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include, but are not limited to, the following, which are described in greater detail below:
−Removed: • We are dependent on our Manager and certain key personnel of Angel Oak that are or will be provided to us through our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement or such key personnel are no longer available to us.
+Added: • We are dependent on our Manager and certain key personnel of Angel Oak who are or may be provided to us through our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement or such key personnel are no longer available to us.
• There are conflicts of interest in our relationship with Angel Oak, including our Manager, and we may compete with existing and future managed entities of Angel Oak, which may present various conflicts of interest that restrict our ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result in decisions that are not in the best interests of our stockholders.
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• Our operating results are dependent upon our Manager’s ability to source a large volume of desirable non‑QM loans and other target assets for our investment on attractive terms.
−Removed: • The COVID‑19 pandemic may cause continued disruptions in U.S.
−Removed: financial markets, including increased market volatility, which may result in a material adverse effect on us in the future.
• Difficult conditions in the residential mortgage and residential real estate markets as well as general market concerns may adversely affect the value of residential mortgage loans, including non‑QM loans, and other target assets in which we invest.
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Additionally, the principal and interest payments on non‑Agency RMBS are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk.
+Added: • The COVID‑19 pandemic disrupted, and new variants and additional outbreaks may cause additional disruptions in, U.S.
+Added: and global economic activity and financial markets, including increased market volatility, which could materially and adversely affect us.
• Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our target assets, which could materially and adversely affect us.
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• Our industry is highly regulated and we or Angel Oak, including our Manager, may be subject to adverse legislative or regulatory changes.
−Removed: • Maintenance of our exclusion from regulation as an investment company under the Investment Company Act may impose significant limitations on our operations.
+Added: • Maintenance of our exclusion from regulation as an investment company under the Investment Company Act imposes significant limitations on our operations.
• We may incur significant debt, which will subject us to increased risk of loss, and our charter and bylaws contain no limitation on the amount of debt we may incur.
• Our access to financing sources, which may not be available on favorable terms, or at all, may be limited, and this may materially and adversely affect us.
−Removed: • We may be unable to profitably execute securitization transactions, which could materially and adversely affect us.
• Market conditions and other factors may affect our ability to securitize assets, which could increase our financing costs and materially and adversely affect us.
+Added: • We may be unable to profitably execute securitization transactions, which could materially and adversely affect us.
• Interest rate fluctuations could increase our financing costs, which could materially and adversely affect us.
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federal income tax and potentially increased state and local taxes, which would reduce the amount of our income available for distribution to our stockholders.
−Removed: • Even if we qualify as a REIT, we face tax liabilities that reduce our cash flow, and a significant portion of our income may be earned through one or more taxable REIT subsidiaries (“TRSs”) that are subject to U.S.
−Removed: federal income taxation.
+Added: • Complying with REIT requirements and avoiding a prohibited transaction tax may force us to hold a significant portion of our assets and conduct a significant portion of our activities through a TRS, and a significant portion of our income may be earned through a TRS.
The above list is not exhaustive, and we face additional challenges and risks.
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Additional risks not presently known to us or that we currently deem immaterial may also have a material adverse effect on us.
−Removed: Risks Related to Our Relationship with Our Manager
−Removed: We are dependent on our Manager and certain key personnel of Angel Oak that are or will be provided to us through our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement or such key personnel are no longer available to us.
−Removed: We are externally managed by our Manager and all of our officers are employees of either Angel Oak Companies or our Manager.
+Added: Risks Related to Our Relationship with Our Manager and its Affiliates
+Added: We are dependent on our Manager and certain key personnel of Angel Oak who are or may be provided to us through our Manager, and may not find a suitable replacement if our Manager terminates the Management Agreement or such key personnel are no longer available to us.
+Added: We are externally managed by our Manager, and all of our officers are employees of Angel Oak, including our Manager.
We have no separate facilities, and are substantially reliant on our Manager, which has significant discretion as to the implementation of our operating policies and execution of our business strategies and risk management practices.
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We can offer no assurance that our Manager will remain our manager or that we will continue to have access to Angel Oak’s, including our Manager’s, senior management.
−Removed: We are subject to the risk that our Manager will terminate the
−Removed: management agreement or that we may deem it necessary to terminate the management agreement or prevent certain individuals from performing services for us and that no suitable replacement will be found to manage us.
+Added: We are subject to the risk that our Manager will terminate the Aanagement
+Added: Agreement or that we may deem it necessary to terminate the Management Agreement or prevent certain individuals from performing services for us and that no suitable replacement will be found to manage us.
The Angel Oak personnel provided to us by our Manager pursuant to the Management Agreement are not required to dedicate a specific portion of their time to the management of our business.
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Although Angel Oak has been active in the mortgage credit market since 2008, our Manager’s senior management team has limited experience operating a REIT and operating a business in compliance with the numerous technical restrictions and limitations set forth in the Code and the Investment Company Act.
−Removed: Moreover, our Manager's senior management team has limited experience operating a public company with listed equity securities, which is required to comply with numerous laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC, and requirements of the NYSE.
+Added: Moreover, our Manager’s senior management team has limited experience operating a public company with listed equity securities, which is required to comply with numerous laws, regulations and requirements, including the requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC, and requirements of the NYSE.
This limited experience may hinder our Manager’s ability to successfully operate our business.
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We cannot assure you that our Manager’s senior management team will be successful on our behalf or at all.
+Added: Our business may be adversely affected if our reputation, the reputation of our Manager or Angel Oak, or the reputation of counterparties with whom we associate is harmed.
+Added: We may be harmed by reputational issues and adverse publicity relating to us, our Manager, or Angel Oak.
+Added: Reputational risk issues could include, but are not limited to, real or perceived legal or regulatory violations, or could be the result of a failure in performance, risk-management, governance, technology, or operations, or claims related to employee misconduct, allegations of employee wrongful termination, conflict of interests, ethical issues, or failure to protect private information, among others.
+Added: Similarly, market rumors and actual or perceived association with counterparties whose own reputations may become under question could harm our business.
+Added: Such reputational issues may depress the market price of our common stock, have a negative effect on our ability to conduct business with our counterparties, hinder our abilities to attract and / or retain personnel, including key personnel, or otherwise materially adversely affect us.
There are conflicts of interest in our relationship with Angel Oak, including our Manager, and we may compete with existing and future managed entities of Angel Oak, which may present various conflicts of interest that restrict our ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result in decisions that are not in the best interests of our stockholders.
We are subject to conflicts of interest arising out of our relationship with Angel Oak, including our Manager.
−Removed: Currently, all of our officers, including our dedicated Chief Financial Officer and Treasurer, our Chief Executive Officer and President, and one of our directors also serve as employees of Angel Oak including our Manager.
+Added: Currently, all of our officers, including our dedicated Chief Financial Officer and Treasurer and our partially dedicated Chief Executive Officer and President, and one of our directors also serve as employees of Angel Oak including our Manager.
As a result, our Manager, our officers and this director may have conflicts between their duties to us and their duties to, and interests in, Angel Oak, including our Manager.
For example, Mr.
−Removed: Fierman, the Chairman of our Board of Directors, also serves as a Managing Partner and Co-Chief Executive Officer of Angel Oak Companies.
+Added: Fierman, the Chairman of our Board of Directors, also serves as a Managing Partner and Co-Chief Executive Officer of Angel Oak Companies, and Sreeniwas Prabhu, our Chief Executive Officer and President, also serves as Managing Partner, Co-Chief Executive Officer, and Group Chief Investment Officer at Angel Oak Capital.
Some examples of conflicts of interest that may arise by virtue of our relationship with Angel Oak, including our Manager, include:
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As our Manager directs our investment activities, there are conflicts of interest related to the fact that Angel Oak Mortgage Lending consists of affiliates of our Manager, including the following:
−Removed: ◦ Our Manager will have an incentive to favor the acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending over third-party sellers because purchasing non-QM loans or other target assets from Angel Oak Mortgage Lending would generate fees for Angel Oak Mortgage Lending (including fees payable by us and origination fees payable by the borrowers of the loans originated by Angel Oak Mortgage Lending), which would benefit Angel Oak.
−Removed: In addition, our acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending would allow Angel Oak Mortgage Lending to sell such non-QM loans or other target assets and obtain liquidity to make more loans, even where Angel Oak Mortgage Lending would be unable to sell the non-QM loans or other target assets on favorable terms to unaffiliated third parties in the market due to unfavorable market conditions or other reasons.
