Latest Updates Regarding PFNF (Pre-Funding Note Fund)

The following offers the latest developments with PFNF

Updated: January 17th, 2025

On or around January 21st, 2025 we will initiate a PFNF principal distribution for $1.75M, which represents ~5.6% of the remaining PFNF note balance. We’ve now returned 58.3% of all PFNF principal since we began this distribution plan. 

The majority of ongoing liquidity for PFNF will come from repayment on the underlying mortgages in which PFNF holds a position. Managing this portfolio and expediting loan repayments remains a high priority. As we communicated previously, we expect some variability in the available liquidity month-to-month as a result of the unpredictability of loan payoffs. We remain committed to providing a distribution at least once per month with the liquidity that is received as loans repay.

We continue to receive payoff requests for a number of loans in which PFNF holds a position and expect repayments to continue at a similar pace as we’ve seen in the last two months going forward. We’ll continue to process distributions as liquidity becomes available at least once per month. 

The below is a current snapshot of where remaining PFNF funds are relative to last time this was reported. 

Jan 2025 PFNF

For this month’s distribution we have also included the cash collected from interest received on the underlying portfolio. The loan portfolio has been reduced by $1.4M in the last 30 days. One factor that is causing the portfolio balance to not reduce as fast is the fact that we are utilizing PFNF liquidity to continue to fund draws on performing loans in order to protect the position PFNF may already have in the underlying loan. The underlying portfolio is approaching being fully drawn which means we expect to start to see additional liquidity as loans repay in the coming months.  Note that these draws are being registered as “protective servicing advances”, meaning that they receive first priority in terms of recoupment upon payoff. 

This information is being provided to show progress made from the last reporting period. Please consider the components of this analysis are incredibly dynamic as payoffs, loan sales, servicing advances and various reconciliation efforts are ongoing daily.

The below are brief definitions on how we’re categorizing the various cash and receivable components of this reporting.  

Settled Cash: This is the amount of cash we have in the PFNF bank account that has been reconciled and is available for distribution. 

Undergoing Payoff Reconciliation: This is the amount of cash we have received from payoffs on loans that PFNF has a position. Once these payoffs are reconciled, this cash will move to the Settled Cash. 

Pending Final Settlement for Loan Sales: This is the amount of cash we have received related to all loan sales. As loans clear closing conditions and the remaining holdback amount is released to us, loans will be reconciled and the amount will be moved to Settled Cash. 

Receivable: Holdback from Loan Sale: This is the amount being held back by the loan buyer, pending clearing due diligence conditions. Once conditions are met on a loan, then this amount is sent to us as cash and it will be reconciled and then moved to the Settled Cash. 

Receivable: Draw Advance: As the servicer for certain loans, we make draw and other protective advances. These funds are recouped typically within a couple of days from institutional loan owners or are first priority to be repaid upon loan repayment. 

Interest Collected: This represents the amount of interest collected on the underlying loans in which PFNF holds a position. This will be distributed to investors on a prorata basis periodically as the balance reaches a certain size. 

Loss Reserve:  In order to manage risk for the possibility that loans wouldn’t be able to be sold, we have been building a loss reserve in PFNF from the positive economics created by this product. As of today, there is a reserve amount of $1.08M, which is cash held in a PFNF titled account. To the extent that there are any principal losses on underlying loans in which PFNF holds a position, this reserve will be drawn down to offset any losses.

Performing Loans: This balance goes down as we get payoffs or loans fall into the non-performing category. This balance may go up as a result of servicing advances being made to advance construction on a performing loan or in circumstances where a non-performing loan becomes current on payments. For these reasons you may not see this value going in a straight line down from month-to-month as you might otherwise expect. 

Non-Performing Loans: This balance goes down as we get payoffs or loans move up to the performing category. This balance may go up as a result of previously performing loans becoming non-performing. For these reasons you may not see this value going in a straight line down from month-to-month as you might otherwise expect. 

Q: What is the expected timeline to fully repay PFNF?

A: This is difficult to predict with any certainty given that liquidity is dependent upon the underlying loans repaying. We continue to work with borrowers and potential loan buyers to create liquidity via repayment or loan sales to expedite repayment as best we can.  Our goal is to provide a distribution at least once per month or more frequently to the extent that we have enough liquidity to make a distribution of ~10% of the remaining PFNF balance. 

Q: Will interest payments be made to PFNF noteholders? 

A: We continue to distribute available liquidity as principal payments to investors. Once all principal has been returned to investors, the plan is to then distribute any remaining liquidity to investors as interest payments. 

Q: What’s happening with interest collected on the underlying loans in which PFNF holds a position? 

A: To the extent an underlying loan is paying its interest, that interest is being collected in a segregated PFNF account. We are providing the balance of that account as part of our regular PFNF reporting which you can reference above. As this balance builds we will include it in our periodic PFNF distributions. 

Q:What loans is my PFNF series associated with?

A: Capital raised into PFNF through Series Notes is used to provide a line of credit to finance first position mortgages. All of the mortgages on the line of credit are distributed evenly to all PFNF Series Notes. Said another way, each Series Note is allocated to the same population of underlying first position mortgages. So if you have two different Series Notes, they are both invested in the same underlying mortgages. Similarly, your Series Notes and all of the other Series Notes held by other investors are invested in the same underlying mortgages.