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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and welcome to the Ladder Capital Corporation First Quarter 2020 Earnings Call. Today’s conference is being recorded.
At this time, I would like to turn the conference call over to Michelle Wallach, Chief Compliance Officer and Senior Regulatory Counsel. Please go ahead.
Thank you and good afternoon, everyone. Before we began Ladder Capital Corp earnings call for the first quarter 20202. I’d be remised if I did not acknowledge the pandemic and the impacts that it has caused worldwide. We continue to hope everyone remains safe and healthy during these truly unprecedented times. As the health crisis unfolded Ladder’s near term corporate priority included the wellbeing and safety of our employees. We moved swiftly to activate our business continuity plan and all Ladder employees have been working remotely since mid-March. Despite the remote workplace we’re operating effectively and efficiently.
Turning to our earnings call. With me this afternoon are Brian Harris, our company’s Chief Executive Officer; Pamela McCormack, our President; and Marc Fox, our Chief Financial Officer. Brian, Pamela and Marc will share their comments about the first quarter and what they’re currently seeing in the second quarter and then we’ll open up the call to questions.
This afternoon, we released our financial results for the quarter ended March 31, 2020. The earnings release is available in the Investor Relations section of the company’s website and our quarterly report on Form 10-Q will be filed with the SEC later this week.
Before the call begins, I’d like to remind everyone that this call may include forward-looking statements. Actual results may differ materially from those expressed or implied on this call, and we do not undertake any duty to update these statements. I refer you to our most recent Form 10-K and Form 10-Q for description of some of the risks that may affect our results. We’ll also refer to certain non-GAAP measures on this call. Additional information including a rconciliation of these non-GAAP measures to the most comparable GAAP measures is available on our website ir.laddercapital.com and in our earnings release.
With that, I’ll turn the call over to our President, Pamela McCormack.
Thank you, Michelle and good afternoon, everyone. First and foremost I echo what Michelle said, I hope you and your loved ones are safe and healthy and remain so during these unprecedented times. And a special thank you to all essential works out there on the front line. The global scale and rapid spread of COVID-19 clearly changed Ladder’s operating environment during the first quarter as March looked very different from January.
During the first quarter of 2020, Ladder produced core earnings of $30.9 million or $0.26 per share reflecting an after tax core return on equity of 8%. I’m pleased to report that our unrestricted cash balance is approximately $830 million and we have over $2.6 billion of unencumbered asset. Remarkably our unencumbered assets inclusive of such cash currently represents approximately 40% of our total asset and includes $1.25 billion of unencumbered first mortgage loans.
Cash alone represents approximately 12% of our assets. The quality and composition of our unencumbered assets pool is a clear differentiator for a Ladder and a key element of our strong balance sheet. While today’s unique circumstances make it difficult to project the future uncertainty. We’re confident that Ladder’s historically conservative approach and recent proactive measure leaves the company well positioned to manage the impact of COVID-19 and take advantage of opportunities that arise in our sector from potential further disruption.
With our significant build up in cash liquidity which we’ll discuss further on this call. I’d like to point out that Ladder’s stock is currently trading at roughly its cash balance. We believe this is due in large part to speculative market fear over our investment grade security holding. The impact of COVID-19 will likely come in two waves. The first wave was hard squeeze on liquidity. We would say that despite having mark-to-market financing on our loan securities portfolio. The second wave will be on credit. We’re even better positioned for that with the help of that very same portfolio.
Our portfolio of short duration of investment grade securities which is almost entirely AAA rated or government backed currently represents 24% of our assets. We intentionally pivoted to super senior securities and we continue to expect this portfolio to be beneficial to our shareholders in the current environment given their stable credit profile, enhanced liquidity when compared to first mortgages and mezzanine loan and a significant structural benefits of the underlying transactions off the most senior bond prices.
As previously reported Ladder, constantly met all margins calls received with available cash on hand during the largest market dislocation in recent times. As prudent risk manager with a significant equity stake in the firm we take a balanced and [indiscernible] approach to our use of leverage. We maintain significant available cash and a highly liquid portfolio of unencumbered first mortgage loans in combination with our securities portfolio in order to be prepared to weather dislocations and spreads.
We remained well positioned in our $830 million of available cash will allow us to quickly and readily respond to potential further dislocation. We have been and we continue to have now the financial wherewithal to hold our securities portfolio through full to par payoff at maturity. Second, we elected not to sell the majority of our entire securities portfolio at a loss during the initial stages of COVID-19. Many of the AAA securities we own also benefit from structural cash flow suites and overcollateralization provision that actually accelerate the repayment of our positions upon the stress at the underlying collateral level.
With the recovery in AAA pricing, our decision to not liquidate our portfolio at a loss was reinforced. We may elect to opportunistically sell selected securities but in our view despite certain market fear our securities holding are our most senior and secured investment. We expect this portfolio to serve as reliable source of enhanced cash flow as our AAA naturally stay down and delever overtime.
Our multi-cylinder business model is working. In addition to our significant cash position 24% of our assets are currently invested in super scenario securities that hyper amortizes disruptive situation. 15% of our assets are allocated to our equity portfolio which is dominated by long-term triple net lease properties within enviable list of necessity based and essential businesses of tenants and only 46% of our assets are balance sheet loan, which stand in stark contrast to others in our space that have all or nearly all concentrated in this one segment.
In addition, our balance sheet loan portfolio benefit from significant granularity and diversity. As a result of our $20 million average loan size, our investments have spread across the wide range borrowers, property types and geographic market. And 80% of our balance sheet loans are likely transitional where the asset are close to stabilization and have completed renovation. At origination, these loans had a weighted average LTV of 71%. These same loans currently have a 1.26 times [indiscernible] within place reserve.
The significant third-party equity our borrowers have in these loans provide strong motivation to them to protect their asset and provide the company with a substantial protective equity cushion. Like all prudent lenders we’ll be very focused on asset management to protect and enhance the value of our loan. What is often missed is that almost half of our loan portfolio is unencumbered and is therefore not subject to the approval of third-party for amendment for any form of margin call risk whatsoever.
The five quality and composition of Ladder’s unencumbered asset pool is exceptional in the mortgage REIT space and uniquely positions us to defend shareholder value with highly liquid asset as opposed to retain security interest and B pieces in CLO and CMBS transactions that have extremely limited liquidity because we do not engage in construction lending. We currently have modest total future funding obligations of $290 million over the next three years. And over half of that are subject to predetermined good news event such as tenant improvements and leasing commission related to new leases or the achievement of specific performance based NOI occupancy or other hurdle.
As Brian noted on our last earnings call and long before COVID-19. In addition to our pivot towards securities, we began to reduce our exposure to loans backed by hotel and retail properties. The asset classes most adversely affected by this crisis. As of March 31, hotel and retail properties represented only 11% and 8% of our balance sheet loan portfolio respectively. The unique nature of COVID-19 limits our normal visibility into expected underlying property operating results.