+Added: ◦ Our Manager has an incentive to favor the acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending over third-party sellers because purchasing non-QM loans or other target assets from Angel Oak Mortgage Lending generates fees for Angel Oak Mortgage Lending (including fees payable by us and origination fees payable by the borrowers of the loans originated by Angel Oak Mortgage Lending), which benefit Angel Oak.
+Added: In addition, our acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending allows Angel Oak Mortgage Lending to sell such non-QM loans or other target assets and obtain liquidity to make more loans, even where Angel Oak Mortgage Lending would be unable to sell the non-QM loans or other target assets on favorable terms to unaffiliated third parties in the market due to unfavorable market conditions or other reasons.
Our Manager could acquire non-QM loans or other target assets on our behalf from Angel Oak Mortgage Lending even if such non-QM loans or other target assets were unsuitable for us, or we could identify better quality non-QM loans or other target assets, or obtain better pricing, from unaffiliated third parties.
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Similarly, failure to adjust our strategy may cause us to forego other attractive investment opportunities outside investments in non-QM loans.
−Removed: Our Manager will have a conflict in determining whether to adjust our strategy and to pursue investments in other types of target assets that may be more attractive even if Angel Oak Mortgage Lending continues to originate non-QM loans.
−Removed: ◦ We have purchased RMBS, and expect to continue to purchase RMBS or CMBS, that are collateralized by loans originated by Angel Oak Mortgage Lending, and our portfolio may consist of a significant amount of such securities.
+Added: Our Manager has a conflict in determining whether to adjust our strategy and to pursue investments in other types of target assets that may be more attractive even if Angel Oak Mortgage Lending continues to originate non-QM loans.
+Added: ◦ We have purchased RMBS and CMBS, and expect to continue to purchase RMBS that are collateralized by loans originated by Angel Oak Mortgage Lending, and our portfolio may consist of a significant amount of such securities.
Certain affiliates of our Manager may receive certain benefits for their activities related to the creation of the securitization and the issuance and sale of such securities.
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In addition, we may make an investment that may be pari passu, senior, or junior in ranking to an investment made by another managed entity, and actions taken by such managed entity with respect to such investment may not be in our best interests, and vice versa.
−Removed: Furthermore, such activities may involve substantial time and resources of Angel Oak, including our Manager.
+Added: Furthermore, such activities may involve substantial time and resources of Angel Oak.
• Allocation of Investment Opportunities.
−Removed: Although Angel Oak, including our Manager, may manage investments on behalf of a number of managed entities, including us, investment decisions and allocations will not necessarily be made in parallel among us and these other managed entities.
−Removed: Investments made by us may not, and are not intended in all cases to, replicate the investments, or the investment methods and strategies, of other entities managed by Angel Oak, including our Manager.
−Removed: Nevertheless, Angel Oak, including our Manager, from time to time may elect to apportion major or minor portions of the investments to be made by us among other entities that they manage, and vice versa.
+Added: Although Angel Oak may manage investments on behalf of a number of managed entities, including us, investment decisions and allocations will not necessarily be made in parallel among us and these other managed entities.
+Added: Investments made by us may not, and are not intended in all cases to, replicate the investments, or the investment methods and strategies, of other entities managed by Angel Oak.
+Added: Nevertheless, Angel Oak from time to time may elect to apportion major or minor portions of the investments to be made by us among other entities that they manage, and vice versa.
When allocating investment opportunities among us and one or more other managed entities, Angel Oak Capital allocates such opportunities pursuant to its written investment allocation policy.
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In the event an aggregated trade is partially filled, Angel Oak’s managed entities will generally receive a pro rata share of the executed trade based upon the target allocation set by Angel Oak Capital’s portfolio management team.
−Removed: For loans acquired from Angel Oak Mortgage Lending, each week Angel Oak Capital receives a loan tape from Angel Oak Mortgage Lending.
−Removed: The loan tape is reviewed to ensure compliance with our and other Angel Oak managed entities’ investment guidelines.
+Added: For loans acquired from Angel Oak Mortgage Lending, Angel Oak Capital receives a loan tape from Angel Oak Mortgage Lending on a weekly basis.
+Added: The loan tape is reviewed to ensure compliance with our and other Angel Oak managed entities’ investment
If any exceptions are found, the loan is further reviewed to ensure there are accompanying compensating factors.
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• Securitizations.
−Removed: Prior to the 2021 fiscal year, we participated in several securitization transactions in which other managed entities of Angel Oak also contributed mortgage loans or other assets.
−Removed: In 2021, we performed two sole securitizations, where we were the sole entity securitizing loans.
−Removed: There can be no assurance that the valuation of the assets that we contributed to any of these securitizations were not understated or, in the case of securitizations prior to 2021, that the assets that such other managed entities contributed were not overstated, resulting in less cash proceeds or securities issued by the securitization vehicle to us or more cash proceeds or securities issued by the securitization vehicle to such managed entities than would otherwise be the case.
+Added: There can be no assurance that the valuation of any of the assets that we have contributed or may contribute to any securitization vehicles were not or will not be understated or, that the assets contributed by other Angel Oak-managed entities have not been or will not be overstated, resulting in less cash proceeds or securities issued by the securitization vehicle to us or more cash proceeds or securities issued by the securitization vehicle to such managed entities than would otherwise be the case.
AOMT’s securitizations are typically structured with a two- or three-year non-call period for the securities issued in the securitization.
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These limitations imposed by access to material non-public information could therefore materially and adversely affect us.
−Removed: We rely on Angel Oak Mortgage Lending to source non-QM loans and other target assets for acquisition by us and they are under no contractual obligation to sell to us any loans that they originate.
+Added: We rely on Angel Oak Mortgage Lending to source non-QM loans and other target assets for acquisition by us and it is under no contractual obligation to sell to us any loans that it originates.
Our operating results are dependent upon our Manager’s ability to source non-QM loans and other target assets for acquisition by us from Angel Oak Mortgage Lending.
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In this regard, mortgage originators are subject to significant regulation and oversight and failure by Angel Oak Mortgage Lending to comply with its obligations under law may result in an inability to originate non-QM loans or other target assets in certain jurisdictions or at all.
−Removed: Similarly, if Angel Oak Mortgage Lending otherwise separates from its affiliation with our Manager, it may determine to sell the non-QM loans or other target assets that it originates to other parties.
+Added: Similarly, if Angel Oak
+Added: Mortgage Lending otherwise separates from its affiliation with our Manager, it may determine to sell the non-QM loans or other target assets that it originates to other parties.
Angel Oak Mortgage Lending could also enter into commitments with third parties to sell them non-QM loans or other assets, and reduce the quantity of loans that would otherwise be available for purchase by us.
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Our agreements with Angel Oak Mortgage Lending were negotiated between related parties, and their terms might not be as favorable to us as if they had been negotiated with an unaffiliated third party.
−Removed: In addition, conflicts could arise if Angel Oak Mortgage Lending breaches the applicable agreement relating to our acquisition of target assets from Angel Oak Mortgage Lending, or otherwise fails
−Removed: to perform its obligations under such agreement, resulting in harm or damages to us.
+Added: In addition, conflicts could arise if Angel Oak Mortgage Lending breaches the applicable agreement relating to our acquisition of target assets from Angel Oak Mortgage Lending, or otherwise fails to perform its obligations under such agreement, resulting in harm or damages to us.
Further, Angel Oak Mortgage Lending provides representations and warranties regarding the target assets we purchase from them.
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We do not own the brand, trademark, or logo that we will use in our business and may be unable to protect this intellectual property against infringement from third parties.
−Removed: In connection with this offering, we have entered into a trademark license agreement (the “trademark license agreement”) with an affiliate of our Manager (the “licensor”) pursuant to which it has granted us a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Angel Oak Mortgage, Inc.” Under this agreement, we have a right to use this name for so long as our Manager (or another Angel Oak affiliate that serves as our manager) remains an affiliate of the licensor under the trademark license agreement.
+Added: In connection with our IPO, we entered into a trademark license agreement (the “trademark license agreement”) with an affiliate of our Manager (the “licensor”) pursuant to which has granted us a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the name “Angel Oak Mortgage, Inc.” Under this agreement, we have a right to use this name for so long as our Manager (or another Angel Oak affiliate that serves as our manager) remains an affiliate of the licensor under the trademark license agreement.
The trademark license agreement is subject to automatic termination if our Manager or another affiliate of Angel Oak is no longer acting as our manager under the Management Agreement.
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Our Manager is authorized to follow very broad investment guidelines and our Manager may change its investment process without stockholder consent at any time.
−Removed: In addition, in conducting periodic reviews, our Board of Directors will rely primarily on information provided to them by our Manager.
