other benefit, as you said, is to the extent you don't need that cash and the REIT to cover dividends, et cetera, you want to utilize your NOL, you could hold that there and just grow GAAP book value for the consolidated company, I assume, if you don't need to upstream it.

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Matthew J. Stern, Exantas Capital Corp. - President [7]

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I think that, that is right, but I would clarify 1 thing. It would still be a taxable event at the TRS level, and so you could utilize the NOL. But you're right about the decision, which is we could choose to upstream that money to the QRS or the capital could be left in the TRS, which would obviously be a positive from a book value perspective.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [8]

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Correct. Correct. Okay. That's very helpful, especially the 1%, which, as I said, I missed. You had a good fourth quarter in credit in terms of CMBS spreads and a positive fair value mark. I know it's still early in this latest disruption, as recently as 2 weeks ago, we were seeing new issue 8.4% 10-year bonds being sold at near all-time heights. But I suspect that things have widened out a little bit. Can you just comment generally on how much spread widening you're generally seeing in the CMBS market in the last couple of weeks?

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Robert Cross Lieber, Exantas Capital Corp. - CEO [9]

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So Paul, you want to take that?

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Paul Andrew Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [10]

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Sure. So I would say the BNK yield priced yesterday. AAA 10 years priced at 95 over. Say, 2 weeks ago, 3 weeks ago, that's probably like versus like 76. So I think at the top end -- and we priced our CLO on Monday. And I'd say, at the top of the stack, things are kind of 15, 20 wider. And at the bottom of our stack, things are probably 35, 50 wider.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [11]

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That's very helpful, Paul. So with a bit -- it's hard to expect that as low as absolute rates are going, in some ways, that may be an economic requirement. But if I'm a life company and I see the 10-year go down 50 basis points, I got to get some carry somewhere. It's almost -- spreads almost widened just because base rates are so much lower. But we'll have to wait and see on the credit. That color is very helpful. And one final thing for me. You guys have done a good job of cleaning up the right side of your balance sheet with some high-cost debt, et cetera, that you paid off. You still have your Series C, $116 million at 8 5/8%. Can you remind us when that would be callable?

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Matthew J. Stern, Exantas Capital Corp. - President [12]

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Yes. So it's -- that's the last piece of it. I think it's carried on our balance sheet at $116 million, and it is callable and I believe it is July of 2024.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [13]

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Oh, wow, so you've got to live with that for a while.

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Matthew J. Stern, Exantas Capital Corp. - President [14]

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Yes. I think from a -- based on existing terms, we -- that's something that we'll need to have for a while.

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Operator [15]

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(Operator Instructions) Your next question comes from the line of Stephen Laws of Raymond James.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [16]

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Bob, I appreciate some of the details you went through with projections on originations, especially the $200 million of fixed rate. But can you give us a little more details on that product, what the typical yield is, how it differs, if any, in structure from -- in terms of the floating outside of just the rate and if financing strategy around those loans will to mitigate interest rate risk?

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Robert Cross Lieber, Exantas Capital Corp. - CEO [17]

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Sure. Thanks, Steve. I'm going to turn that over to Paul to talk about what he sees in that part of the business.

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Paul Andrew Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [18]

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Great. So the majority of those loans are 10-year fixed rate loans that are fully call-protected with the intention that they be contributed to securitize transactions. C-III are contributed to 35 or 40 different pooled securitized transactions. The loans are hedged. So -- and there's a component of our lines that will allow us to finance them. So given the -- we have roughly $900 million of warehouse line capacity. So we'll have the ability to finance both of fixed and the floating rate loans.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [19]

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Great. To follow up on the last bit of remaining legacy assets, I think it's $30 million or $40 million left. Can you give us an update there, timing to resolution? Or are those assets largely just need to run off to maturity? But any update there would be appreciated.

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Robert Cross Lieber, Exantas Capital Corp. - CEO [20]

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Paul, you want to?

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Paul Andrew Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [21]

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I would say, it's a good question. And the -- I mean I think we -- I would like to think that the substantial majority of those assets will be gone over the course of the next 2 quarters. But some of that is subject to the sales market and how the current environment affects the overall real estate capital markets. But all things equal, I would hope that the vast majority of that would be resolved over the course of the next couple of quarters.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [22]

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Great. And finally, Dave, can you -- I appreciate the numbers on CECL. Any expected material changes to that reserve either way in anticipation of any shift in asset mix or anything else that we need to think about as we build in a CECL reserve line going forward?

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [23]

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Not at this present time, Stephen. It obviously just took -- went into effect on January 1. And we've looked at our history of losses, and we look forward using a service. And we just don't see any change to that in the near-term future.

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Operator [24]

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At this time, there are no further questions. I will now turn the call to management for any additional or closing remarks.

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Robert Cross Lieber, Exantas Capital Corp. - CEO [25]

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Well, I want to thank everybody for joining us this morning. We look forward to updating you on our progress on our next earnings call. Thank you very much.

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Operator [26]

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Thank you. That does conclude the Q4 and Full Year 2019 Exantas Capital Corp. Earnings Conference Call. You may now disconnect.