In April approximately 99% of our loan portfolio remained current. We expect some future diminution in operating results. But we believe performance will be held by the application of unemployment insurance and other economic stimulus programs including the Paycheck Protection Program which will assist certain borrowers with their payroll cost. We were also seeing stress in certain borrowers and tenants businesses.
Our $671 million triple net lease property portfolio accounts to 64% of our real estate equity investment. The portfolio is generally financed with long-term non-recourse mortgages and then principally leased to credit tenants. We countercyclical necessity-based businesses by groceries and pharmacies that enjoy an average remaining net lease term of over 12 years.
By way of example, our three largest tenants are Dollar General, BJs and Walgreens all of which are highly defensive in nature. The portfolio has historically been a source of reliable income and we expect it to continue to perform well during these turbulent times. As also detailed on previous earnings call and well ahead of the crisis, we began replacing secure debt with long-term unsecured debt to strengthen our balance sheet through the execution of series of unsecured corporate bond issuances with stagnant maturities expanding out through 2027.
We currently have $1.9 billion of unsecured bonds outstanding from four issuances including the seven-year $750 million bond offering we closed in January. That offering was particularly timely given the recent turn of events, as was our use of proceeds pay off the large portion of the company’s secured debt. As of today, 72% of our capital base consisted non-recourse financing, unsecured debt and book equity. Since quarter end, we expanded our use of non-recourse financing to 24% of our liabilities structure while reducing our mark-to-mark financing by approximately 30%.
Consequently nearly half of our secured financing related to loans and approximately 64% of our total outstanding debt is now completely non mark-to-market. In fact, we currently only have $414 million of secured loan repo debt outstanding across our entire portfolio. Nonetheless like others we have also been decreasing our leverage on these facilities and we’re pleased to report that our total mark-to-market loan financing of any kind related to hotels is limited to $17.5 million advance against two cross-collateralized hotels.
As the crisis unfolded and we thought to maximize liquidity we immediately drew down our corporate revolver extended financing terms and entered into two new strategic financing facilities. As also previously reported, we engaged malls and companies to assist us in valuating strategic and financing alternative to best position the company fees on the investment opportunity we expect this market dislocation to create.
We also reengaged our former colleagues and trusted partner Tom Harney [ph] and we’re delighted to have him back on the Ladder team. With the assistance of Moelis, Ladder established the new $206 million secured warehouse facility to finance balance sheet loans with Coke Real Estate Investment LLC, an affiliate of Coke Industries. The facility is non-recourse, subject to limited exception and does not contain any mark-to-mark provision.
The facility also provides Ladder with max term and optionality to modify restructure and forbear in exercising remedies. In connection with this facility, Ladder issued Coke the Rights of Purchase up to 3% stake in the company for $32 million. The Coke financing facility provides us with over $200 million of additional unrestricted cash and the terms of the facility provide considerable flexibility to help enhance and preserve the underlying value of our loan.
At the same time the transaction aligns the company with a promising strategic relationship that may prove helpful in playing offense as investment opportunities we expect to result from this disruption become available. Forecast due December of this year purchase the equity at a price that equated to 30% premium when the deal was struck. Coke evidenced their long-term commitment to and believes in Ladder by agreeing to a meaningful lock up which would Ladder $32 million of additional liquidity with dilution of only 1.1%, if they make this investment.
We also separately executed a private CLO financing with Goldman Sachs Bank that generated approximately $300 million of net proceeds. This financing is also non-recourse and does not contain any mark-to-market provision. The transaction financed $481 million of first mortgage loans at 65% advance rate on a match term basis. Ladder retained a 35% controlling equity interest in the collateral. The structure also reports the company broad discretion in making loan modifications. Both of these transactions help facilitate the tremendous progress we made in expanding our use of non-recourse financing and reducing our exposure to mark-to-market debt.
Turning to our dividend, we paid our previously announced quarterly cash dividend on April 1. Our board will continue to make dividend decisions in the best long-term interest of the company and our shareholders. We remained fully aligned with our shareholders and management and board continue to own 12.9 million shares of Ladder stocks or over 10% of the company, which is among the highest insider ownership of any commercial mortgage REIT.
Ladder typically announces its second quarter dividend near the end of May. Our board will evaluate the facts and circumstances at that time with the understanding that providing income to our shareholders continued to be an important priority and objective for us. In closing and before I hand off to Marc. I want to emphasize that Ladder was designed to withstand downturn and capitalized on the opportunities they create and we look forward to doing so now.
I hope you and your families maintain good health and I thank you for your continued support. With that, I’ll now turn the call over to Marc.
Thank you, Pamela. I’ll now provide an overview of our investment activities during the first quarter as well as walk you through some of specific impacts of the COVID-19 pandemic that had on our capital structure and the steps we’ve taken to adapt. At March 31, balance sheet loans totaled $3.4 billion reflecting $314 million of originations during the first quarter. Those new originations had a weighted average spread of approximately 464 basis points over LIBOR and a weighted average loan to value ratio of 68.2%.
With regard to our conduit loan business, Ladder originated $213 million of loans at an average interest rate of 3.88%. Ladder securitized and sold $185 million of loans during the quarter. At March 31, Ladder’s conduit loan balance stood at $147 million. There were $8 million of individual loan impairment charges in the quarter $7.5 million of which relate to the Nemours loan which was previously marked on by $10 million in the third quarter of 2018. The remaining $0.5 million impairment charge was related to a $7.6 million hotel loan that defaulted in the fourth quarter of last year.
During the quarter, Ladder acquired $438 million of securities investment that will partially offset by $151 million of amortization and sales activity. At March 31, our securities portfolio stood at $1.93 billion, 99.9% of those securities were investment grade, 91.6% were rated AAA of backed by US Government Agency and together they had a weighted average duration of 28 months.
Ladder also acquired $6.2 million of real estate comprised of five small net lease properties and sold two office building investments resulting in a $750,000 core gain in Q1. Our real estate portfolio continues to be a source of consistent income in cash flows and a strong source of recurring earnings. Ladder ended the quarter with total assets of $7.33 billion. Total unencumbered investments including cash were $2.59 billion at quarter end and unsecured bond debt outstanding stood at $1.9 billion reflecting an unencumbered assets to unsecured debt ratio of 1.37 times.
Consistent with our focus on senior secured assets as of the end of the quarter 98% of our debt investments were senior secured including first mortgage loans and commercial mortgage backed securities secured by first mortgage loans. Senior secured assets plus cash comprised 81% of our total asset base. Our strong cash position, large portfolio, unencumbered investments and an ongoing focus on investments and senior secured assets reflect our continued emphasis on liquidity and stability in our portfolio to mitigate risk in the current environment.