+Added: In addition, in conducting periodic reviews, our Board of Directors relies primarily on information provided to them by our Manager.
Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may be difficult or impossible to unwind by the time they are reviewed by our Board of Directors.
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Changes in our Manager’s investment process may result in inferior due diligence and underwriting standards, which may materially and adversely affect us.
−Removed: Risks Related to the COVID-19 Pandemic
−Removed: The COVID-19 pandemic may cause continued disruptions in U.S.
−Removed: financial markets, including increased market volatility, which may result in a material adverse effect on us in the future.
−Removed: The COVID-19 pandemic, inclusive of resurgences and any variants, has caused severe and unprecedented disruptions to the U.S.
−Removed: and global economies and has contributed to volatility and negative pressure in financial markets.
−Removed: The outbreak has led governments and other authorities around the world to impose or re-impose measures intended to control its spread, including restrictions on freedom of movement, such as quarantine and "stay-at-home" orders, restrictions on travel and transport, school closures, limits on the operations of non-essential businesses and other workforce pressures.
−Removed: The extent to which the COVID-19 pandemic negatively affects our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.
−Removed: In response to the pandemic, the U.S.
−Removed: Government has taken various actions to support the economy and the continued functioning of the financial markets, including initiatives applicable to a significant number of mortgage loans.
−Removed: For example, the U.S.
−Removed: Department of Housing and Urban Development authorized the Federal Housing Administration to implement a 60-day mortgage moratorium on foreclosures and evictions on single family homeowners unable to pay their Federal Housing Administration-backed mortgages.
−Removed: In addition, the Federal Housing Finance Agency instructed Fannie Mae and Freddie Mac to establish forbearance programs to permit certain borrowers under Federal Housing Administration-backed mortgages to postpone or delay mortgage payments for as long as one year.
−Removed: Further, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, which provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19, including mortgage loan forbearance and
−Removed: modification programs to qualifying borrowers who have difficulty making their loan payments.
−Removed: Additionally, various U.S.
−Removed: state governments have implemented certain mortgage relief measures, including the forbearance of mortgage payments and moratoriums on foreclosures and evictions on single family homeowners.
−Removed: There can be no assurance as to how, in the long term, these and other actions by the U.S.
−Removed: Government and various U.S.
−Removed: state governments will affect the efficiency, liquidity and stability of the financial and mortgage markets.
−Removed: The impact of the COVID-19 pandemic, inclusive of resurgences and any variants, measures to prevent its spread and government actions to mitigate its impact had an adverse effect on us in the past and may result in a material adverse effect on us in the future.
−Removed: Although it is difficult to predict the magnitude of the business and economic implications, the COVID-19 outbreak has affected, and may continue to affect, us in various ways, including, among others:
−Removed: • As a result of the decline in residential and commercial real estate values and other effects of the COVID-19 pandemic, we experienced declines in the value of our investments.
−Removed: Although residential real estate values have since increased, there can be no assurance that the values will not decrease again as a result of the effects of the COVID-19 pandemic, and any such decreases could have a material adverse effect on the value of our investments.
−Removed: • If we fail to meet or satisfy any of the covenants in our loan financing lines or other financing arrangements as a result of the events described above or otherwise, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and our lenders could elect to declare outstanding amounts due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral or enforce their respective interests against existing collateral.
−Removed: • Difficulty accessing capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may adversely affect our access to capital necessary to execute our strategy, fund our operations or address maturing liabilities on a timely basis, as well as the ability of the mortgage loan borrowers underlying the loans and securities that we own to meet their obligations to us.
−Removed: The negative impact of the COVID-19 pandemic has adversely affected our liquidity position in the past, may result in a material adverse effect on us in the future, and could limit our ability to execute our strategy and grow our business.
−Removed: • A decline in the housing market and a resulting decline in demand for mortgage financing resulting from the economic effects of the COVID-19 pandemic could adversely affect our ability to make new investments.
−Removed: • In addition, because of the disruptions to the normal operation of mortgage finance markets, our investment activities may not be able to function efficiently because of, among other factors, an inability to access short-term or long-term financing, a disruption to the securitization market, or our inability to access these markets or execute securitization transactions due to adverse impacts to our financial condition or operating capabilities resulting from the COVID-19 pandemic.
−Removed: • The potential negative impact on the health of our executive officers or other personnel of our Manager, particularly if a significant number of them are impacted, and an inability to recruit, attract and retain skilled personnel to replace any such executive officers or other personnel to the extent necessary.
−Removed: To the extent any of these risks and uncertainties adversely affect us in the ways described above or otherwise, we expect that they will also have the effect of heightening many of the other risks described in this Item 1A.
Risks Related to Our Investment Activities
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Angel Oak Mortgage Lending has no obligation to sell non-QM loans and other target assets to us, and our Manager may be unable to locate other originators that are able or willing to originate non-QM loans and other target assets that meet our standards on favorable terms or at all.
−Removed: General economic factors, such as recession, declining home values, unemployment, and high interest rates, may limit the supply of available non-QM loans and other target assets.
+Added: General economic factors, such as recession, declining home values, unemployment, and high interest rates, may limit the supply of available non-QM loans and other
+Added: target assets.
Moreover, competition for non-QM loans and other target assets may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
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There can be no assurance that attractive investments will be available for us or that available investments will meet our strategies.
−Removed: cannot source an adequate volume of desirable non-QM loans and other target assets on attractive terms or at all, we may be materially and adversely affected.
+Added: If we cannot source an adequate volume of desirable non-QM loans and other target assets on attractive terms or at all, we may be materially and adversely affected.
Difficult conditions in the residential mortgage and residential real estate markets as well as general market concerns may adversely affect the value of residential mortgage loans, including non-QM loans, and other target assets in which we invest.
−Removed: Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets, and the economy, including inflation, energy costs, unemployment, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
+Added: Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets, and the economy, including increasing inflation, the long-term impact of the COVID-19 pandemic, energy costs, unemployment, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
In particular, the residential mortgage market in the United States has experienced, in the past, a variety of difficulties and challenging economic conditions, including defaults, credit losses, and liquidity concerns.
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These factors may continue to impact investor perception of the risks associated with the residential real estate market, residential mortgage loans and various other target assets in which we may invest.
−Removed: As a result, values for residential mortgage loans, including non-QM loans, and various other target assets in which we may invest have experienced, and may in the future experience, significant volatility.
+Added: As a result, values for residential mortgage loans, including non-QM loans, and various other target assets in which we invest have experienced, and may in the future experience, significant volatility.
Any deterioration of the residential mortgage market and investor perception of the risks associated with residential mortgage loans, including non-QM loans, and various other of our target assets could have a material adverse effect on us.
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Over the years, regulators have vigilantly enforced the regulation of loan originators and have penalized or, in some cases, even suspended non-compliant originators’ ability to originate loans in their jurisdictions for their failure to comply with regulatory requirements.
−Removed: Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to non-QM loan borrowers and primarily sourced from Angel Oak Mortgage Lending and we expect that, in the future, a substantial portion of our portfolio will consist of non-QM loans and other assets acquired from Angel Oak Mortgage Lending.
+Added: Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to non-QM loan borrowers and primarily sourced from Angel Oak Mortgage Lending and a substantial portion of our portfolio may consist of non-QM loans and other assets acquired from Angel Oak Mortgage Lending.
If Angel Oak Mortgage Lending is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise, it may result in fewer investment opportunities for us or in opportunities that are less geographically diversified.
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Currently, we are focused on acquiring and investing in non-QM loans that will not have the benefit of enhanced legal protections otherwise available in connection with the origination of QM loans, as further described below.
−Removed: The ownership of non-QM loans could subject us to legal, regulatory, and other risks, including those arising under U.S.
+Added: The ownership of non-QM loans could
+Added: subject us to legal, regulatory, and other risks, including those arising under U.S.
federal consumer protection laws and regulations designed to regulate residential mortgage loan underwriting and originators’ lending processes, standards and disclosures to borrowers.
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a safe harbor and a rebuttable presumption for higher priced loans.
−Removed: The “safe harbor” under the ATR rules applies to a covered transaction that meets the definition of a QM loan and is not a “higher-priced covered transaction.” For any covered transaction that meets the definition of a QM loan and is not a “higher-priced covered transaction,” the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith
−Removed: and reasonable determination of the consumer’s ability to repay.
+Added: The “safe harbor” under the ATR rules applies to a covered transaction that meets the definition of a QM loan and is not a “higher-priced covered transaction.” For any covered transaction that meets the definition of a QM loan and is not a “higher-priced covered transaction,” the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith and reasonable determination of the consumer’s ability to repay.
