Sarah Barcomb: Great, thanks for all the detail there. Appreciate it.
Operator: The next question we have is from Matt Howlett of B. Riley Securities. Please go ahead.
Matt Howlett: Oh, hey, thanks for taking my question. Hey Tom you mentioned, I think you said high teens to low 20% yield on — potentially on the acquired channel with some of the banks, are those unlevered, that’s the first question? So could you just walk me through some of the economics of those, I mean, where are you buying it, what type of discounts, what type of paper it is?
Thomas E. Capasse: Yeah, these are lower middle market usually stabilized loans that are usually end up criticized. They’re not in default. They’re what we call scratch and dent. But from a bank regulatory standpoint, they get criticized, usually due to response because of DSCR approaching that kind of below 10 threshold. And that’s great from our perspective, because we like — we utilize in our asset management strategies for acquired portfolios. We were one of the larger buyers of the smaller balance loans after the GFC. We bought nearly 5 billion and we worked out 5000 loans. So we have a track record. And so in short to answer your question, the scratch and dent portfolios trade probably low 90s to low 80s to unlevered yields.
Adam we’re looking what high single low double, they many times come with staple financing or we can we have more — interesting as we have more offers for credit on a secured lending basis. Term lending with limited mark-to-market from the banks given the Basel III changes which favor loan on loan real estate being a lot better than making direct loans. So anyways, with that, either the staple financing from the seller and/or the third party financing from banks that gets us to levered IRR on that high single load double to that kind of upper teens area loss adjusted.
Andrew Ahlborn: Yeah, and we have also done, since inception, we’ve done 11 standalone securitization of this strategy. So that’s just another layer in terms of getting higher returns on that portfolio.
Thomas E. Capasse: That’s important point, a good point. And we do have access. It’s our RCM T shelf, is that right Adam.
Adam Zausmer: It’s SCMT.
Thomas E. Capasse: SCMT, sorry, SCMT shelf. So that’s where we have historically utilized purchase of these portfolios in the secondary market, which is a little bit a differentiate again, a differentiator from us in the peer group to buy these pools from banks or out of securitization trusts to then finance them in the ABS market. But again, right now, what’s very unique versus the last credit cycle GFC is the availability of bank financing on a longer term secured basis with limited mark-to-market.
Matt Howlett: Got you. On the bigger packages you see from the New York Community Bancorp, I mean, would you get together a waterfall and bid on those or is that something that Ready looks at?
Thomas E. Capasse: The external manager has a significant trading desk and sources these deals. And so we definitely look as part of our acquisition silo. And the service is provided by the external manager to bid jointly and allocate equity accordingly. Yeah, we’ve done that in a number of transactions over the last decade.
Matt Howlett: Great, thanks. Just final question, I’ll get on the buyback. Did you feel like that the $14 book is pretty good. What I’m hearing you say, what would be — is there a sense of urgency or given the what will be an improvement in the ROE and probably the dividend over time, you feel like to act sooner with the buyback than later where does that stack up in list of priorities? Thanks a lot.
Thomas E. Capasse: Andrew.
Andrew Ahlborn: Certainly where the shares are trading, I think it will be a priority for us coming out of earnings. Again, there is a need to balance using the liquidity on the balance sheet today, for that purpose versus taking advantage of new investments that will provide sort of longer-term earnings power for the company. I will say, given some of the liquidity events we laid out earlier in the call, I think, those items will provide a lot more flexibility to be more aggressive in the share repurchase program should shares hang around these levels?
Matt Howlett: Great, thank you.
Operator: The last question we have is a follow up from Jade Rahmani of KBW. Please go ahead.
Jade Rahmani: Thank you very much. Yeah, I find all the questions about share buybacks pretty interesting at this point in the cycle where there’s clearly very high delinquencies in the portfolio and a lot of credit uncertainty in the outlook. It seems to me, a better use of capital would be defensive. So I just wanted to ask about the corporate debt issuance. What kind of issuance is being contemplated, do you have a range of size you’re thinking about and what the cost might be?
Andrew Ahlborn: Yeah, so I think there are a variety of options. I think you may see, a combination of private placements, potentially some of the retail channels that have been open across a couple of deals since Q4 will be an option for us. In terms of sizing, I would expect them to be more measured anywhere from $75 million to $150 million. I think the cost for those issuances today is somewhere in the range of 9% to 10% of loan yield.
Jade Rahmani: Wow. And so what’s the use of proceeds, you are going to lever that capital rather than pay off capital elsewhere, is any of this used to cure deficiencies or to pay off secured debt, secured leverage elsewhere?
Andrew Ahlborn: Yeah, certainly, the combination of all the liquidity will be used for a variety of the things you just mentioned. Some of it will be to manage some of the — the problem areas in the portfolio, whether that be refi, repurchasing from CLOs, etc. A large majority of that will be used for reinvestment in our origination channels and acquisition channels. And then some of that liquidity will be used in the share repurchase program. We certainly agree with you that having ample amount of liquidity on the balance sheet to manage uncertainty across this, the cycle continues to be the priority. And certainly balancing those other areas of capital uses, including the repurchase and new investments will be done so with that top priority in mind. So, we do agree with you that carrying increased liquidity amounts, lower leverage throughout the cycle is important and will continue to lead the way we manage the business.
Thomas E. Capasse: Yeah, just from a more macro perspective to add on what Andrew is saying, we’re looking at the wall of liquidity we have coming in on the back end of kind of phased in through this calendar year where we are clearly prioritizing defensive use within asset management strategies like strategic refi’s. Because strongly believe that our lower middle market sponsors, the big guys have crossed the vintage have already experienced stressors in workout. But we have a lot of lower middle market sponsors with more workforce housing, that are covering some of the stress in DSCR. And there’s a bridge to agency takeout, just like some of our — some of the other REITs that are focused in the multifamily small balance space, and we believe, strongly believe that look at the forward curve and rent growth over the next 24 months, that that will provide a better use of capital than let’s say immediate repurchases of shares over the next 18 months.
Operator: Thank you. And with that I would like to turn the floor back over to Tom Capasse for closing remarks.
Thomas E. Capasse: Yeah, I appreciate everybody’s time today and look forward to the next quarter’s earnings call.
Operator: Ladies and gentlemen, that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.