As a result of Ladder’s investment activity and election to maintain robust cash balances over quarter end in response to adverse market conditions. Ladder ended the first quarter with uncharacteristically high 3.79 to 1 adjusted leverage ratio which was inflated by $622 million cash balance off which $358 million was unrestricted. As the result of actions I’ll cover in a moment, Ladder currently has approximately $830 million of unrestricted cash on its balance sheet and an adjusted leverage ratio of approximately 3.4 to 1.
At the same ratio, computed by netting out cash from debt would be approximately 2.8 times. As Pamela partially noted, in March in connection with the recent market volatility Ladder elected as precautionary measure to fully draw down on the company’s $266.4 million unsecured revolving credit facility at the outset of this crisis. The company timely satisfied all margin calls from securities repo counterparties and cash and since received the large majority of those funds back in the form of margin rebates.
The company successfully rolled securities repo maturities and extended 41% of the maturities out to mid-July and an additional 43% through out to September and beyond leaving Ladder with $1.2 billion of securities repo debt at March 31. At quarter end, company marked down the value of securities portfolio by $78.2 million also reflecting the increased level of market uncertainty at quarter end, the company increased its CECL reserve by 2.5 times to previously announced estimate to $30.1 million which further reduced our shareholders equity albeit on an unrealized non-cash basis. As a result of the non-cash item related to securities valuation and CECL as of March 31, GAAP shareholders equity declined to $1.5 billion resulting in GAAP book value of $12.31 per share and undepreciated book value of $14.01 per share.
With that said, Ladder has also begun to delever and take advantage of alternative financing that reduces future exposure to margin calls and funding uncertainty in the near term. Affording the company the flexibility that will likely be necessary to allow the commercial real estate and credit markets to recover. Specifically in April, $210.5 million of maturing loans were repaid at par and $409.4 million of loans securities were sold at four point discount to par resulting in a total loss of approximately $16.7 million.
It is important to note the loan sale transactions all were executed on a cash basis within periods of less than 72 hours without the benefit of property inspections by the buyers. Also in April, Ladder reduced its securities repo financing by $140 million to $1.05 billion. Ladder established a new $206.5 million Coke facility and executed the $310 million CLO financing with Goldman Sachs Bank.
In our ongoing efforts and anticipation of the February 2021 FHLB membership sunset date, we used portion of the proceeds from the CLO transaction. In addition to proceeds from securities and loan sales the reduced outstanding FHLB advances by 52% since March 31 resulting in a current balance of $487 million. Following our January $750 million unsecured bond issuance and our recent efforts to reposition Ladder’s balance sheet to wind down the FHLB and increase our use of non-mark-to-market secured debt with enhanced flexibility. We anticipate a 68 basis point increase in Ladder’s overall weighted average cost of funds in comparison to our weighted average cost of funds at December 31, 2019.
As a result of all this financing activity following quarter end, our total debt has been reduced by $280 million to $5.4 billion while unrestricted cash on hands has increased by approximately $470 million. Of equal importance, debt subject to mark-to-market provisions was decreased by 29% or $783 million. Although remaining mark-to-market debt was in two-thirds as related to financing of short duration highly rated securities which have already experienced the severe downside valuation scenario that in the end resulted in manageable market calls that Ladder absorbed on a timely basis in March.
Finally, in our efforts to address to capital preservation in a comprehensive manner. Ladder also reduced expenses by modifying selected vendor contracts and employee benefits in reducing headcount. We expect those actions to result in approximately $3 million of savings per year, while we continue to face headwinds related to the COVID-19 crisis our ability to adapt and maintain flexibilities is a clear testament to the strength of our balance sheet and the importance of our historical focus on maintaining significant equity and unsecured bond debt and a large pool of unencumbered assets comprised primarily of first mortgage loans.
Now I’ll turn it over to Brian.
Thank you, Marc. As I thought about what I’d say here today our core earnings certainly seem to take a back seat to providing you with some of our thoughts as to how we plan to move forward during these unprecedented times brought on by the spread of the Coronavirus and subsequent shutting down of the US economy.
By way of background, let me start off by reminding you that Ladder has been somewhat concerned for several quarters now that the post financial crisis recovery was nearing its end toward the fourth quarter of 2019. And we began taking steps to position the company for the possibility of downturn. While we believe the recession might be coming, we had no reason I think we’ll be in a depression like environment just 90 days into 2020.
At the end of 2019, we started looking into the possibility of issuing another unsecured corporate bond to further decrease our reliance and overnight mark-to-market repo facilities as a continuation of our strategic planning for years prior to make prevalent use of unsecured debt to fund our company. In late January just eight weeks before the pandemic began to negatively impact global markets as Pamela and Marc touched on, we did issue $750 million of seven-year corporate bonds in a fixed rate of 4.25%. Our fortunate timing on this issuance allowed us to enter into this sharp downturn in March as well prepared I think we could have been for what we’re experiencing today in the midst of a global pandemic where over 30 million jobs have been lost in just the last month alone.
Over the last several years, our constant attention to liability management has proven to be very helpful during these difficult times. While we went into this recent downturn in a position of strength given the severe negative financial impact on the economy from this health crisis. We took additional decisive steps to further strengthen our liquidity and our ability to take advantage of the wide opportunity set that we see today.
It was a humbling experience to watch our team of highly experienced people execute plan after plan to raise our liquidity profile. During what was probably the most illiquid month in US market history, bringing our unrestricted cash on hand from $358 million at the end of March to our current cash position of approximately $830 million. Despite having not been in the office together for the last seven weeks. We were able to process loan payoffs, sell numerous home loans, sell securities, paid down debt, moved collateral around to execute new credit facilities and a CLO, without a single person getting on an airplane. Words cannot express how grateful I’m for their efforts and all the while caring for the safety and security of their families during this pandemic. Because of our capital structure we also have over $2.6 billion of unencumbered assets comprised primarily of first mortgage loans. So when one of our loans pays off there is a reasonably high probability that the pay off will result in a further increase to our already ample unrestricted cash holdings.
We plan to methodically lower our leverage overtime with a balanced approach towards making new investments in a highly selective manner. Our AAA short durations securities portfolio got a lot of attention in March, but we expect near term pay off and sales from this inventory of assets to provide liquidity over the next few quarters further reducing debt.
I would note that our inventory of securities has decreased by $248 million in April and its default increase in the mortgage pool supporting new securities. It is likely that the impact of accelerating defaults will close safeguards known as senior overcollateralization test to be trigged redirecting additional cash flows to protect these AAA securities, paying them off sooner than we originally anticipated.
We believe that the returns of principle tied to this AAA securities given the uncertainty as these already short securities seasoned overtime. Most of the AAA securities we own have approximately 50% subordination in the debt structure alone with the equity from the individual borrowers on the mortgage loans providing an extra buffer against potential losses usually by another 30%.
As we look towards the future none of us knows what to expect as the economy tries to reopen and hopefully, gradually move past this global health crisis and while we at Ladder might have been more pessimist than most going into this crisis. I suspect we’re more cautiously optimistic than most about the prospects of our economy in the years ahead.