Creditors or assignees will have the benefit of a rebuttable presumption of compliance with the applicable ATR rules if they have complied with the QM loan characteristics of the ATR rules other than the residential mortgage loan being higher-priced in excess of certain thresholds.
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mortgage market.
−Removed: As of December 31, 2021, substantially all of the loans underlying our portfolio of RMBS consisted of non-QM loans.
−Removed: In addition, as of December 31, 2021, more than 10% of the unpaid principal balance of the loans underlying our portfolio of RMBS from the AOMT securitizations in which we participated and/or were the primary beneficiary were secured by properties located in each of California, Florida, and Texas.
+Added: As of December 31, 2022, substantially all of the loans underlying our portfolio of RMBS and residential loans held in securitization trusts consisted of non-QM loans.
+Added: In addition, as of December 31, 2022, more than 10% of the unpaid principal balance of the loans underlying our portfolio of RMBS from the AOMT securitizations in which we participated and/or were the primary beneficiary were secured by properties located in each of California, Florida, Texas, and Georgia.
As a result, our portfolio is concentrated, and may continue to be concentrated, by asset type and geographic region, increasing our risk of loss if there are adverse developments or greater risks affecting the particular concentration.
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Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control.
+Added: Inflation in the U.S.
+Added: has recently accelerated and is currently expected to continue at an elevated level in the near-term.
+Added: In 2022, the U.S.
+Added: Federal Reserve Bank began raising the federal funds rate in an effort to curb inflation, and rates may continue to rise, and such increases, coupled with other macroeconomic factors, may trigger a recession in the U.S., globally, or both.
Interest rate fluctuations present a variety of risks, including the risk that our borrowing costs will approach, or even exceed, the yields on our assets, and the risk of adverse fluctuations in prepayment rates.
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Further, an increase in short-term interest rates would increase the rate of interest payable on any short-term borrowings used to finance these assets.
−Removed: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges.
+Added: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges.
As a result, interest rate fluctuations can cause significant losses, reductions in income, and could materially and adversely affect us.
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An increase in interest rates could also cause financial strain on borrowers with adjustable rate mortgages, who might then be more likely to default.
+Added: In addition, we cannot assure you that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.
+Added: Such future constraints could increase our borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.
Changes in the fair values of our assets, liabilities, and derivatives can have a material adverse effect on us, including reduced earnings, increased earnings volatility, and volatility in our book value.
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Fair values for illiquid assets can be difficult to estimate, which may lead to volatility and uncertainty of earnings and book value.
−Removed: For example, real estate-related securities in our investment portfolio may be subject to changes in credit spreads.
+Added: For example, real estate-related investments in our target asset portfolio may be subject to changes in credit spreads.
Credit spreads measure the yield demanded on securities by the market based on their credit relative to a specific benchmark and is a measure of the perceived risk of the investment.
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Conversely, if the spread used to value such securities were to decrease, or “tighten,” the value of our real estate and other securities portfolio would tend to increase.
−Removed: Such changes in the market value of our real estate-related securities portfolio may affect our net equity, net income or cash flow directly through their impact on unrealized gains or losses on our securities portfolio, and therefore our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow and access capital.
−Removed: Widening credit spreads could cause the net unrealized gains on our securities and derivatives, recorded in accumulated other comprehensive income or retained earnings, and therefore our book value per share, to decrease and result in net losses.
−Removed: For GAAP purposes, we mark to market most of the assets and some of the liabilities on our consolidated balance sheet.
+Added: Such changes in the market value of our real estate-related securities portfolio may affect our net equity, net income, comprehensive income, or cash flow directly through their impact on unrealized gains or losses or other comprehensive income (loss), and therefore our ability to realize
+Added: gains on such assets, or indirectly through their impact on our ability to borrow and access capital.
+Added: Widening credit spreads could cause net unrealized gains to decrease or net unrealized losses to increase, and result in overall net losses and / or comprehensive net losses.
+Added: For purposes of generally accepted accounting principles in the United States of America (“GAAP”), , we mark to market most of the assets and some of the liabilities on our consolidated balance sheet.
In addition, valuation adjustments on certain consolidated assets and many of our derivatives are reflected in our consolidated statement of income.
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If we sell an asset that has not been marked to market through our consolidated statement of income at a reduced market price relative to its cost basis, our reported earnings will be reduced.
−Removed: SOFR is expected to replace U.S.
−Removed: dollar LIBOR, which subjects us to various risks.
+Added: SOFR has generally replaced U.S.
+Added: dollar LIBOR as a reference rate of interest, which subjects us to various risks.
+Added: LIBOR (the London Inter-Bank Offered Rate) was formerly the principal floating rate benchmark in the financial markets.
+Added: Publication of LIBOR for certain currencies and tenors (including 1-week and 2-month U.S.
+Added: dollar LIBOR) permanently ceased with effect from December 31, 2021.
+Added: The remaining tenors of U.S.
+Added: dollar LIBOR will continue to be published on the basis of panel-bank rate submissions only until June 30, 2023.
+Added: Thereafter, publication of overnight and 12-month U.S.
+Added: dollar LIBOR will permanently cease;
+Added: while it is proposed that 1-month, 3-month and 6-month U.S.
+Added: dollar LIBOR will continue to be published (on a “synthetic” basis only) until September 30, 2024, at which time their publication also will permanently cease.
In the United States, there have been efforts to identify alternative reference interest rates for U.S.
dollar LIBOR.
−Removed: The cash markets have generally coalesced around recommendations from the Alternative Reference Rates Committee (the “ARRC”), which was convened by
−Removed: the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York (“FRBNY”).
+Added: The cash markets have generally coalesced around recommendations from the Alternative Reference Rates Committee (the “ARRC”), which was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.
The ARRC has recommended that U.S.
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dollar LIBOR.
+Added: During 2021, and by January 1, 2022, our warehouse lenders transitioned to base their interest rates from U.S.
+Added: dollar LIBOR to varying terms of SOFR plus a spread.
SOFR has a limited history, having been first published in April 2018.
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Because SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR.
−Removed: LIBOR is intended to be an unsecured rate that represents interbank funding costs for different short-term tenors.
−Removed: It is a forward-looking rate reflecting expectations regarding interest rates for those tenors.
−Removed: Thus, LIBOR is intended to be sensitive to bank credit risk and to short-term interest rate risk.
+Added: LIBOR (except where published only on a “synthetic” basis) is intended to be an unsecured rate that represents interbank funding costs for different short-term tenors;
+Added: and is a forward-looking rate reflecting expectations regarding interest rates for those tenors.
+Added: Thus, LIBOR (except where published only on a “synthetic basis”) is intended to be sensitive to bank credit risk and to short-term interest rate risk.
In contrast, SOFR is a secured overnight rate reflecting the credit of U.S.
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Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings would not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
−Removed: If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our investments in the future, the value and liquidity of our investments could significantly decline, which would adversely affect the value of our portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.
+Added: If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate
+Added: that they may reduce or withdraw, their ratings of our investments in the future, the value and liquidity of our investments could significantly decline, which would adversely affect the value of our portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.
Prepayment rates may adversely affect the value of our portfolio.
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Increases in monthly payments on adjustable-rate mortgages due to higher interest rates may result in greater future delinquency rates.
−Removed: Borrowers with adjustable payments may be exposed to increased monthly payments when the related mortgage interest rate adjusts upward from the initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin.
+Added: Borrowers with adjustable payments may be exposed to increased monthly payments when the related mortgage interest rate adjusts
+Added: upward from the initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin.
This increase in borrowers’ monthly payments, together with any increase in prevailing market interest rates, may result in significantly increased monthly payments for borrowers subject to adjustable-rates.
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In certain circumstances, a lender may choose not to foreclose on contaminated property rather than risk incurring liability for remedial actions.
−Removed: In the event of any default under a commercial
−Removed: mortgage loan held by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could materially and adversely affect us.
−Removed: We may acquire second lien mortgage loans, which pose additional risks for us.
−Removed: We may acquire second lien mortgage loans.
+Added: In the event of any default under a commercial mortgage loan held by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could materially and adversely affect us.
+Added: We have acquired and may continue to acquire second lien mortgage loans, which pose additional risks for us.
+Added: We have acquired and may continue to acquire second lien mortgage loans.
A second lien mortgage loan is a residential mortgage loan that is subordinate to the primary or first lien mortgage loan on a residential property.
