Commercial Loans

9 Months Ended

Sep. 30, 2023

Commercial LoansCommercial Loans

In January 2019, WMC CRE LLC ("CRE LLC"), a wholly-owned subsidiary of the Company was formed for the purpose of acquiring Commercial Loans. The Commercial Loans owned by CRE LLC are financed under the Commercial Whole Loan Facility. See Note 7, "Financing" to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

The following table presents information about the Commercial Loans owned by CRE LLC as of September 30, 2023 (dollars in thousands):

Loan

Acquisition Date

Loan Type

Principal Balance

Fair Value

Original LTV

Interest Rate

Maturity Date

Extension Option

Collateral

CRE 4

September 2019

Interest-Only First Mortgage

22,204

22,071

63%

1-Month SOFR plus 3.38%

8/6/2025(1)

None

Retail

CRE 5

December 2019

Interest-Only First Mortgage

24,535

24,061

62%

1-Month SOFR plus 4.20%

5/6/2025(2)

None

Hotel

CRE 6

December 2019

Interest-Only First Mortgage

13,207

12,952

62%

1-Month SOFR plus 4.20%

5/6/2025(2)

None

Hotel

CRE 7

December 2019

Interest-Only First Mortgage

7,259

7,118

62%

1-Month SOFR plus 4.20%

5/6/2025(2)

None

Hotel

67,205

66,202

(1) In August 2022, CRE 4 was extended three-years through August 6, 2025, with a principal paydown of $16.2 million.

(2) In November 2023, CRE 5, 6, and 7 were each extended through May 6, 2025.

Commercial Loan Sale

On February 3, 2023, the CRE 3 loan was sold to an unaffiliated third party for its recorded fair value as of December 31, 2022 of $8.8 million. At the time of sale, the Company recognized a realized loss of $81.2 million and a related reversal of unrealized loss of the same amount.

Commercial Loan Trust

In March 2018, the Company formed the Revolving Small Balance Commercial Trust 2018-1 ("RSBC Trust") to acquire commercial real estate mortgage loans. The Company consolidates the trust because it determined that the wholly-owned RSBC Trust was a VIE and that the Company was the primary beneficiary. As of September 30, 2023, there was one loan remaining in the trust.

The following table presents information on the commercial real estate mortgage loan held by RSBC Trust as of September 30, 2023 (dollars in thousands):

Loan

Acquisition Date

Loan Type

Principal Balance

Fair Value

LTV

Interest Rate(1)

Maturity Date(1)

Extension Option

Collateral

SBC 3

January 2019

Interest-Only First Mortgage

12,500

12,499

49%

1-Month SOFR plus 5.50%

10/4/2023

None

Nursing Facilities

12,500

12,499

(1) In January 2023, the SBC 3 loan was partially paid down by $862 thousand to bring the unpaid principal balance to $13.5 million, the maturity date was extended through May 5, 2023 for a 50 bps extension fee and the margin was increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was partially paid down by $750 thousand to bring the unpaid principal to $12.8 million, the maturity date was extended through August 4, 2023, and the margin was increased from 5.00% to 5.50%. In July 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal balance to $12.5 million, and the maturity date was extended to October 4, 2023 for a 25 bps extension fee. In October 2023, the SBC 3 loan was partially paid down by $250 thousand to bring the unpaid principal to $12.3 million and the maturity date was extended to December 31, 2023 for a 25 bps extension fee.

Securitized Commercial Loans

Securitized Commercial Loans are comprised of Commercial Loans from consolidated third party sponsored CMBS VIE's. At September 30, 2023, the Company had a variable interest in one third party sponsored CMBS VIE, CSMC Trust 2014-USA, that it determined it was the primary beneficiary and was required to consolidate. The Commercial Loan that serves as collateral for the securitized debt issued by this VIE can only be used to settle the securitized debt. See Note 7, "Financings"

to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for details on the associated securitized debt. The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment.

CSMC Trust 2014-USA

The Company together with other related party entities own more than 50% of the controlling class of CSMC Trust 2014-USA ("CSMC USA"). As of September 30, 2023, the Company held an 8.8% interest in the trust certificates issued by CSMC USA (F Class) with an outstanding principal balance of $14.9 million. The Company performs ongoing reassessment of its CMBS VIE holdings for potential consolidation of the securitized trust in which it owns a portion of the controlling class. Since the ownership of the controlling financial interest is held within a related party group, the Company must determine whether it is the primary beneficiary under the related party tie-breaker rule. As a result of the Company's evaluation, it was determined that the Company is the primary beneficiary of CSMC USA, and effective on August 1, 2020, consolidated CSMC USA. The Company’s investment in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of September 30, 2023. The loan has a stated maturity date of September 11, 2025 and bears a fixed interest rate of 4.38%. The Company elected the fair value option for the commercial loan as well as the associated securitized debt.

In December 2020, the commercial loan held by CSMC USA was amended to an interest only payment through maturity. As part of the modification, a Cash Management Forbearance Agreement was entered into by the special servicer and the borrower, which required both increased reporting requirements and monthly net cash remittance.

Consolidated Securitized Commercial Loan Trust and Commercial Loan Trust

The two commercial consolidated trusts, CSMC USA and RSBC Trust, collectively held two Commercial Loans as of September 30, 2023. The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (dollars in thousands):


	September 30, 2023		December 31, 2022

Restricted cash	$	—	$	248
Securitized Commercial Loan, at fair value	1,012,650		1,085,103
Commercial Loans, at fair value	12,499		14,362
Interest receivable	5,151		5,311
Total assets	$	1,030,300	$	1,105,024
Securitized debt, at fair value	$	1,006,630	$	1,077,611
Interest payable	4,995		5,164
Accounts payable and accrued expenses	9		9
Other liabilities	—		248
Total liabilities	$	1,011,634	$	1,083,032

The Company’s risk with respect to its investment in the securitized commercial loan trust is limited to its direct ownership in the trust. The Commercial Loan held by the consolidated securitized commercial loan trust is held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The Securitized Commercial Loan of the trust can only be used to satisfy the obligations of the trust. The Company is not contractually required to provide, and has not provided any additional financial support to the securitized commercial loan trust for the three and nine months ended September 30, 2023 and September 30, 2022.

The following table presents the components of the fair value of the Securitized Commercial Loan and Commercial Loans as of September 30, 2023 and December 31, 2022 (dollars in thousands):


	CSMC USA Trust Securitized Commercial Loan, at Fair Value	RSBC Trust Commercial Loans, at Fair Value				Commercial Loans, at Fair Value
		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Principal balance		$	1,385,591	$	1,385,591	$	12,500	$	14,362	$	67,205	$	157,205

Unamortized discount		(62,799)		(84,132)		—		—		—		—
Amortized cost		1,322,792		1,301,459		12,500		14,362		67,205		157,205
Gross unrealized gains		—		—		—		—		—		—
Gross unrealized losses		(310,142)		(216,356)		(1)		—		(1,003)		(81,565)
Fair value		$	1,012,650	$	1,085,103	$	12,499	$	14,362	$	66,202	$	75,640

Non-Performing Commercial Loans

As of September 30, 2023, there are no Commercial Loans that are non-performing.

Western Asset Mortgage Capital Corp 10-Q