There certainly has been a lot of damage to the economy, but we’re somewhat encouraged by the sheer size of the various government packages that have been implemented. The amount of stimulus put into the economy is huge. And it seems like more stimulus maybe on the way if needed. We think this economic support and whatever it takes mindset will prevail overtime and restore our economy to strengthen stability.
While one has to assume that there maybe many permanent changes as a result of the nation staying home for couple of months. We think some of these changes might be very helpful to some property types in commercial real estate. As citizens return to the streets, the population at large had gotten much more to use to using Zoom for group discussions, streaming entertainment, ordering things online and because of scarcity in some essentials we’ll see an accelerated march towards e-commerce with supply chains being brought back to the United States resulting in more demand for manufacturing and warehouse facilities. This will bode well for shopping malls and movie theaters. But we also learned that the neighborhood grocery stores, convenient stores and restaurants maybe far more integral in our lives than we might have thought in recent years.
When the new normal begins to unfold, we’ll be in the world with much lower interest rates and much lower gasoline prices and some reluctance on the part of the population to get on cruise ships, mass transit, airlines and travel outside of the US. So drive thru hotels might be able to tap into staycation behavior and recover more quickly than many think. Business-oriented hotels may see less demand as will medical offices as workers and patients have now adopted alternative methods of conducting group meetings and visiting doctors.
A couple of years ago, Ladder migrated our preferences for lending towards multi-family, industrial and office assets and away from hotels, big box retail and malls. Partly as a result of these changes we were able to sell mortgage loans, secured by multi-family properties and strong locations in the middle of the market volatility in March. This change made long ago provided us with the ability to turn mortgages into cash quickly when we wanted to.
While these are truly challenging times, we hope we have we have conveyed a sense of optimism today. We have taken many of the right steps to allow us to navigate through what is to come over the next couple of years. I’m enthusiastic about the potential of our new relationship with Coke Industries. They’re smart and they recognize the inherent strength of our platform in our space and like us, expect this to become a very target rich investment environment in the foreseeable future.
I sometimes point out to our people that the US is a very resilient population and we will get through this. While we have never seen a global pandemic and a near complete shutdown of the entire economy we do know what the cause of the downturn was and we have some idea that it will end at some point in the near term. Hopefully, as a result of efforts of our gifted scientists and doctors.
We are thankful that our biggest fears about this virus. Its infection, hospitalization and mortality rates fortunately have been mitigated. While the unknown is always very scary, the worst is the health crisis, it’s hopefully behind us and we’re cautiously optimistic that the fears we have about economic collapse are also probably overstated, let’s hope so.
Thank you for listening today. Stay safe and now we’ll take some questions and I’ll turn the call back to the operator.
[Operator Instructions] We’ll take our first question from Steve DeLaney with JMP Securities. Please go ahead.
Good evening, everyone. First I’d like to say I hope you and your families are all well and congratulations on your defensive efforts. Brian other than cash which you’ve done a good job with, other than cash if you had to put money to work near term meaning 30 days or so, what do you see is the best opportunity in the market near term, next couple months?
Single asset securities backed by double.
[Indiscernible].
Yes. AA, A, BBB.
And that’s because you’re essentially the buyers underwriting a loan and you have less downgrade risk in a single asset deal, is that correct?
We don’t know what’s going to happen, I think what you’re really seeing though is the BBB gotten really low like down from 60s at one point and you go into depression that might very well be the right price. Right now those BBBs are probably in the low 80s, they rally the 30% in just a matter of weeks and the AAA on the exact same hotel, if it happens to be close today. I hope so [indiscernible] Maui Four Seasons. There’s $0.92 on a $1, so if the BBB’s are - if the hotel opens in the hands of a strong owner somebody like Blackstone or strong player. It’s very unlikely that they were nothing. So the BBB maybe yes those will probably be more volatile than others. But these assets are pretty liquid I think and I find it. I think they got over quick to the downside pretty hard.
Thank you for that. And my follow-up is quick. The new deal in the market this week in CMBS, GSMS [ph] deal, how do you think it’s going generally and I know you don’t like to comment on other people’s feels? But how is it going in the sense of reopening new issue. How important is the fed putting season AAAs and TALF, possibly benefitting the new issue market just from a competitive standpoint. Thanks.
I think the TALF has down a very little at this point by taking AAA CMBS. I’m frankly a little surprised that they’ve decided to effectively open the commercial real estate business. I’m not at all sure why they did that. But I think AAA 10-year securities before TALF were trading at 190 over swaps and when you TALF announced that they would take them, they went in two points to 160 over. The current deal in the market is probably the dawning of what is to come. A lot of these are pretty safe assets. They removed a lot of hotels and rep from these deals. It is also a small offering, but it is in unmitigated blowout [ph].
And I think they were 26 times done, this morning on those bond collapses and their tightening them. So I suspect and I can say this because I’m not part of that deal but I think they’re going to get down around at 140, 145 on the 10-year. But I don’t think it 410 [ph] is too much at all for the future because all of this is a AAA portion of it. So I think when you make a loan you have to anticipate some - the whole thing. And while the TALF is very helpful on the AAA portion of it, it’s not at all helpful on any other part of it.
Thanks so much for the comments.
Thank you. We’ll now take our next question from Jade Rahmani with KBW. Please go ahead.
Thank you very much. Glad to hear from me, hope everyone is doing well and safe and in good health. Starting with securities, could you give what the current value of the securities is, it was $1.931 billion at 3/31 and you noted the April sale of $200 million, so should we subtract the $200 million from the $1.9 billion or make some other adjustments with respect to mark-to-market?
Yes. That’s about right, Jade. Something about $1.7 billion portfolio size right now.
Okay and is there approximately five times leverage against that and can you just convey your sense of confidence in the ability to manage that leverage?
I’ll let Marc answer the question on leverage. We’re comfortable that we can manage that leverage. I think the stake that got made is - we’ve always said we use more leverage on AAA securities and we use very little leverage everywhere else in the company that seemed to be overlooked for a little while there. So we did receive some market calls that were frankly a little bit larger than I would have expected however we had no problem with them. And I think another item that seemed to be overlooked completely, is that we have just received $750 million from a bond offering that we did on an unsecured basis that settled the last day of January which had like six weeks before this problem began. So when I was asked a few times by people you have trouble meeting margin calls. My question is, what do you think we did with the money in six weeks?
So I think that we were rather cautious in getting ahead of a potential problem as Jade, you know that I’ve been somewhat concerned for several quarters now about complacency, never saw this coming. But I think the volatility involved in a two-year AAA bond is just not the same thing as a 30-year mortgage. And so we were being looped into a discuss with organizations that use only repo financing that were longer and dated or non-investment grade or non-AAA securities and unable to meet margin calls. Frankly I’ve been dying to get on this call because I could not believe that anybody thought we were having a problem.