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(2) a borrower claim against us for failure to perform under the loan documents;
−Removed: (3) increased costs to the borrower that the borrower is unable to pay;
+Added: (3) increased costs to the borrower that the borrower is
+Added: unable to pay;
(4) a bankruptcy filing by the borrower;
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The higher risks associated with our subordinate position in such investment could subject us to increased risk of losses, which could materially and adversely affect us.
−Removed: Our investments in residential bridge (“fix and flip”) loans will expose us to the risk that the borrower of such loan may not be able to sell the property on attractive terms or at all once the property has been re-developed, which may materially and adversely affect us.
+Added: We may invest in residential bridge (“fix and flip”) loans, which would expose us to the risk that the borrower of such loan may not be able to sell the property on attractive terms or at all once the property has been re-developed, which may materially and adversely affect us.
We may invest in residential bridge (“fix and flip”) loans, which are particularly illiquid investments due to their short life and the greater difficulty of recoupment in the event of a borrower’s default.
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CMBS generally lack standardized terms and tend to have shorter maturities than RMBS.
−Removed: Additionally, certain CMBS lack regular amortization of principal, resulting in a single “balloon” payment due at maturity.
−Removed: If the underlying mortgage borrower experiences business problems, or other factors limit refinancing alternatives, such balloon payment mortgages are likely to experience payment delays or even default.
+Added: Additionally, certain CMBS lack regular amortization of principal, resulting in a single “balloon” principal payment due at maturity.
+Added: If the underlying mortgage borrower experiences business problems, or other factors limit refinancing
+Added: alternatives, such balloon principal payment mortgages are likely to experience payment delays or even default.
All of these factors increase the risk involved with investments in CMBS.
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The determination of the value of MSRs will require us to make numerous estimates and assumptions.
−Removed: Such estimates and assumptions include, without limitation, estimates of future cash flows associated with MSRs based upon assumptions involving interest rates as well as the prepayment rates, delinquencies, and foreclosure rates of the underlying serviced mortgage
+Added: Such estimates and assumptions include, without limitation, estimates of future cash flows associated with MSRs based upon assumptions involving interest rates as well as the prepayment rates, delinquencies, and foreclosure rates of the underlying serviced mortgage loans.
The ultimate realization of the fair value of MSRs may be materially different than the values of such MSRs estimated by us.
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The value of ABS may be affected by other factors, such as the availability of information concerning the pool and its structure, the creditworthiness of the servicing agent for the pool, the originator of the underlying assets or the entities providing credit enhancements and the ability of the servicer to service the underlying collateral.
−Removed: In addition, issuers of ABS may have limited ability to enforce the security interest in the underlying assets, collateral securing the payment of loans may not be sufficient to ensure repayment, and credit enhancements (if any) may be inadequate in the event of default.
+Added: In addition, issuers of ABS may have limited ability to enforce the security interest in the underlying
+Added: assets, collateral securing the payment of loans may not be sufficient to ensure repayment, and credit enhancements (if any) may be inadequate in the event of default.
The ability of borrowers to repay consumer loans may be adversely affected by numerous borrower-specific factors, including unemployment, divorce, major medical expenses, or personal bankruptcy.
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In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
−Removed: For example, by relying on incorrect models and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, to overestimate or underestimate the timing or amount of cash flows expected to be collected, or to miss favorable opportunities altogether.
+Added: For example, by relying on incorrect models and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, to overestimate or underestimate the timing or amount of cash flows expected to be
+Added: collected, or to miss favorable opportunities altogether.
Similarly, any hedging activities based on faulty models and data may prove to be unsuccessful.
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Regardless of the form of risk retention selected, we or a majority-owned affiliate will be required to hold the Risk Retention Securities until the end of the time period required under the U.S.
−Removed: Risk Retention Rules (i.e., the respective risk retention
−Removed: holding period).
+Added: Risk Retention Rules (i.e., the respective risk retention holding period).
We are or will be, as the case may be, generally prohibited from hedging the credit risk of the Risk Retention Securities or from financing the Risk Retention Securities except on a “full recourse” basis in accordance with the U.S.
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Accordingly, some of our securitizations will require us to hold Risk Retention Securities for an extended period and contribute to the lack of liquidity in our assets, which may have a material adverse effect on us.
−Removed: In addition, in certain cases, we have also covenanted to retain an interest, and to take certain other action, with respect to such securitizations for purposes of the EU Securitization Rules, and we may covenant to retain an interest, and to take certain other action, with respect to certain future securitizations for purposes of the EU Securitization Rules and the UK Securitization Rules;
+Added: In addition, in certain cases, we have also covenanted to retain an interest, and to take certain other action, with respect to such securitizations for purposes of the EU/UK Securitization Rules, and we may covenant to retain an interest, and to take certain other action, with respect to certain future securitizations for purposes of the EU/UK Securitization Rules;
and, in each case, this has subjected us, or will subject us, to certain risks, including risks similar to those that arise under the U.S.
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Additionally, our results of operations depend on executing our strategy of making credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily sourced from Angel Oak Mortgage Lending, but there can be no assurance that we will be able to acquire such loans from Angel Oak Mortgage Lending on favorable terms or at all.
+Added: The COVID‑19 pandemic disrupted, and new variants and additional outbreaks may cause additional disruptions in, U.S.
+Added: and global economic activity and financial markets, including increased market volatility, which could materially and adversely affect us.
+Added: The COVID-19 pandemic caused severe and unprecedented disruptions to the U.S.
+Added: and global economies and contributed to volatility and negative pressure in financial markets.
+Added: During the earlier stages of the COVID-19 pandemic, governments and other authorities around the world imposed measures intended to control its spread, including quarantines, restrictions on travel, limits on the operations of non-essential businesses and other workforce pressures.
+Added: We are not able to predict the ongoing or future impact of the COVID-19 pandemic, or another pandemic, on us that may result from future outbreaks, surges in cases of COVID-19 or related variants, or other infectious agents.
+Added: Future outbreaks or surges in cases of COVID-19 or related variants, or other pandemic diseases, may result in a material adverse effect on us in the future.
+Added: While many or all areas of our business could be adversely affected by future or ongoing outbreaks of COVID-19, including related variants, or another pandemic, we currently believe the following would be among the most material to us:
+Added: • Residential and commercial real estate values could experience further volatility, which could have a material adverse effect on the value of our investments.
+Added: • We could fail to meet or satisfy one or more of the covenants in our loan financing lines or other financing arrangements, which could result in a cross-default or cross-acceleration under other financing arrangements, and our lenders could elect to declare outstanding amounts due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral or enforce their respective interests against existing collateral.
+Added: • Difficulty accessing capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions could adversely affect our ability to execute our strategy, fund our operations or address maturing liabilities on a timely basis, as well as the ability of the mortgage loan borrowers underlying the loans and securities that we own to meet their obligations to us.
+Added: • A decline in the housing market and a resulting decline in demand for mortgage financing resulting from the economic effects of the COVID-19 pandemic could adversely affect our ability to make new investments.
+Added: • Disruptions to the normal operation of mortgage finance markets could cause our investment activities to cease to function efficiently because of, among other factors, an inability to access short-term or long-term financing, a disruption to the securitization market, or our inability to access these markets or execute securitization transactions.
+Added: In addition to the foregoing, we have experienced and may in the future experience other negative impacts to our business as a result of the COVID-19 pandemic, any of which could also have the effect of heightening other risks described in this Item 1A.
We may change our strategy, investment guidelines, hedging strategy, and asset allocation, operational, and management policies without notice or stockholder consent, which could materially and adversely affect us.
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Congress and various state and local legislatures may pass mortgage-related legislation that would affect our business, including legislation that would permit limited assignee liability for certain violations in the mortgage loan origination process, and legislation that would allow judicial modification of loan principal in the event of personal bankruptcy.
−Removed: We cannot predict whether or in what form Congress or the various state and local legislatures may enact legislation affecting our business or whether any such legislation will require us to change our practices or make changes in our portfolio in the future.
+Added: We cannot predict whether or in what form Congress or the various state and local legislatures may enact legislation affecting our business or whether any such legislation will require us
+Added: to change our practices or make changes in our portfolio in the future.
These changes, if required, could materially and adversely affect us, particularly if we make such changes in response to new or amended laws, regulations, or ordinances in any state where we hold a significant portion of our investments, or if such changes result in us being held responsible for any violations in the mortgage loan origination process.
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Statements by the U.S.
−Removed: Federal Reserve regarding monetary policy and the actions it takes to set or adjust
−Removed: monetary policy may affect the expectations and outlooks of market participants in ways that adversely affect our investments.
−Removed: For example, over the past few years, statements made by the Chair and other members of the Board of Governors of the U.S.
