Business description of READY-CAPITAL-CORPORATION from last 10-k form

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FORWARD-LOOKING STATEMENTS

     The Company makes forward-looking statements in this annual report on Form 10-K within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. When the Company uses the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "could," "would," "may," "potential" or the negative of these terms or other comparable terminology, the Company intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

  • the Company's investment objectives and business strategy;
     
  • the Company's ability to obtain future financing arrangements;
     
  • the Company's expected leverage;
     
  • the Company's expected investments;
     
  • estimates or statements relating to, and the Company's ability to make, future distributions;
     
  • the Company's ability to compete in the marketplace;
     
  • the Company's ability to originate or acquire the assets it targets and achieve risk-adjusted returns;
     
  • the Company's ability to borrow funds at favorable rates;
     
  • market, industry and economic trends;
     
  • recent market developments and actions taken and to be taken by the U.S. Government, the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System, the Federal Depositary Insurance Corporation, the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Government National Mortgage Association ("Ginnie Mae") and the U.S. Securities and Exchange Commission ("SEC");
     
  • mortgage loan modification programs and future legislative actions;
     
  • the Company's ability to maintain its qualification as a real estate investment trust ("REIT");
     
  • the Company's ability to maintain its exemption from qualification under the Investment Company Act of 1940, as amended (the "1940 Act");
     
  • projected capital and operating expenditures;
     
  • availability of qualified personnel;
     
  • prepayment rates; and
     
  • projected default rates.

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     The Company's beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company or are within its control, including:

  • the factors referenced in this annual report on Form 10-K, including those set forth under Item 1, "Business" and Item 1A, "Risk Factors"
     
  • general volatility of the capital markets;
     
  • changes in the Company's investment objectives and business strategy;
     
  • the availability, terms and deployment of capital;
     
  • the availability of suitable investment opportunities;
     
  • the Company's dependence on its external advisor, ZAIS REIT Management, LLC (the "Advisor"), and the Company's ability to find a suitable replacement if the Company or the Advisor were to terminate the investment advisory agreement the Company has entered into with the Advisor;
     
  • changes in the Company's assets, interest rates or the general economy;
     
  • increased rates of default and/or decreased recovery rates on the Company's investments;
     
  • changes in interest rates, interest rate spreads, the yield curve or prepayment rates; changes in prepayments of the Company's assets;
     
  • limitations on the Company's business as a result of its qualification as a REIT; and
     
  • the degree and nature of the Company's competition, including competition for residential mortgage-backed securities ("RMBS"), loans or its other target assets.

     Upon the occurrence of these or other factors, the Company's business, financial condition, liquidity and consolidated results of operations may vary materially from those expressed in, or implied by, any such forward-looking statements.

     Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements apply only as of the date of this annual report on Form 10-K. The Company is not obligated, and does not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See Item 1A, "Risk Factors" of this annual report on Form 10-K.

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In this annual report on Form 10-K, references to the "Company" refer to ZAIS Financial Corp., a Maryland corporation, together with its consolidated subsidiaries; references to the Advisor refer to ZAIS REIT Management, LLC, a Delaware limited liability company; references to the "Operating Partnership" refer to ZAIS Financial Partners, L.P., a Delaware limited partnership; in each case unless specifically stated otherwise or the context otherwise indicates, and references to "risk-adjusted returns" refer to the profile of expected asset returns across a range of potential macroeconomic scenarios.

Item 1. Business.

GENERAL

     The Company is a Maryland corporation that was organized and commenced operations on July 29, 2011 and completed its initial public offering (the "IPO") on February 13, 2013. The Company's shares of common stock are traded on the New York Stock Exchange ("NYSE") under the Symbol "ZFC."