So it’s just going over lesson learned. Let’s say cities start to open up, States start to open up and there is a resurgence in Coronavirus. We could hypothetically go through a repeat of what happened in March and early April, to use stress test for that to make sure the same, it doesn’t repeat itself.
Absolutely right, yes we do. Were we comfortable with what was going in March at the end of the quarter? No. But I used to use a third standard deviation 2008, 2009. I now use March, 2020 because it was far more volatile than I had ever seen in my career. On the other hand, I would like to point out that if we were to return to that period of time, we’re now five times more cash in our hands than we were when it happened and we didn’t have a problem when it happened.
So I think the lesson is, yes more of cash if you’re going to carry such a great portfolio of securities. Even though we believe they’re safe, short and not terribly priced volatile that doesn’t mean the rest of world of believes it. And in addition to that because we were had just done an offering of $750 million, we felt pretty ready for any kind of downturn that was taking place and if it were to happen again.
First of all we have a smaller portfolio, it is marked differently. It’s just down like about four points at this point. But and these bonds as Marc said they’re only 28 months in average maturity so in three months from now or four months from now they’ll be even shorter than that. These assets also should perform better if there are more defaults and a lot of people don’t fully understand that. And in addition to that, we have real first mortgages unencumbered loans. We have $1.25 billion, $830 million in cash and while we did sell some apartment loans and by the way there were some references that we’ve sold for non-performing loans, we did not sell any non-performing loans.
We sold some apartment loans and people were not able to visit the property, get on an airplane or got to a lawyer’s office and we had loans maturing in early April and they were very low coupons, some of our largest loans were maturing and we got a little concerned that perhaps this problem and volatility was going to prevent them from paying off. So we sold some loans to get cash ready in case they didn’t pay off and they all paid off. So we sold some securities, we sold some loans and we got paid off on assets.
And ultimately, we were in incredibly heavy cash position throughout most of the month. But yes, we will - lesson learned. We will absolutely carry more cash with the securities portfolio of that size, rather than having - wanting to go out and get it. We’ll have it on hand.
Okay, two more just quick ones and I apologize for asking too many questions. But I think investors really need information. Do you have estimate of the current undepreciated book value per share, should we just take the $14.01 that you provided and subtract the - I believe you said that there is a loss of $16 million or so, $16.7 million which is $0.14 a share be about 13.87 for a [indiscernible] at what current book value is?
I think that’s a fair estimate. I would say this that we have seen the securities market improved somewhat so some of that mark that we took at the end of the quarter could come back. But I think that if you want to start at that point, you’re not going to be that far off.
Okay and then just finally, can you comment on the FHLB? You noted further reduction and the amount outstanding. Are you comfortable with the current balance and the likelihood of sunset and amortization of that balance down or will you looking to further reduce that?
Jade, this is Pamela. I think as you know our membership was subject to February 2021 sunset date. So over the past few years we gradually reduced our borrowings to peak of $1 billion at 3/31. Since then an anticipation of the pending sunset, we further reduced our borrowing to $487 million in connection with our efforts to replace recourse mark-to-market debt with non-recourse debt that doesn’t contain any mark-to-market provision.
Okay and will the FHLB is significant sorts of margins calls during the quarter?
No, not really. I mean they have more of an overcollateralization concept that sort of protected us from that.
Okay, thanks for taking the questions and nice speaking to you.
And our next question from Rick Shane with JP Morgan.
Can you hear me?
Yes.
Okay. It seems like a lot more than eight weeks ago, we all spoke. I hope everybody is doing well. Look when we think about secondly [ph], we see it in three stages. There’s the liquidity stage that we’re just emerging from, there’s going to be a transition phase where I think in all likelihood outcomes are going to be determined by sponsor behavior and then ultimately there is the underlying performance of the properties. Given the breadth of your portfolio, the attractiveness that it’s highly granular. But that also means that you’re in discussions with an enormous number of sponsors. What sort of feedback were you getting and where are your concerns?
Well it’s a little early because it is early in May still, the April collections were phenomenal, shockingly good. And I think we have one loan that missed the payment and then the rest of them were fine. I would expect naturally to be in conversations more than others with hotel operators and as well as mall. We don’t own any mall loans, but mall will have problems completely here.
You’re going to see some big names probably filing [ph]. And also just general to retail because they don’t have the reserve so the neighborhood retail store, nail salon, pizza place, they may have to get into a forbearance conversation and we have had some, frankly not as many as I would have thought and I don’t know if that’s because they’re trying to avoid the calls. But it should work there, just going to meet the payments. Interest rates are reasonably low. Our bridge loan portfolio which is really where I look when I think about the confident question, you just asked me.
We have a floor in that book of 6.2%. so that’s close to 600 over LIBOR right now and I do believe there are scenarios especially where a lot of our cash flows, a lot of our loans are little more seasoned because we began to get a little concerned. Maybe about 18 months ago, so we keep things short, we keep things with high floors and a lot of our transitional assets are already transitioned at this point. So the question will be really the tenants that they put in, how are those performing and are they able refinance us out.
So I’ll tell you. My fears - the conversations should mostly take place in hotels and retail. But I think you could get into several conversations. We also had some friendly with very, very wealthy people and well-heeled organizations that have plenty of capital, that have indicated they might not want to make a payment, however they did. So we’re dealing a little bit of that too. But I look at the three stages the way you do also.
Liquidity was first of all, that was March I think that was a first quarter event. I don’t think you’re going to see that again I know Jade just asked, what if we’re back here because infection rate spike. I think everybody got a chance to deal with what more to looked up and like and they’re lot more ready for that possibility right now and I think that a lot of forced selling took place and I don’t think too many people will become forced sellers at this point.
And then, yes you get into the who knows what’s going to happen next and I don’t know if anybody knows that. We’ve never dealt with this before. I’m a little more optimistic. I see energy prices down. I see interest rates, LIBOR at 25 basis points. I don’t see a lot of real estate changing hands at that point. There’s plenty of ways to restructure and ad reserve. You can carry real estate with interest rates so low, so that’s the second phase.
And then I think the third phase will be the opportunity phase. I don’t think you want to charge out there and start buying real estate right now because you don’t really know what’s coming. But to the extent that the relationships between owners and lenders breaks down there might be some great opportunities. I would say the short-term opportunities are on the screen in the bond world because things get sold. They don’t always make some sense.
However I think that in time you’ll actually have an opportunity really to seize on some real estate purchases and I think I like that better than being a lender right now because lending I think is going to be a little broken for a little while, it’s very hard to finance things and as we said, the government has decided AAA CMBS it’s so far, so I think that will cause a lot of debt to be restructured and also a lot of opportunities to come out of it.
We’ve seen downturns and recoveries. But it could be a quick recovery. I think if the word vaccine shows up in anybody’s vocabulary here in the next year, we might be - I don’t think we’ll go back where we were. But I do think that it could be little bit better than most think. Pamela - because we’re dealing with TV screens here and I’ve never done this before. Pamela, wanted to add something, so I’m going to say go ahead.
