Debt

Repurchase Agreement

The Company has entered into two repurchase facilities whereby the Company, through two wholly-owned Delaware trusts (the “Trusts”) acquires pools of mortgage loans which are then sold by the Trusts, as “Seller” to two separate counterparties, the “buyer” or “buyers.” One facility has a ceiling of $250.0 million and the other $200.0 million at any one time. Upon the time of the initial sale to the buyer, the Trust, with a simultaneous agreement, also agrees to repurchase the pools of mortgage loans from the buyer. Mortgage loans sold under these facilities carry interest calculated based on a spread to one-month LIBOR, which are fixed for the term of the borrowing. The purchase price that the Trust realizes upon the initial sale of the mortgage loans to the buyer can vary between 70% and 85% of the asset’s acquisition price, depending upon the facility being utilized and/or the quality of the underlying collateral. The obligations of a Trust to repurchase these mortgage loans at a future date are guaranteed by the Operating Partnership. The difference between the market value of the asset and the amount of the repurchase agreement is generally the amount of equity the Company has in the position and is intended to provide the buyer with some protection against fluctuations in the value of the collateral, and/or a failure by the Company to repurchase the asset and repay the borrowing at maturity. The Company has effective control over the assets subject to these transactions; therefore the Company’s repurchase transactions are accounted for as financing arrangements.

The Servicer services these mortgage loans pursuant to the terms of a Servicing Agreement by and among the Servicer and each Buyer which Servicing Agreement has the same fees and expenses terms as the Company’s Servicing Agreement described under Note 9 — Related party transactions. The Operating Partnership, as guarantor, will provide to the buyers a limited guaranty of certain losses incurred by the buyers in connection with certain events and/or the Seller’s obligations under the mortgage loan purchase agreement, following the breach of certain covenants by the Seller, the occurrence of certain bad acts by the Seller, the occurrence of certain insolvency events of the Seller or other events specified in the Guaranty. As security for its obligations under the Guaranty, the guarantor will pledge the Trust Certificate representing the Guarantor’s 100% beneficial interest in the Seller.

Additionally, the Company has sold subordinate securities from its mortgage securitizations in repurchase transactions. The following table sets forth the details of the Company’s repurchase transactions and facilities ($ in thousands):



				December 31, 2017
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
April 30, 2018	October 31, 2017	$	10,601	$	10,601	$	15,145	143	%	3.66	%
May 8, 2018	November 8, 2017	15,227		15,227		21,754		143	%	3.69	%
June 7, 2018	December 7, 2017	66,678		66,678		88,904		133	%	3.59	%
November 21, 2018	November 22, 2017	200,000		3,775		8,215		218	%	4.79	%
July 12, 2019	July 15, 2016	250,000		180,104		234,724		130	%	4.03	%
Totals		$	542,506	$	276,385	$	368,742	133	%	3.91	%



				December 31, 2016
Maturity Date	Origination date	Maximum Borrowing Capacity		Amount Outstanding		Amount of Collateral		Percentage of Collateral Coverage		Interest Rate
March 9, 2017	September 9, 2016	$	10,310	$	10,309	$	14,728	143	%	3.32	%
March 30, 2017	September 30, 2016	10,797		10,797		15,424		143	%	3.34	%
May 8, 2017	November 9, 2016	14,986		14,986		21,409		143	%	3.35	%
November 21, 2017	November 22, 2016	200,000		21,302		36,044		169	%	4.20	%
July 12, 2019	July 15, 2016	200,000		170,046		226,192		133	%	3.25	%
Totals		$	436,093	$	227,440	$	313,797	138	%	3.35	%

The guaranty establishes a master netting arrangement; however, the arrangement does not meet the criteria for offsetting within the Company’s consolidated Balance Sheets. A master netting arrangement derives from contractual agreements entered into by two parties to multiple contracts that provides for the net settlement of all contracts covered by the agreements in the event of default under any one contract. The amount outstanding on the Company’s repurchase facilities and the carrying value of the Company’s loans pledged as collateral are presented as gross amounts in the Company’s consolidated balance sheets at December 31, 2017 and 2016 in the table below ($ in thousands):



	Gross amounts not offset in balance sheet
	December 31, 2017		December 31, 2016
Gross amount of recognized liabilities	$	276,385	$	227,440
Gross amount pledged as collateral	368,742		313,797
Net amount	$	92,357	$	86,357

Secured Borrowings

From inception (January 30, 2014) to December 31, 2017, the Company has completed 12 secured borrowings pursuant to Rule 144A under the Securities Act, seven of which were outstanding at December 31, 2017. The secured borrowings are structured as debt financings and not sales through a real estate investment conduit (“REMIC”), and the loans included in the secured borrowings remain on the Company’s consolidated balance sheet as the Company is the primary beneficiary of the securitization trusts, which are VIEs. The securitization VIEs are structured as pass through entities that receive principal and interest on the underlying mortgages and distribute those payments to the holders of the notes. The Company’s exposure to the obligations of the VIEs is generally limited to its investments in the entities. The notes that are issued by the securitization trusts are secured solely by the mortgages held by the applicable trusts and not by any of the Company’s other assets. The mortgage loans of the applicable trusts are the only source of repayment and interest on the notes issued by such trusts. The Company does not guarantee any of the obligations of the trusts under the terms of the agreement governing the notes or otherwise.