+Added: Federal Reserve regarding monetary policy and the actions it takes to set or adjust monetary policy may affect the expectations and outlooks of market participants in ways that adversely affect our investments.
+Added: Over the past few years, statements made by the Chair and other members of the Board of Governors of the U.S.
Federal Reserve and by other U.S.
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It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance, reliability and security of our technical infrastructure, but such computer malware, viruses, and computer hacking and phishing attacks may have a material adverse effect on us.
−Removed: We or Angel Oak, including our Manager, may be subject to regulatory inquiries or proceedings.
−Removed: At any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that involve us or Angel Oak, including our Manager.
+Added: We or Angel Oak, including our Manager and its affiliates, may be subject to regulatory inquiries or proceedings.
+Added: At any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that involve us or Angel Oak, including our Manager and its affiliates.
Over the years, Angel Oak has received, and we expect in the future that they may receive, inquiries, and requests for documents and information from various U.S.
federal and state regulators.
−Removed: We can give no assurances that regulatory inquiries will not result in investigations of us or Angel Oak, including our Manager, or enforcement actions, fines, or penalties or the assertion of private litigation claims against us or Angel Oak, including our Manager.
−Removed: In the event regulatory inquiries were to result in investigations, enforcement actions, fines, penalties, or the assertion of private litigation claims against us or Angel Oak, including our Manager, our Manager’s ability to perform its obligations to us under the management agreement could be adversely impacted, which could in turn have a material adverse effect on us.
+Added: Any such regulatory inquiries may result in investigations of us or Angel Oak, including our Manager or its affiliates, enforcement actions, fines, or penalties or the assertion of private litigation claims against us or Angel Oak, including our Manager or its affiliates.
+Added: We can give no assurances that any future regulatory inquiries will not result in investigations of us or Angel Oak, including our Manager or its affiliates, enforcement actions, fines or penalties, or the assertion of private litigation claims against us or Angel Oak, including our Manager or its affiliates.
+Added: In the event regulatory inquiries were to result in investigations, enforcement actions, fines, penalties, or the assertion of private litigation claims against us or Angel Oak, including our Manager or its affiliates, our reputation or the reputation of Angel Oak, including our Manager and its affiliates, could be damaged, and our Manager’s ability to perform its obligations to us under the Management Agreement could be adversely impacted, which could in turn have a material adverse effect on us.
Our industry is highly regulated and we or Angel Oak, including our Manager, may be subject to adverse legislative or regulatory changes.
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Changes in accounting interpretations or assumptions could impact our consolidated financial statements.
−Removed: Accounting rules for transfers of financial assets, securitization transactions, consolidation of variable interest entities (“VIEs”) and other aspects of our anticipated operations are highly complex and involve significant judgment and assumptions.
+Added: Accounting rules for transfers of financial assets, securitization transactions, consolidation of VIEs, and other aspects of our anticipated operations are highly complex and involve significant judgment and assumptions.
These complexities could lead to a delay in preparation of financial information and the delivery of this information to our stockholders.
−Removed: Changes in accounting
−Removed: interpretations or assumptions could impact our consolidated financial statements and our ability to timely prepare our consolidated financial statements.
+Added: Changes in accounting interpretations or
+Added: assumptions could impact our consolidated financial statements and our ability to timely prepare our consolidated financial statements.
Our inability to timely prepare our consolidated financial statements in the future would likely materially and adversely affect us.
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We may incur significant debt, which will subject us to increased risk of loss, and our charter and bylaws contain no limitation on the amount of debt we may incur.
−Removed: As of December 31, 2021, we had approximately $1.5 billion of debt outstanding, including approximately $853.4 million outstanding under our six loan financing lines with a combination of global money center and large regional banks, which permit borrowings
−Removed: in an aggregate amount of up to $1.3 billion, and approximately $609.3 million outstanding under short-term repurchase facilities.
+Added: As of December 31, 2022, we had approximately $692.4 million of debt outstanding, including approximately $639.9 million outstanding under various uncommitted loan financing lines and static loan pool financing arrangements with a combination of multinational
+Added: and global money center banks, institutional investors, and large regional banks, which permitted borrowings in an aggregate amount of up to $1.21 billion as of December 31, 2022;
+Added: and approximately $52.5 million outstanding under short-term repurchase facilities.
We expect to use loan financing lines to finance the acquisition and accumulation of mortgage loans or other mortgage-related assets pending their eventual securitization.
+Added: We may use static loan pool financing arrangements to hold loans already acquired for eventual securitization or other disposition.
Upon accumulating an appropriate amount of assets, we expect to finance a substantial portion of our mortgage loans utilizing fixed rate term securitization funding that provides long-term financing for our mortgage loans and locks in our cost of funding, regardless of future interest rate movements.
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Leverage will magnify both the gains and the losses on an investment.
−Removed: Leverage will increase our returns as long as we earn a greater return on investments purchased with borrowed funds than our cost of borrowing such funds.
−Removed: However, if we use leverage to acquire an asset and the value of the asset decreases, the leverage
−Removed: will increase our losses.
−Removed: Even if the asset increases in value, if the asset fails to earn a return that equals or exceeds our cost of borrowing, the leverage will decrease our returns.
+Added: Leverage will increase our returns as long as we earn a greater return on investments purchased with borrowed
+Added: funds than our cost of borrowing such funds although there can be no assurance that would be able to earn such a greater return.
+Added: Moreover, if we use leverage to acquire an asset and the value of the asset decreases, the leverage will increase our losses.
We may be required to post large amounts of cash as collateral or margin to secure our leveraged positions.
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Hedging against interest rate changes and other risks may materially and adversely affect us.
−Removed: As of December 31, 2021, we had approximately $1.5 billion of recourse debt outstanding, all of which bears interest at a floating rate.
−Removed: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we have utilized, and in the future expect to continue to utilize various derivative instruments and other hedging
−Removed: instruments to mitigate interest rate risk, credit risk and other risks.
+Added: As of December 31, 2022, we had approximately $692.4 million of recourse debt outstanding, all of which bears interest at a floating rate.
+Added: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we have utilized, and in the future expect to continue to utilize various derivative instruments and other
+Added: hedging instruments to mitigate interest rate risk, credit risk and other risks.
For example, we may opportunistically enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.
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Our hedging activities may expose us to additional risks.
−Removed: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk, and other risks.
+Added: Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk, and other risks.
For example, we may opportunistically enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.
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These economic losses would be reflected in our results of operations, and our ability to fund these obligations would depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could materially and adversely affect us.
−Removed: To the extent that any hedging strategy involves the use of OTC derivatives transactions, such a strategy would be affected by implementation of various regulations adopted pursuant to the Dodd-Frank Act.
−Removed: OTC derivative dealers are now required to register with the U.S.
−Removed: Commodity Futures Trading Commission (the “CFTC”) and will ultimately be required to register with the SEC.
−Removed: Registered swap dealers will be subject to minimum capital and margin requirements and are subject to business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest, and other regulatory burdens.
+Added: To the extent that any hedging strategy involves the use of OTC derivatives transactions, such a strategy would be affected by various regulations adopted pursuant to the Dodd-Frank Act.
+Added: OTC derivative dealers are required to register with the U.S.
+Added: Commodity Futures Trading Commission (the “CFTC”) and/or the SEC.
+Added: Registered swap and security-based swap dealers are subject to minimum capital and margin requirements and business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest, and other regulatory burdens.
These requirements further increase the overall costs for OTC derivative dealers, which costs may be passed along to market participants as market changes continue to be implemented.
−Removed: The overall impact of the Dodd-Frank Act on us remains highly uncertain and it is unclear how the OTC derivatives markets will adapt to this regulatory regime.
−Removed: Although the Dodd-Frank Act will require many OTC derivative transactions previously entered into on a principal-to-principal basis to be executed through a regulated securities, futures or swap exchange or facility and/or submitted for clearing by a regulated clearinghouse, not all of our derivative transactions will be subject to the clearing requirements.
+Added: Although the Dodd-Frank Act required many OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, not all of our derivative transactions will be subject to the clearing requirements.
The “bid-ask” spreads may be unusually wide in these heretofore substantially unregulated markets.
3 unchanged sentences
Furthermore, it is yet to be seen whether the Dodd-Frank Act will be effective in reducing counterparty risk or if such risk may actually increase as a result of market uncertainty, mutuality of loss to clearinghouse members, or other reasons.
−Removed: Further, Title VII of the Dodd-Frank Act requires that certain derivative instruments be centrally cleared and executed through an exchange or other approved trading platform, which could result in increased costs in the form of intermediary fees and additional margin requirements imposed by derivatives clearing organizations and their respective clearing members.