All I really was going to add is, just when you look at Ladder I think that was one of the points which I’ve made and discussed 26% of our assets during balance sheet loans. And close to some of our peers who have 100%, we have this diversified business model and we believe the securities are overlooked in terms of the credit enhancement there relative to any loan book, at a AAA level.
And the last thing I would just say is like everyone else we are doing hand-to-hand combat on loans. But we are limiting the conversations. You’re talking about deferrals of interests and there’s a lot of reserves in place to accommodate that. So there’s nothing today I think just the question for everybody is how long does it go on.
Got it. And thanks Pamela. And I’m curious the comment the made some wealthy borrowers sort of agitated a little bit. Do you think that’s brinksmanship or do you think that’s an indication that they are seeing rationale strategic to fall?
I think the fact that they can [indiscernible].
I think its brinksmanship.
Some results of that was 99% of our book but for a loan paid last quarter, so that’s hopeful [ph].
Got it, okay. Guys thank you very much, nice to hear everybody’s voice.
We’ll take our next question from Tim Hayes with B. Riley FBR.
My first one and I Brian I know you mentioned that 99% of borrowers were current in April. But just curious how many borrowers in the loan portfolio or tenants in the real estate portfolio have initiated conversations or outright requested forbearance at this point? And what actions if any have you taken to grant some relief?
I’ll defer that to Rob Perelman, he’s on the phone. He runs Asset Management. Do you have that information, Rob? I don’t have it.
I’d say about 20% have made request across the loan book. But we’re dealing with - as Pamela said on a one-off situation.
Okay, got it. And maybe if you could touch from a high level kind of types of things that you’re considering dealing in order to work with some of these borrowers or tenants and provide some relief whether it’s reducing kind of structure or on the loans or periods of interest or principle deferral rather anything like that?
So we’re talking about doing what everyone else is doing right. We’re only in a discussion about potential deferral of interest and the use of reserve nothing further at this point.
Okay.
I would point Tim, also that we have a couple of loans scheduled for maturity this month and so far, they look like they’re paying off. We’ve been asked to pay off statements. Yes, we’ll see - so far so good on that count.
That’s a good update, thanks Brian. And then how many tenants in the real estate portfolio are eligible for either PPP or some other government program and how significant of an impact would usually stimulus have on for the credit outlook for those tenants?
Yes, we don’t have a great sense today. We know a number of borrowers were trying to apply for it. I think we’ll have a little more color onto that after our next payments date in May 6, it is.
Okay, got it. And then Brian I know you touched on kind of what is top of mind in terms of capital deployment, if you had an extra dollar spend. But from a high level, can you - I know there’s a lot of uncertainty in the market ahead. But can you just touch on your different segments and comment on which one do you expect will be net users and net providers of capital over the course of the year?
It’s a tricky question. It’s not because I don’t know the answer. I don’t know that I want to divulge everything that we’re thinking here. I cannot stop seeing opportunities. It’s one of the reasons I’m very happy to be somewhat aligned with the Coke Industries people and I think that some of these opportunities will be very big. I think there’s a lot of money being raised. So I don’t know if it’s going to be as big as I might think, if all that money does get raised. But I think it’s time to get a little untraditional and in how you go about doing things. Like I think the conduit business might come back and it might be okay. But if you’re going to sell AAA 10-year securities at a 2.25% yield. It’s kind of hard to make a lot of money in that business.
I suspect you might be a better borrower in that business if you wanted to make a lot of money. So I would lean us towards real estate. Especially any kind of real estate that’s having a debt problem and that might show up in the form of somewhat just providing a mezzanine on a pay down and taking an equity interest in things like a kicker. So a lot of structure finance I think, is a good possibility.
On the screen securities and I would be out of my mind to not tell you, that I think some of our borrowings are ridiculously cheap. So I don’t think I’m letting a cat out of the bag there. Ladder has taken great steps to make sure that we have a lot of unencumbered assets, if the situation like this will to occur, we’ve got funds maturing over the next seven years and I can’t figure out how to make a loan that makes more money than if we were to retire some of that debt and some of the prices at same amount.
Got it. That’s helpful, thanks Brian. And then one last question from me. If you could just provide me with a little bit more detail on the terms of the Coke facility. Advance rates or spread assuming the floating rate facility. And then I’m sorry if I missed this, but is there a negotiated price that Coke is entitled to when acquiring 3% stake or is it at market?
Pamela, I’m going to, if you don’t mind.
So the Coke facility and Marc can give you, sort of we have a weighted average blend cost of funds, across our mission is over the last few months. But I can just tell you for the Coke facility in particular it is, it’s match funding non-recourse and has a lot of flexibility to modify loans. And we really took the line as Brian said in many ways as insurance and I think renegotiated it early on in the crisis as a way of getting flexibility to deal with the loans in the best manner, we think we can to protect shareholder value. So there’s a lot of flexibility in terms of making modification in best interest of the loan and that was the intent of the line.
Go ahead, I’m sorry.
I was going to say, elaborate and say, that really when you look at us and the financing we’ve done over the course of past three months between the bonds, the CLO and Coke deal. And you’re talking about $1.27 billion of financing that we arranged. The weighted average cost of that is about little above 5.5%. And in net we’re talking long-term funding, $750 million of its unsecured. The secured parts of the CLO and Coke deal as Pamela said non-mark-to-market, non-recourse, flexibility deal borrowers. So I think we’ve really strengthened ourselves in lot of ways there.
I would agree with that and thanks for the [indiscernible] on the cost there, Marc.
Thank you. We’ll now take our next question from Stephen Laws with Raymond James.
Brian, I guess I wanted to follow-up on a couple of your previous comments. Clearly the balance sheet strength and leverage is down, securities have continued to decline a little bit. I think $1.7 billion, Marc mentioned I think to Jade’s question earlier. In the loan portfolio you’ve executed some sale, do you view the portfolio today with information we have in the deck. It’s kind of where you want to see it, should we expect it to continue shrinking in the coming weeks before it stabilizes or do you really see that going the other way where some things are starting to look attractive whether it’s since repurchasing your debt. As you mentioned there are some options kind of how do we think about, I know everything can change tomorrow morning? I realize that. But as you said tonight, how do you think about the portfolio size.
I think it was always designed to a be a source of liquidity to tell you the truth. It may not have worked out that way completely especially in March. However, we did keep it short, if not hinged. And it doesn’t require a lot of attention. I think on the money side of it, it is money good. I can’t fathom the scenario where we don’t get return of principle. And it’s probably the one thing that we do on, that I can say that about that I have no doubts about the return of principle.
I think over the next couple of months and I could be wrong here, this is kind of speculating on my part. But I don’t think people fully understand these overcollateralization tests that take place and I think these portfolios put together and CLOs, they kind of use this financing even though they’re stay old, store day [ph] true sales. So if take a look at the issuers of some of these transactions a lot of them are fierce by the way. So we on the AAA portion of lot loans that they’ve originated. But a when a loan goes bad and those portfolios typically gets pulled out and then everyone gets put in, if it’s a managed CLO. But if 30% of the loans go bad at one time.
