Item 1.01 Entry into a Material Definitive Agreement.
On January 11, 2019, ACRE Commercial Mortgage 2017-FL3 Ltd. (the “Issuer”) and ACRE Commercial Mortgage 2017-FL3 LLC (the “Co-Issuer”), both wholly owned indirect subsidiaries of Ares Commercial Real Estate Corporation (the “Company”), entered into an Amended and Restated Indenture (the “Amended Indenture”) with Wells Fargo Bank, National Association, as advancing agent and note administrator, and Wilmington Trust, National Association, as trustee, which governs the approximately $504.1 million principal balance of secured floating rate notes issued by the Issuer (the “Notes”) and $52.9 million of preferred equity in the Issuer (the “2019 FL3 CLO Securitization”). The Amended Indenture amends and restates, and replaces in its entirety, the indenture which governed the issuance of approximately $308.8 million principal balance of secured floating rate notes and $32.4 million of preferred equity in the Issuer in March 2017 (the “2017 FL3 CLO Securitization”).
The Notes are collateralized by interests in a pool of 17 mortgage assets having an aggregate principal balance of approximately $557.0 million (the “Mortgage Assets”), including six additional mortgage assets with an aggregate principal balance of approximately $228.8 million (the “Additional Mortgage Assets”). During the reinvestment period ending in March 2021, ACRC Lender LLC, a wholly owned indirect subsidiary of the Company (the “Seller”), may direct the Issuer to acquire additional mortgage assets meeting applicable reinvestment criteria using the principal repayments from the Mortgage Assets, subject to the satisfaction of certain conditions, including receipt of a Rating Agency Confirmation and investor approval of the new mortgage assets. The sale of the Additional Mortgage Assets to the Issuer is governed by a Mortgage Asset Purchase Agreement between the Seller and the Issuer.
In connection with the 2019 FL3 CLO Securitization, the Issuer and Co-Issuer offered and issued $172.7 million aggregate principal balance of additional Class A, Class A-S, Class B, Class C and Class D Notes (collectively, the “Additional Offered Notes”) to a third party. The original aggregate note balance of the 2017 FL3 CLO Securitization and the new aggregate note balance pursuant to the 2019 FL3 CLO Securitization, including the Additional Offered Notes, and interest rate of the Notes held by such third party (the “Offered Notes”) are as follows ($ in millions):
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Class
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Original Aggregate
Note Balance
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New Aggregate
Note Balance
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2019 FL3 CLO
New Interest Rate
(1)
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Class A
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$
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170.6
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$
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278.5
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LIBOR + 1.180%
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Class A-S
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$
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37.5
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$
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61.3
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LIBOR + 1.400%
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Class B
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$
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10.2
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$
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16.7
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LIBOR + 2.000%
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Class C
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$
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20.5
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$
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33.4
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LIBOR + 2.740%
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Class D
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$
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34.1
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$
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55.7
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LIBOR + 3.940%
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(1)
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The Offered Notes bear interest at variable rates per annum and reflect amendments to the rates from the indenture that governed the 2017 FL3 CLO Securitization in connection with the Amended Indenture.
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The aggregate principal balance of the Offered Notes of the 2017 FL3 CLO Securitization was approximately $272.9 million, with a weighted average coupon of LIBOR plus 1.85%. The aggregate principal balance of the Offered Notes after giving effect to the 2019 FL3 CLO Securitization is approximately $445.6 million, and the initial weighted average coupon of the Offered Notes is LIBOR plus 1.70% per annum.
A wholly owned subsidiary of the Company retained approximately $58.5 million of the Notes (the “Retained Notes”) and all of the $52.9 million of preferred equity in the Issuer.
After January 16, 2023, the Issuer may redeem the Offered Notes subject to paying a make whole prepayment fee of 1.0% of the then outstanding balance of the Offered Notes. In addition, the Issuer has the right to redeem the Class D Notes, subject to paying a make whole prepayment fee of 1.0% on the Class D Notes, once the Class A Notes, Class A-S Notes, Class B Notes and Class C Notes have been repaid in full. Interest and principal payments that would otherwise be used to make payments on the Retained Notes and the Preferred Shares will be used to repay principal on the Offered Notes to the extent necessary to satisfy the senior note overcollateralization ratio.
The Additional Offered Notes were offered pursuant to an offering made privately in transactions exempt from the registration requirements of the Securities Act of 1933. The Additional Offered Notes will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.