+Added: Further, Title VII of the Dodd-Frank Act requires that certain derivative instruments be executed through an exchange or other approved trading platform, which could result in increased costs in the form of intermediary fees and additional margin requirements imposed by derivatives clearing organizations and their respective clearing members.
In addition, under Title VII of the Dodd-Frank Act, the SEC, the CFTC and U.S.
−Removed: federal banking regulators were required to adopt margin requirements for uncleared OTC swaps and security-based swaps for certain regulated entities.
+Added: federal banking regulators adopted margin requirements for uncleared OTC swaps and security-based swaps.
Such margin requirements may result in increased costs and could adversely affect our ability to use derivatives to hedge our risks in the future and/or to amend or novate existing swaps.
−Removed: Title VII of the Dodd-Frank Act also created new categories of regulated market participants, such as “swap-dealers,” “security-based swap dealers,” “major swap participants” and “major security-based swap participants,” and subjects these regulated entities to significant capital, registration, recordkeeping, reporting, disclosure, business conduct, and other regulatory requirements that have given rise to administrative costs which may be passed on and applied to transaction costs incurred by us.
Changes in regulations relating to swaps activities may cause us to limit our swaps activity or subject us and our Manager to additional disclosure, recordkeeping, and other regulatory requirements.
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In addition, pursuant to the shareholder rights agreement that we and our Manager entered into with the MS Entity in connection with our IPO, the MS Entity, subject to certain limitations, has the right to designate one nominee for election to our Board of Directors for so long as the MS Entity and its affiliates beneficially own, in the aggregate, shares of our common stock representing at least 10% of the shares of our common stock then outstanding (excluding shares of our common stock that are subject to issuance upon the exercise or exchange of rights of conversion, or any options, warrants or other rights to acquire shares of our common stock).
−Removed: Furthermore, pursuant to the shareholder rights agreement that we and our Manager entered into with the DK Entity in connection with our IPO, the DK Entity, subject to certain
−Removed: limitations, has the right to designate one nominee for election to our Board of Directors for so long as the DK Entity and its affiliates (1) maintain beneficial ownership of shares of our common stock equal to at least 10% of the shares of our common stock then outstanding or (2) are one of the largest three (3) beneficial owners of shares of our common stock and maintain beneficial ownership, in the aggregate, of shares of our common stock equal to at least 7% of the shares of our common stock then outstanding.
+Added: Furthermore, pursuant to the shareholder rights agreement that we and our Manager entered into with the DK Entity in connection with our IPO, the DK Entity, subject to certain limitations, has the right to designate one nominee for election to our Board of Directors for so long as the DK Entity and its affiliates (1) maintain beneficial ownership of shares of our common stock equal to at least 10% of the shares of our common stock then outstanding or (2) are one of the largest three (3) beneficial owners of shares of our common stock and maintain beneficial ownership, in the aggregate, of shares of our common stock equal to at least 7% of the shares of our common stock then outstanding.
For purposes of the ownership requirements in this shareholder rights agreement, shares of our common stock that are subject to issuance upon the exercise or exchange of rights of conversion, or any options, warrants or other rights to acquire shares, will not be counted as outstanding.
−Removed: These and certain other pre-IPO investors were granted rights to receive a share of our Manager’s revenues received under the Management Agreement in connection with their investments prior to the IPO.
+Added: These and certain other pre-IPO
+Added: investors were granted rights to receive a share of our Manager’s revenues received under the Management Agreement in connection with their investments prior to the IPO.
Additionally, the MS Entity and the DK Entity, and our other pre-IPO investors entered into a registration rights agreement with us in connection with our IPO, pursuant to which they are entitled to registration rights in respect of shares of our common stock.
19 unchanged sentences
Our charter authorizes us to issue additional authorized but unissued shares of our common stock and preferred stock.
−Removed: In addition, a majority of our entire Board of Directors may, without stockholder approval, approve amendments to our charter to increase the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that we have authority to issue and may classify or reclassify unissued shares of our common stock or preferred stock and may set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms and conditions of redemption of the classified or reclassified shares.
+Added: In addition, a majority of our entire Board of Directors may, without stockholder approval, approve amendments to our charter to increase the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that we have authority to issue and may
+Added: classify or reclassify unissued shares of our common stock or preferred stock and may set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms and conditions of redemption of the classified or reclassified shares.
As a result, among other things, our Board of Directors may establish a class or series of shares of our common stock or preferred stock that could delay or prevent a transaction or a change in control of us that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
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Our charter provides that, to the maximum extent permitted from time to time by Maryland law, if any of our directors or officers who is also an officer, director, employee, agent, partner, manager, member, or stockholder of Angel Oak acquires knowledge of a potential business opportunity, we renounce any potential interest or expectation in, or right to be offered or to participate in, such business opportunity, unless such director or officer became aware of such business opportunity as a direct result of his or her capacity as our director or officer and (1) we are financially able to undertake such business opportunity, (2) we are not prohibited by contract or applicable law from pursuing or undertaking such business opportunity, (3) such business opportunity, from its nature, is in line with our business, (4) such business opportunity is of practical advantage to us and (5) we have an interest or reasonable expectancy in such business opportunity (a “Retained Opportunity”).
−Removed: Accordingly, except for Retained Opportunities, to the maximum extent permitted from time to time by Maryland law and our charter, none of our directors or officers who is also an officer, director, employee, agent, partner, manager, member, or
−Removed: stockholder of Angel Oak is required to present, communicate or offer any business opportunity to us and can hold and exploit any business opportunity, or direct, recommend, offer, sell, assign or otherwise transfer such business opportunity to any person or entity other than us.
−Removed: As a result, our directors and officers who are also officers, directors, employees, agents, partners, managers, members, or stockholders of Angel Oak may compete with us for investments or other business opportunities and we and our stockholders may have more limited rights against our directors and officers than might otherwise exist, which might limit your recourse in the event of actions not in your best interest.
+Added: Accordingly, except for Retained Opportunities, to the maximum extent permitted from time to time by Maryland law and our charter, none of our directors or officers who is also an officer, director, employee, agent, partner, manager, member, or stockholder of Angel Oak is required to present, communicate or offer any business opportunity to us and can hold and exploit any business opportunity, or direct, recommend, offer, sell, assign or otherwise transfer such business opportunity to any person or entity other than us.
+Added: As a result, our directors and officers who are also officers, directors, employees, agents, partners, managers, members, or stockholders of Angel Oak may compete with us for investments or other business opportunities and we and our stockholders may have more
+Added: limited rights against our directors and officers than might otherwise exist, which might limit your recourse in the event of actions not in your best interest.
The ownership limits in our charter may discourage a takeover or business combination that may have benefited our stock.
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Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the U.S.
−Removed: District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (1) any Internal Corporate Claim, as such term is defined in the MGCL, (2) any derivative action or proceeding
−Removed: brought on our behalf, other than actions arising under U.S.
+Added: District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (1) any Internal Corporate Claim, as such term is defined in the MGCL, (2) any derivative action or proceeding brought on our behalf, other than actions arising under U.S.
federal securities laws, (3) any action asserting a claim of breach of any duty owed by any of our directors, officers, or other employees to us or to our stockholders, (4) any action asserting a claim against us or any of our directors, officers, or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (5) any other action asserting a claim against us or any of our directors, officers, or other employees that is governed by the internal affairs doctrine.
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federal income tax purposes commencing with our taxable year ended December 31, 2019.
−Removed: As long as we meet the requirements under the Code for qualification and taxation as a REIT each year, we can deduct dividends paid to our stockholders when calculating our REIT taxable income.
+Added: As long as we meet the requirements under the Code for qualification and taxation as a REIT each year, we can deduct dividends
+Added: paid to our stockholders when calculating our REIT taxable income.
For us to qualify as a REIT, we must meet detailed technical requirements, including income, asset and stock ownership tests, under several Code provisions that have not been extensively interpreted by judges or administrative officers.
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federal income tax at the regular corporate rate.
−Removed: Because the sale of mortgage loans in connection with the issuance of REMIC Certificates or the sale of REMIC Certificates represents a significant portion of our business activities, we may hold a substantial amount of our assets in one or more TRSs that are subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and our ability to make distributions to our stockholders.
+Added: Because the sale of mortgage loans in connection with the issuance of REMIC Certificates or the sale of REMIC Certificates represents a significant portion of our business activities, we may hold a substantial amount of our assets in one or more TRSs that are subject to corporate income tax on its earnings, (including potentially a 15% alternative minimum tax (“AMT”) on the adjusted financial statement income (“AFSI”) of TRSs whose three-year average AFSI exceeds $1 billion), which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and our ability to make distributions to our stockholders.