I think you’re going to have a lot of conviction to start writing of hundreds of millions of new loans and removing non-performing loans at par from the portfolio. So I think these triggering if you will which forces. The cash flow that goes to the sponsor presently which is actually quite a bit of money because a lot of these loans have floors except the bonds, they have a floor of zero on LIBOR.
So there’s another test called the coverage test and those are designed to have 120% of coverage of the investment grade bonds rates. Most of these CLOs have 300% coverage and that’s because LIBOR has fallen so rapidly and so low. So if you do have if the overcollateralization test is a very same margin in most transaction. And we look at one where there’s a $41 million in default and if that loan goes 60 days delinquent, the trigger kicks in, just one loan.
And so I think it won’t happen right away. I think May, you may start to see 30-day delinquency in some of these pools and in June you’ll start seeing some 60s and maybe you’ll see some repair work done and try to stay in the game. But if we do open the doors of the economy and it doesn’t go well. I think that the defaults will be overwhelming to the point where they won’t be able to replace them or restructure them and that will send a hell of a lot of cash flow right to the AAA and that will hyper amortize the balances.
So we’re kind of in a wait and see mode here. We do so periodically. It’s not a functioning market. It’s not working great. But with 28 months on average life. If we had to, we would hang and just hang onto it. On the other hand I would like to get my hands on capital and do something with it right now. But we - I still think it is a bit of wait and see model, where we have to take a look and see what happens when everyone goes outside.
And it sure looks like things are cheap, but that doesn’t mean, they are. And if there’s been a lot of payroll protection plans, but if the people in the restaurant are getting a paycheck and the restaurant gets evicted. I think there’s another shoe there. So we like the way our portfolio is composed. I don’t particularly like having that much of a position not earning a lot of carry in this target-rich environment. So not overly happy with my own performance and putting those on the balance sheet. But I’m certainly not worried about them from a standpoint of just becoming problematic to it.
That leads to our next question, Marc. Which I wanted to touch base, Page 8 provides the book value go forward, given the unrealized nature of a lot of securities, portfolio mark down. How much of that I guess you’re swamped include to [indiscernible] confidence in today’s comment. How much of the book value in March should we view as unrealized, it can its potentially reversible or recoverable as we move forward?
Yes so we ended up at the end of the quarter taking a $78.2 million reduction in the value of that securities portfolio. We have realized I think $6 million or $7 million of those losses in the securities sales that took place in that $16.7 million so we’re not going to recover that portion. The rest of it, if we see a return to types of valuations we saw [indiscernible] crisis which were like clockwork around par then the rest of it could be recovered and of course these are short duration securities, so they will amortize rather rapidly. And as they amortize, we’re going to recovering that at par as well. So we’re pretty optimistic. We got to wait and see what the market does.
In terms of rest of the book value with obviously part of it is CECL and baked into it was the initial CECL reserve that we added on Jan 1, which was $5.8 million. You’ll see that on the chart, that’s just that small piece. But then don’t forget we also had the portion of another $18.5 million or so that ran through the P&L that also had that in fact. So a lot of non-cash impacts on our equity in the first quarter.
Yes, appreciate the clarity on that. And lastly, Pamela just one quick question I wanted to follow-up on FHLB. But I think there’s $60 million of assets related to your membership there. Will that facility mature, do you intend to remain a member of the FHLB network, you sold that membership position? How does it work around your FHLB stock on the balance sheet?
The answer is, we don’t have the option to do either. The membership funds - like every five-year captive REIT member [ph], it will terminate.
But you’re talking about the stock.
I’m sorry, the stock. Yes, we get full return of the stock.
[Indiscernible].
We get that back in stages and it pays down by the end of the facility when we pay it off, we will get back all of it.
Okay, inflated. It’s what I want [indiscernible]. Appreciated.
Thank you. And we’ll take our final question from Mark Starker with JP Morgan.
Okay, the bond guy gets to go last. But I agree with you Brian, that the bonds are cheap here. You mentioned the orphaning of the commercial mortgage market. So maybe the fed or the treasury are listening. What would like to see, Brian? Is it expansion of health or PIPP some sort of public - private investment partnership? What should the government do to help?
Well I think the government has actually done a pretty good job overall. I’m not at all sure why there’s been such a radical departure from commercial real estate from the last go around of south, but because we do it almost feels willfully and on purpose to that segment we’ve been out. What they should do I think I mean what they have done to really stabilize areas elsewhere like corporate bonds. I think that they should take investment grade, CMBS and CLOs whether they’re managed or not because there is the financing problem in these sectors and you will not get lending started in United States unless that financing situation corrects itself.
I think you’d have to be out of your mind to write a bridge loan right now unless you had a rate of 12% and didn’t plan on leveraging it at all. And what we’ve tried to get markets and the market to understand is, this is the business that due to regulation. Banks don’t really support because if you want to take a Class C multi-family project in Houston with 400 units and you want to upgrade all of the housing with new air condition and new floors and new appliances this is going through the bridge loan market.
And in 2008 there was a big cry for more private investment and at this point. If the commercial real estate sector is rest on its own there is going to be a downturn of significant proportion that will ultimately wash into some of the banks and because the refinance market for a lot of these assets it’s simply not there. Now with LIBOR at lower rates that’s fine you can carry these things for a little while. But as I said they keep trying to figure out how to keep employees paid, but if the employer doesn’t open I don’t think it’s very helpful that you’ve gotten checks to the bartenders, waitresses and counter people.
So I think I don’t understand why they’re taking junk bonus ETFs and BBBs of unsecured bonds in corporate world and not taking AA and A in the secured world of real estate. I also think that there is a tremendous lack of understanding that they don’t believe or don’t understand that CLOs are mortgages, commercial real estate, CLOs are mortgages. They think that they are levered loans that don’t have anything backing them.
And I think the other misunderstanding is that, it’s a word of unique eligible single access securities that they’re somehow helping wealthy people. And the only help the wealthy people get is one that’s BBB trade at $0.30 on a dollar and the billionaire that owns the building buys those bonds and the pension fund and the 401 (k) gets drilled and the REIT. So I think that is a misunderstood and I don’t know if it’s [indiscernible] or not but it has been an orphaned class.
Their efforts to help their first to made was to make CLO, AAA and CMBS AAAs eligible in the primary dealer credit facility which was not helpful at all because the only one that could borrow under it was a New York fed bank and they weren’t interested in upsizing their positions and all and so then they move the top expansion to take AAA CMBS, but that was it. So I think that they should expand this. If they don’t we’re going to have very high cost mortgage debt in the commercial real estate space.
