DEF 14A: Great Ajax Corp. Seeks Stockholder Approval for Strategic Transaction with Rithm Capital

Great Ajax Corp. is asking stockholders to approve proposals related to a strategic transaction with Rithm Capital, including the issuance of common stock and a new management agreement.

Summary

• Great Ajax Corp. is seeking stockholder approval for a strategic transaction with Rithm Capital Corp.
• The transaction involves the issuance of common stock to exchanging investors and Rithm, as well as the approval of a new management agreement with RCM GA Manager LLC, an affiliate of Rithm.
• The annual meeting is scheduled for May 20, 2024, and will be held virtually.
• The Great Ajax Board recommends voting for all proposals, including the election of directors, the management agreement, and the equity incentive plan amendment.
• The transaction aims to shift Great Ajax's strategic direction towards commercial real estate investment opportunities.
• The company has entered into support agreements with directors, officers, and certain institutional stockholders, representing 44% of the outstanding shares, to vote in favor of the proposals.
• Piper Sandler & Co. provided an opinion that the transaction represents a reasonable means for Great Ajax to raise capital from a financial point of view.
• BTIG, LLC delivered an opinion to the Great Ajax Special Committee to the effect that the cost of the Facility was reasonable from a financial point of view to Great Ajax and the price per share at which Great Ajax will sell and issue to Rithm shares of Great Ajax Common Stock in the Private Placement was reasonable from a financial point of view to Great Ajax.

Sentiment

Score: 6

Explanation: The document presents a balanced view, outlining both the potential benefits and risks associated with the proposed transaction. While the board recommends approval, the document acknowledges potential downsides and uncertainties.

Positives

• The transaction enables Great Ajax to shift its strategic direction towards commercial real estate investment opportunities.
• The new manager, RCM GA, does not have the ability to receive Common Stock as payment for management fees, thus its compensation will not dilute Great Ajax's Stockholders.
• The company's capital structure will be simplified and balance sheet liabilities would be reduced, through the elimination of the two series of Preferred Stock and the corresponding warrants and the repayment of the Convertible Notes.
• The company will also have eliminated some of the conflicts of interest associated with the affiliated servicer, Gregory, through its surrender and disposition of ownership interests in Gregory.

Negatives

• The transaction is subject to closing conditions, including stockholder approval, and there is no assurance that the transaction will be consummated.
• If the transaction is not consummated, Great Ajax's business could suffer materially and its stock price would decline.
• Some of Great Ajax's officers and directors have conflicts of interest that may influence them to support or approve the transaction.
• If the transaction is consummated, current stockholders will have reduced ownership and voting interests.
• If the transaction is consummated, the market price of the Common Stock may decline.

Risks

• The Securities Purchase Agreement is subject to closing conditions, including Stockholder approval, and Great Ajax may not be able to close the Transaction on the agreed upon terms.
• If the Transaction is not consummated, Great Ajaxs business could suffer materially and Great Ajaxs stock price would decline.
• The transfer of Gregorys rights and obligations to a third party servicer, and the disposition of Great Ajaxs ownership interest in Gregory may result in additional expenses to Great Ajax and prevent Great Ajax from realizing anticipated benefits from future transactions involving Gregory.
• Some of Great Ajaxs officers and directors have conflicts of interest that may influence them to support or approve the Transaction.
• If the Transaction is consummated, current Stockholders will have reduced ownership and voting interests.
• If the Transaction is consummated, the market price of the Common Stock may decline.
• Great Ajax may become involved in securities litigation as a result of the Transaction which would divert the attention and resources of management, which could adversely affect business, and insurance coverage may not be sufficient to cover all damages.

Future Outlook

Great Ajax anticipates that the Transaction will be consummated as promptly as practicable after the Meeting to be held on May 20, 2024, subject to the requisite approval of the Stockholders as well as the satisfaction of other closing conditions as set forth in the Securities Purchase Agreement.

Management Comments

• The Great Ajax Board believes that the consummation of the Transaction, including the execution of the Rithm Management Agreement and the issuance of Warrants and Shares to Rithm, have important strategic benefits.

Industry Context

The document indicates a shift in strategic direction for Great Ajax towards commercial real estate investments, reflecting a response to market dynamics and challenges in the residential mortgage REIT sector.

Comparison to Industry Standards

• The document compares Great Ajax's financial metrics and transaction terms to those of other non-agency mortgage REITs, including AG Mortgage Investment Trust, Inc., Angel Oak Mortgage REIT, Inc., Chimera Investment Corporation, Dynex Capital, Inc., Ellington Financial Inc., Invesco Mortgage Capital Inc., MFA Financial, Inc., New York Mortgage Trust, Inc., Orchid Island Capital, Inc., PennyMac Mortgage Investment Trust, Ready Capital Corporation, Redwood Trust, Inc., Rithm Capital Corp., and Two Harbors Investment Corp.
• The document also compares Great Ajax's transaction terms to those of other senior note issuances by non-agency REITs, including Velocity Commercial Capital, LLC, AG Mortgage Investment Trust, Inc., Redwood Trust, Inc., MFA Financial, Inc. and PennyMac Mortgage Investment Trust.

Management Changes

Related Party Transactions

• The document discloses relationships and transactions between Great Ajax and related parties, including the Current Manager, Gregory Funding LLC, and Aspen Yo LLC.
• Three members of the Great Ajax Board, Lawrence Mendelsohn, Russell Schaub and Steven Begleiter, indirectly own interests in the Current Manager, and, therefore, will receive a portion of the termination fee paid to the Current Manager.
• Prior to the Exchange, Flexpoint was a minority holder of the Preferred Stock and the corresponding warrants. An employee of Flexpoint, Steven L. Begleiter, is a director of Great Ajax.

Stakeholder Impact

• Stockholders will have the opportunity to benefit from Great Ajax's management by a well-known, well-regarded team affiliated with Rithm.
• Stockholders will have an investment in a company that is focused on commercial real estate.
• Stockholders will benefit from Great Ajax having repaid the outstanding Convertible Senior Notes.
• It is possible, subject to the number of Warrants ultimately issued to Rithm, that Rithm will, when any Warrant Shares that may be issued to Rithm upon exercise of the Warrants are aggregated with the Common Stock it purchased pursuant to the Securities Purchase Agreement, hold in excess of 20% of Great Ajax's outstanding Common Stock.

Next Steps

• Stockholders will vote on the proposals at the Annual Meeting on May 20, 2024.
• If the proposals are approved, Great Ajax will proceed with the strategic transaction with Rithm Capital.
• Great Ajax will file a NYSE SLAP relating to the Shares and Warrant Shares.
• Rithm or an applicable affiliate expects to qualify as a Registered Investment Adviser under the Investment Advisers Act, in connection with the entry into the Rithm Management Agreement.

Key Dates

Keywords

Rithm Capital, Great Ajax, Strategic Transaction, Proxy Statement, Common Stock, Management Agreement, Stockholder Approval, Commercial Real Estate, Warrants, Issuance Proposal