In addition, we may be required to acquire and hold Fannie Mae multi-family securities, U.S.
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Thus, in order to satisfy the distribution requirement or to avoid U.S.
−Removed: federal corporate income tax and the 4% nondeductible excise tax, we may be required to take actions that may not otherwise be advisable given existing market conditions and hinder our ability to grow, which could materially and adversely affect us.
+Added: federal corporate income tax and the 4% nondeductible excise tax, we may be required to take actions that may not otherwise be advisable given existing market conditions which actions may hinder our ability to grow, which could materially and adversely affect us.
Ordinary dividends payable by REITs do not generally qualify for the reduced tax rates applicable to certain corporate dividends.
17 unchanged sentences
If the mortgage loans underlying an excess MSR prepay at a rate different than that under the prepayment assumption, our recognition of OID will be either increased or decreased depending on the circumstances.
−Removed: Thus, in a particular taxable year, we may be required to accrue an amount
−Removed: of income in respect of an excess MSR that exceeds the amount of cash collected in respect of that excess MSR.
+Added: Thus, in a particular taxable year, we may be required to accrue an amount of income in respect of an excess MSR that exceeds the amount of cash collected in respect of that excess MSR.
Furthermore, it is possible that, over the life of the investment in an excess MSR, the total amount we pay for, and accrue with respect to, the excess MSR may exceed the total amount we collect on such excess MSR.
28 unchanged sentences
Subject to certain exceptions, our ownership of securities, other than government securities and securities that constitute real estate assets, generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
−Removed: In addition, in general, no more than 5% of the value of our assets, other than government securities and securities that constitute real estate assets, can consist of the
−Removed: securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs.
+Added: In addition, in general, no more than 5% of the value of our assets, other than government securities and securities that constitute real estate assets, can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs.
We generally do not intend, and as the sole owner of the general partner of our operating partnership, do not intend to permit our operating partnership, to take actions we believe would cause us to fail to satisfy the asset tests described above.
−Removed: However, if we fail to comply with these requirements at the end of any calendar quarter after the first calendar quarter for which we qualified as a REIT, we must generally correct such failure within 30 days after the end of such calendar quarter to prevent us from losing our REIT qualification.
+Added: However, if we fail to comply with these requirements at the end of any calendar quarter after the first calendar quarter for which we qualified as a REIT, we must generally
+Added: correct such failure within 30 days after the end of such calendar quarter to prevent us from losing our REIT qualification.
As a result, we may be required to liquidate otherwise profitable assets prematurely, which could reduce the return on our assets, which could materially and adversely affect us.
21 unchanged sentences
Our TRSs and any other taxable corporations in which we own an interest are subject to U.S.
−Removed: federal, state and local corporate taxes.
+Added: federal, state and local corporate taxes (including potentially a 15% AMT on the AFSI of TRSs whose three-year average AFSI exceeds $1 billion).
Payment of these taxes generally would reduce our cash flow and the amount available to distribute to our stockholders, which could materially and adversely affect us.
8 unchanged sentences
Future sales of shares of our common stock or other securities convertible into shares of our common stock could cause the market value of shares of our common stock to decline and could result in dilution of your shares.
−Removed: Our Manager and certain of its officers are subject to the terms of a lock-up agreement they entered into in connection with our IPO pursuant to which they agreed for a period of 365 days from the date of the IPO underwriting agreement not to sell or otherwise transfer, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock owned by them, subject to specified exceptions, without the prior written consent of the representatives of the underwriters of our IPO.
−Removed: These lock-up provisions, at any time and without notice, may be released.
−Removed: If the restrictions under the lock-up agreements are waived, the shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price for shares of our common stock.
−Removed: In addition, in connection with the closing of our IPO and a concurrent private placement of shares of our common stock, we entered into registration rights agreements with our pre-IPO investors and the investor in our concurrent private placement, respectively.
−Removed: We also entered into a registration rights agreement with respect to any equity-based awards that we may grant to our Manager in the future under our 2021 Equity Incentive Plan.
−Removed: Subject to the lock-up agreements described above, registration of these shares under the Securities Act of 1933 (the “Securities Act”) would result in these shares becoming freely tradable without restrictions under the Securities Act immediately upon effectiveness of the registration statement.
+Added: In connection with the closing of our IPO and a concurrent private placement of shares of our common stock, we entered into registration rights agreements with our pre-IPO investors and the investor in our concurrent private placement, respectively.
+Added: We also entered into a registration rights agreement with respect to any equity-based awards that we may grant to our Manager under our 2021 Equity Incentive Plan.
+Added: Registration of these shares under the Securities Act of 1933 (the “Securities Act”) would result in these shares becoming freely tradable without restrictions under the Securities Act immediately upon effectiveness of the registration statement.
In addition, a substantial amount of shares of our common stock held by our pre-IPO investors and the investor in our concurrent private offering have become eligible for resale, subject to the requirements of Rule 144 under the Securities Act.
16 unchanged sentences
We do not control these analysts.
−Removed: Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business
−Removed: or industry, the price of our stock could decline.
+Added: Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business or industry, the price of our stock could decline.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
5 unchanged sentences
We may suffer losses as a result of the adverse impact of any of these events, and these losses may adversely impact our performance and may cause the market value of shares of our common stock to decline or be more volatile.
−Removed: A prolonged economic slowdown, a recession, or declining real estate values could impair the performance of our investments and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us.
+Added: A prolonged economic slowdown, a recession, or
+Added: declining real estate values could impair the performance of our investments and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us.
Losses resulting from these types of events may not be fully insurable.
2 unchanged sentences
The obligations associated with being a public company will require significant resources and attention from our Manager’s senior management team.
−Removed: As a public company with listed equity securities, we will need to comply with new laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC and requirements of the NYSE, with which we were not required to comply as a private company.
+Added: As a public company with listed equity securities, we are required to comply with various laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC and requirements of the NYSE.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition.
The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls over financial reporting.
−Removed: While Section 404 of the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control structure and procedures for financial reporting on an annual basis, for as long as we are a Smaller Reporting Company, the registered public accounting firm that issues an audit report on our financial statements will not be required to attest to or report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.
+Added: While Section 404 of the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control structure and procedures for financial reporting on an annual basis, for as long as we are both a Smaller Reporting Company and a non-accelerated filer, the registered public accounting firm that issues an audit report on our financial statements will not be required to attest to or report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.
An independent assessment of the effectiveness of our internal controls could detect problems that our management's assessment might not.
−Removed: We cannot be certain if the scaled SEC reporting requirements applicable to Smaller Reporting Companies will make our common stock less attractive to investors, which could make the market price and trading volume of shares of our common stock be more volatile and decline significantly.
+Added: We cannot be certain if the scaled SEC reporting options available to Smaller Reporting Companies will make our common stock less attractive to investors, which could make the market price and trading volume of shares of our common stock be more volatile and decline significantly.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.
4 unchanged sentences
The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our financial results, which could materially and adversely affect us.
−Removed: As a public company with listed equity securities, we will also be required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with, or submit to, the SEC is recorded, processed, summarized, and reported, within the time periods specified by the SEC.
+Added: As a public company with listed equity securities, we also are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with, or submit to, the SEC is recorded, processed, summarized, and reported, within the time periods specified by the SEC.
They include controls and procedures designed to ensure that information required to be disclosed in reports filed with, or submitted to, the SEC is accumulated and communicated to management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
1 unchanged sentence
We may discover deficiencies in our disclosure controls and procedures that may be difficult or time consuming to remediate in a timely manner.
−Removed: These reporting and other obligations will place significant demands on us and our Manager’s senior management team, administrative, operational, and accounting resources and will cause us to incur significant expenses.
−Removed: We may need to upgrade our systems or create new systems, implement additional financial and other controls, reporting systems and procedures, and create or outsource an internal audit function.
+Added: These reporting and other obligations place significant demands on us and our Manager’s senior management team, administrative, operational, and accounting resources and cause us to incur significant expenses.
+Added: From time to time, we may need to upgrade our systems or create new systems, implement additional financial and other controls, reporting systems and procedures, and outsource an effective internal audit function.
If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to public companies could be impaired.
Unresolved Staff Comments
−Removed: We do not own or lease any property.
+Added: As of December 31, 2022, we did not own any property.
Our principal offices are located in space leased by an affiliate of our Manager at 3344 Peachtree Road Northeast, Suite 1725, Atlanta, Georgia 30326.
3 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.