     The Company primarily invests in, finances and manages performing and re-performing residential mortgage loans, which may be seasoned or recently originated. The Company also invests in, finances and manages RMBS that are not issued or guaranteed by a federally chartered corporation, such as Fannie Mae, or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae ("non-Agency RMBS") with an emphasis on securities that, when originally issued, were rated in the highest rating category by one or more of the nationally recognized statistical rating organizations. The Company also has the discretion to invest in mortgage servicing rights ("MSRs"), RMBS that are issued or guaranteed by a federally chartered corporation or a U.S. Government agency ("Agency RMBS"), including through To-Be-Announced ("TBA") contracts, and in other real estate-related and financial assets, such as interest only strips created from RMBS ("IOs"), commercial mortgage-backed securities ("CMBS") and asset-backed securities ("ABS"). The Company refers collectively to the assets it targets for acquisition as its target assets.

     The Company plans over time to evolve its whole loan strategy to include newly originated residential mortgage loans, which the Company expects to become a core component of its strategy. While the Company has not yet begun originating or purchasing newly originated loans, it has taken steps to build out its capabilities. The Company believes that this business will benefit from the existing expertise of the Advisor, a subsidiary of ZAIS Group, LLC ("ZAIS"), in mortgage product development, loan pricing, hedging and analytics, due diligence, risk management and servicing oversight. The Company may pursue opportunities for the origination and purchase of newly originated mortgage loans through a loan seller network or through the acquisition or establishment of a mortgage origination platform.

     The Company's income is generated primarily by the net spread between the income it earns on its assets and the cost of its financing and hedging activities. The Company's objective is to provide attractive risk-adjusted returns to its stockholders, primarily through quarterly distributions and secondarily through capital appreciation.

     The Company is externally managed and advised by the Advisor. Pursuant to the terms of the investment advisory agreement between the Company and the Advisor, the Advisor is responsible for the Company's investment strategies and decisions and its day-to-day operations.

     The Company completed its formation transaction and commenced operations on July 29, 2011. The formation transaction involved the exchange by investors in two funds from the Matrix VI series of funds, managed by ZAIS, of cash and RMBS assets for an aggregate of 3,022,617 shares of the Company's common stock. The Company received approximately $60.5 million in this transaction, including $8.65 million from certain current and former employees of ZAIS and relatives of such persons as well as current and former members and owners of ZAIS (the "ZAIS Parties"), and deployed the cash together with additional borrowings to build a diversified portfolio of RMBS assets.

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     On February 13, 2013, the Company successfully completed its IPO, pursuant to which the Company sold 5,650,000 shares of its common stock to the public at a price of $21.25 per share for gross proceeds of $120.1 million. Net proceeds after the payment of offering costs of approximately $1.2 million were $118.9 million. In connection with the IPO, the Advisor paid $6.3 million in underwriting fees. The Company did not pay any underwriting fees, discounts or commissions in connection with the IPO.

     The Operating Partnership issued and sold $57,500,000 aggregate principal amount of its 8.0% Exchangeable Senior Notes due 2016 (the "Exchangeable Senior Notes") in a private transaction on November 25, 2013. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" of this annual report on Form 10-K, for a discussion of the terms of the Exchangeable Senior Notes.

     As of December 31, 2013, the Company held a diversified portfolio of fixed rate mortgage loans and adjustable rate mortgage loans ("ARMs") with an estimated fair value of $331.8 million and RMBS assets with an estimated fair value of $226.2 million, consisting primarily of senior tranches of non-Agency RMBS that were originally highly rated but subsequently downgraded. The borrowings the Company used to fund the purchase of its portfolio totaled approximately $374.7 million as of December 31, 2013 under a master loan repurchase agreement (the "Loan Repurchase Facility") with Citibank, N.A., as well as under master securities repurchase agreements with four counterparties. The Company is also in discussions with other financial institutions to provide it with additional borrowing capacity under various agreements, including repurchase agreements and other types of financing arrangements.

     The Company is a Maryland corporation and is organized in a traditional umbrella partnership real estate investment trust ("UpREIT") format pursuant to which the Company serves as the general partner of, and conducts substantially all of its business through, its Operating Partnership subsidiary, ZAIS Financial Partners, L.P., a Delaware limited partnership (the "Operating Partnership"). As of December 31, 2013, the Company owned an approximate 89.6% partnership interest in the Operating Partnership (comprised of a general and limited partnership interest). The Company has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2011.