Okay, great. Thank you. And just want to shift gears and talk about so the all the $2.7 billion of unencumbered assets, little less than half are deferred as mortgage loans and when we drill down into that just looking at Page 7 up slide deck. It is a little bit more skewed towards hotel retail and mixed use. You add all those up about 61%. So how can the bond holders get comfortable with the quality of those loans and sort of risking that unencumbered pool being skewed towards those property types? Anything you can give us about loan to value or loan performing specifically there?
Yes, I think first of all they’re first mortgages. So I’ve learned over the years in my new role as a corporate fund borrower. That a lot of time unencumbered asset test is called the rock pile. And ours is not a rock pile. These were first mortgages and they are skewed a little bit more towards things that we didn’t want to get in a lot of conversations with finance people about and we always want our finance lenders to be comfortable. But I would say that I’ll be - by virtue of fact that we had so much cash and in addition to so many first mortgages as opposed to the tail end of something pledged to somebody else or mezzanine loan or a land loan. I think that debt we are an upgrade to what many people carry in that area.
I would just add to that, the only thing I would add to that is, I think that I’ll say this, why not, everyone else has –gave a lot of look at unencumbered asset and when you look at Ladder’s on unencumbered assets we’re unequivocally and unapologetically superior to all other unencumbered spaces in the state. We’re primarily first mortgages. We have over $500 million, $600 million office and mixed use, mixed instead $146 million of multi-family. It is various off a $1 billion in a quarter there’s only like $400 million of retail and motel.
So I would say we feel really well positioned and when people talk about liquidity there. I want to pull my hair out. Retained equity interest in CMBS and CLO transactions is not liquidity. These are first mortgagees and cash primarily.
I would also point out Mark, that when a loan pays off at Ladder and we’ve seen several in tees of this problem 50-50 chance is in that group of loans that is performing quite well. So I know that we have a picked below the two loans that I was talking about earlier that looked like they’re going to pay off this month neither one of them are encumbered assets and so while I certainly understand the suspicion he might be hiding new problems over there. I would put that portfolio up against anyone else unencumbered assets portfolio.
Just one last thing, if I may just add one point. The LTV on these are between 67% and 70%. We have a big equity cushion and a lot of room. So the way I would I think about them is, if you think about the product advance rate again them alone would produce a nice sizable portion of proceeds.
Mark, we’ve always had a very, very high quality of unencumbered asset portfolio and actually if you look at the same page that you’re looking at which is I think test seven of the supplement you’ll see another statistic that’s side of there. 1.72 times and what that statistic is, basically and goes and figures out what that ratio would be if you deducted the cash from the unencumbered asset pool and you deducted the cash from the requirement for what you have to meet. And when you do that, you come up with that 1.72 ratio meaning that, the remainder of that you have to meet has met by 1.72 times. So that ratio for this quarter and we looked and calculated into the first time we were using this calculation. That ratio is within 0.11 of the debt ratio we’ve ever had and we always had a very, very strong unencumbered assets. So it’s a very high quality pool when you look at it and say, I’ve got the first mortgage loans and I’ve got it big amount of cash.
And you’re not requiring because it’s not loaded with mezzanine and B pieces and tail interest on terms loan B. then as a result of that, if something goes wrong we don’t have to go take out that first mortgage to go perfect our interest. It’s just the straight discussion and it might be restructuring or a foreclosure but it isn’t us writing big checks to take collateral.
Okay, great. Thank you. Let me just sneak in one last one, I know everyone wants to go home. But just can you –back when cash was lower the unencumbered asset coverage was getting close to that 1.2 times covenant threshold then you obviously improved some cash move things around and so forth. So when we just look at sort of the excess cash that you have right now in this excess coverage of the unencumbered pool here. How do we think about Brian going back to trying to play offense versus maintaining some of this cash for defense? In case something happens and you obviously you don’t want to be running the company at 1.2 times coverage on this encumbered pool. So how do we think about the capital you have today, how much offense can you play and how much do you need to reserve, if you will as cushion?
I think we want to, again rule of thumb that generally walk around with, we want to carry about 25% of our anything that’s callable in cash because anything can happen. So we’ve had way more than that. However I would also tell you that, I think there are scenarios here that exist in the current market not necessarily having to do a lot of capital. But just having to do with DD space right now given what’s going on in the petroleum sector with oil. Who knows what it is doing today. But there is our scenarios where you could buy back some of the corporate debt and create a very large gain on sale and at the same time, lower your debt.
So that’s certainly something we have to look. In addition to that, we can easily, if we want to convert some of these securities. I would say if we have to sell these securities today we would take a small loss associated with. But given that we don’t think that’s necessary we haven’t done it. But on hard press to figure out that we should be a writing a lot of loans right now because of the complete lack of financiability [ph] other than AAA, CMBS.
And I wouldn’t say complete lack but it’s not very comfortable writing. You can’t get a lot of banks in that business at this point. They may return to it, but some of them have gotten a little bit squishy around it. So I think the better thing to do is to borrow money with interest rates really low and banks probably pretty conservatively lending into space and I think that’s the way we borrow anyway. So that’s not uncomfortable for us.
So I think that we will try to get into the offense of game into the real estate door possibly in helping people that have debt problems and we can take kickers [ph] or mezzanine. But that would be the offensive nature that I would see and in addition to that because we have such other short book of bridge loans and we hardly have any conduit loans, about $100 million of those. But still what’s going to happen over the next couple of years, we think let’s not to go an Armageddon scenario but let’s say, things improve somewhat.
We do come out of this with interest rates very low and our bridge portfolio is mostly through its transition. We have not been aggressively writing bridge loans. We don’t have construction loans. So we don’t have a whole lot of future advances going out the door. So cash tends to stay pretty stable here. And what will happen because we’ll have to borrow at some of the unencumbered assets as loans pay off and as security pay off or gets old, this creates more liquidity and that is where we will find offensive power.
So with $830 million that’s probably excessive and we can certainly start waiting into do some things. But I think that we’ll always carry little bit more cash than we will carry in March and that given the short nature and the high floors in our bridge portfolio and the liquid nature and short-term of our securities portfolio. We should be taking in a lot of cash over the next several years and I think that will provide us plenty of octane for our new investments.
Okay, great. Thanks for taking my questions. I appreciate it.
Thank you. That concludes our Q&A session. I will now return the call to Mr. Brian Harris. The company’s Chief Executive Officer.
With that, I know this was a longer call, but this was I think that was the longest quarter as I’ve ever lived through too. So thank you for being on with us today and I will apologize that we could not convey a lot of information to you at a time when I really wanted to. But I would like to you understand that we didn’t lose our minds. We are conservative by nature and the one factor I think was left out was everybody forgot, we raised $750 million on January 30. So keep that in mind and when you see some of the press articles that come out that sometimes we just can’t figure out, how and where they come from. Maybe just go back to the basics and how we go about running this company. All right so thank you. I look forward to talking to you all again, stay safe and hopefully we’ll be outside soon.
Thank you and that does conclude today’s conference. Thank you all for your participation. You may now disconnect.