The Company’s secured borrowings are structured with Class A notes, subordinate notes, and trust certificates, which have rights to the residual interests in the mortgages once the notes are repaid. With the exception of the Company’s 2017-D securitization, from which the Company sold a 50% interest in the trust certificate to a third party, the Company has retained the subordinate notes and the trust certificates from the seven secured borrowings outstanding at December 31, 2017. The Class A notes are senior, sequential pay, fixed rate notes. The Class B notes and Class M notes are subordinate, sequential pay, fixed rate notes. If the Class A notes have not been redeemed by the payment date 36 months after issue, or otherwise paid in full by that date, an amount equal to the aggregate interest payment amount that accrued and would otherwise be paid to the subordinate notes will be paid as principal to the Class A notes on that date and each subsequent payment date until the Class A notes are paid in full. After the Class A notes are paid in full, the subordinate notes will resume receiving their respective interest payment amounts and any interest that accrued but was not paid while the Class A notes were outstanding. As the holder of the trust certificates, the Company is entitled to receive any remaining amounts in the trusts after the Class A notes and subordinate notes have been paid in full.

The following table sets forth the original terms of all securitization notes outstanding at December 31, 2017 at their respective cutoff dates:



Issuing Trust/Issue Date	Security	Original Principal	Interest Rate
Ajax Mortgage Loan Trust 2016-A/ April 2016	Class A notes due 2064	$101.4 million	4.25	%
	Class B-1 notes due 2064(1,4)	$7.9 million	5.25	%
	Class B-2 notes due 2064(1,4)	$7.9 million	5.25	%
	Trust certificates(2)	$41.3 million	—	%
	Deferred issuance costs	$(2.7) million	—	%

Ajax Mortgage Loan Trust 2016-B/ August 2016	Class A notes due 2065	$84.4 million	4.00	%
	Class B-1 notes due 2065(1,4)	$6.6 million	5.25	%
	Class B-2 notes due 2065(1,4)	$6.6 million	5.25	%
	Trust certificates(2)	$34.1 million	—	%
	Deferred issuance costs	$(1.6) million	—	%

Ajax Mortgage Loan Trust 2016-C/ October 2016	Class A notes due 2057	$102.6 million	4.00	%
	Class B-1 notes due 2057(1,4)	$7.9 million	5.25	%
	Class B-2 notes due 2057(1,4)	$7.9 million	5.25	%
	Trust certificates(2)	$39.4 million	—	%
	Deferred issuance costs	$(1.6) million	—	%

Ajax Mortgage Loan Trust 2017-A/ May 2017	Class A notes due 2057	$140.7 million	3.47	%
	Class B-1 notes due 2057(1)	$15.1 million	5.25	%
	Class B-2 notes due 2057(1)	$10.8 million	5.25	%
	Trust certificates(2)	$49.8 million	—	%
	Deferred issuance costs	$(2.0) million	—	%

Ajax Mortgage Loan Trust 2017-B/ December 2017	Class A notes due 2056	$115.8 million	3.16	%
	Class M-1 notes due 2056(3)	$9.7 million	3.50	%
	Class M-2 notes due 2056(3)	$9.5 million	3.50	%
	Class B-1 notes due 2056(1)	$9.0 million	3.75	%
	Class B-2 notes due 2056(1)	$7.5 million	3.75	%
	Trust certificates(2)	$14.3 million	—	%
	Deferred issuance costs	$(1.8) million	—	%

Ajax Mortgage Loan Trust 2017-C/ November 2017	Class A notes due 2060	$130.2 million	3.75	%
	Class B-1 notes due 2060(1)	$13.0 million	5.25	%
	Trust certificates(2)	$42.8 million	—	%
	Deferred issuance costs	$(1.7) million	—	%

Ajax Mortgage Loan Trust 2017-D/ December 2017	Class A notes due 2057(5)	$177.8 million	3.75	%
	Class B certificates due 2057(4,5)	$44.5 million	—	%
	Deferred issuance costs	$(1.1) million	—	%


(1)	The Class B notes are subordinate, sequential pay, fixed rate notes with Class B-2 notes subordinate to the Class B-1 notes. The Company has retained the Class B notes.


(2)	The trust certificates issued by the trusts and the beneficial ownership of the trusts are retained by Great Ajax Funding LLC as the depositor. As the holder of the trust certificates, we are entitled to receive any remaining amounts in the trusts after the Class A notes, Class M notes, where present, and Class B notes have been paid in full.


(3)	The Class M notes are subordinate, sequential pay, fixed rate notes with Class M-2 notes subordinate to the Class M-1 notes. We have retained the Class M notes.


(4)	These securities are encumbered under a repurchase agreement.

