New Residential's capital raise doubles the cash on its balance sheet

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New Residential Investment Corp. completed a capital raise that will more than double the cash and cash equivalents on its balance sheet, thereby increasing its liquidity position during the pandemic.

The company raised $600 million through a private senior secured loan agreement structured and led by Canyon Partners, with participation from credit funds managed by affiliates of Fortress Investment Group, which is already a New Residential investor. On May 15, New Residential had $516 million of cash and cash equivalents on its balance sheet.

"This partnership with Canyon and Fortress provides us with additional financial flexibility, bolsters our balance sheet and creates a pool of capital to be opportunistic," Michael Nierenberg, chairman, CEO and president of New Residential, said in a press release.

The first $310 million of the term loans were expected to be funded on May 20, with the remainder on or around May 27, a Securities and Exchange Commission filing said. The loan term is for three years.

In addition, New Residential is giving warrants to the lenders that will allow them to purchase over 43.4 million shares of its common stock.

The warrants can be exercised between Sept. 19 of this year and May 19, 2023, with 22.5 million shares at a price of $6.11 per share and the remainder at $7.94 per share. At 11 a.m. on May 20, New Residential was trading at $6.73 per share, up $0.60 from its previous close.

Fortress is the manager of New Residential, which is structured as a real estate investment trust. At the end of the first quarter, Fortress owned 2.4 million shares of New Residential, with options to purchase an additional 10.9 million shares. New Residential has 415.6 million shares outstanding.

New Residential posted a $1.6 billion loss in the first quarter, since it had to deleverage its balance sheet as a result of the turmoil caused by the Federal Reserve's mortgage-backed securities purchases.

New Residential’s asset sales led the company to focus on its NewRez originations and servicing business.

In April, NewRez originated $2.7 billion of conforming and government mortgages. Gain-on-sale margins for those loans "continue to be robust," the press release said. It still expects to originate $45 billion this year.

On the servicing side, approximately 8% of its aggregate MSR portfolio, or 240,000 borrowers, had been granted forbearances as of May 15.

But the rate of forborne borrowers that are still making their payments has been higher than modeled, reducing New Residential's projected servicer advance obligations.

In May, the average number of forbearance requests per day was under 3,000; at its peak in March, New Residential received over 21,000 in a single day.

Since the end of the first quarter, New Residential will be adding $1.8 billion to its committed advance financing capability, bringing it to a total of $5.26 billion.

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Stocks New Residential Investment Corp. Fortress Investment Group Originations Earnings MSR