(5)

AJAXM 2017-D is a joint venture in which a third party owns 50% of the Class A notes and 50% of the Class B certificates. We are required to consolidate 2017-D under GAAP and are reflecting 100% of the mortgage loans, in Mortgage loans, net. 50% of the Class A notes. which are held by the third party, are included in Secured borrowings, net and 50% of the Class B-1 certificates are recognized as Non-controlling interest.

Servicing for the mortgage loans in the Company’s securitizations is provided by the Servicer at a servicing fee rate of an annual servicing fee rate of 0.65% of outstanding UPB for RPLs at acquisition and 1.25% of outstanding UPB for loans that are non-performing at acquisition, and is paid monthly. The determination of RPL or NPL status is based on the status of the loan at acquisition and does not change regardless of the loan’s subsequent performance. The following table sets forth the status of the notes held by others at December 31, 2017 and 2016, and the securitization cutoff date:



	Balances at December 31, 2017							Balances at December 31, 2016						Original balances at securitization cutoff date
Class of Notes	Carrying value of mortgages		Bond principal balance			Percentage of collateral coverage		Carrying value of mortgages		Bond principal balance		Percentage of collateral coverage		Mortgage UPB			Bond principal balance
2015-A	$	—	$	—		—	%	$	51,388	$	29,476	174	%	$	75,835		$	35,643
2015-B	—		—			—	%	104,111		75,258		138	%	158,498			87,174
2015-C	—		—			—	%	100,614		66,979		150	%	130,130			81,982
2016-A	110,585		82,556			134	%	118,189		96,158		123	%	158,485			101,431
2016-B	93,772		71,361			131	%	97,660		80,672		121	%	131,746		(1)	84,430
2016-C	116,357		88,400			132	%	126,681		101,209		125	%	157,808			102,575
2017-A	170,805		126,507			135	%	—		—		—	%	216,413			140,669
2017-B	143,799		115,846			124	%	—		—		—	%	165,850			115,846
2017-C	157,015		129,191			122	%	—		—		—	%	185,942			130,159
2017-D	203,870		88,903		(3)	229	%	—		—		—	%	203,870		(2)	88,903
	$	996,203	$	702,764		142	%	$	598,643	$	449,752	133	%	$	1,584,577		$	968,812


(1)	Includes $1.9 million of cash collateral.


(2)	Includes $26.7 million of cash collateral intended for use in the acquisition of additional mortgage loans.


(3)	The gross amount of senior bonds issued was $177.8 million, however, only $88.9 million is reflected in Secured borrowings as the remainder is owned by the Company.

The Company’s obligations under its secured borrowings are not fixed, and the payments on these borrowings are predicated upon cash flows received on the underlying mortgage loans.

Convertible Senior Notes

On April 25, 2017, the Company completed the issuance and sale of $87.5 million aggregate principal amount of its 7.25% Convertible senior notes due 2024, in an underwritten public offering. The net proceeds to the Company from the sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $84.9 million. The carrying amount of the equity component of the transaction was $2.5 million representing the fair value to the notes' owners of the right to convert the notes into shares of the Company's common stock. The notes were issued at a 17.5% conversion premium and bear interest at a rate of 7.25% per year, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on July 15, 2017.

On August 18, 2017, the Company completed the public offer and sale of an additional $20.5 million in aggregate principal amount of its 7.25% Convertible senior notes due 2024, which combined with the $87.5 million aggregate principal amount from its April offering, form a single series of securities. The net proceeds to the Company from the August 18, 2017 sale of the notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $20.5 million. The carrying amount of the equity component of the August transaction was $0.2 million representing the fair value to the notes' owners of the right to convert the notes into shares of the Company's common stock.

The notes in the August transaction were issued at a 6.0% conversion premium and bear interest at a rate of 7.25% per year, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning on July 15, 2017. The notes will mature on April 30, 2024, unless earlier repurchased, redeemed or converted.

Holders may convert their notes at their option prior to April 30, 2023 only under certain circumstances. In addition, the notes will be convertible irrespective of those circumstances from, and including, April 30, 2023 to, and including, the business day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company's election.

The conversion rate currently equals 1.6313 shares of the Company's common stock per $25.00 principal amount of notes which is equivalent to a conversion price of approximately $15.33 per share of common stock. The conversion rate, and thus the conversion price, may be subject to adjustment under certain circumstances. As of December 31, 2017, the amount by which the if-converted value falls short of the principal value for the entire series is $10.6 million.

The Company may not redeem the notes prior to April 30, 2022, and may redeem for cash all or any portion of the notes, at its option, on or after April 30, 2022 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No "sinking fund" will be provided for the notes.

At December 31, 2017, the notes' UPB was $108.0 million, and discount and deferred expenses were $5.4 million. Interest expense of $5.3 million was recognized during the year ended December 31, 2017 which includes $0.5 million of amortization of discount and deferred expenses. The discount will be amortized through April 30, 2023, the date at which the notes can be converted. The effective interest rate of the notes at December 31, 2017 was 8.65%.