Axos Financial says short-seller report contains ‘series of inaccuracies’

In a regulatory filing, Axos Financial stated: “A recently released report, by a self-described short-seller, made a series of misleading, incomplete, and false allegations centered on the quality of Axos’ commercial real estate loan portfolio. This report contains a series of inaccuracies and innuendo that include false, incomplete and misleading allegedly factual information with respect to specific loans, incomplete or inaccurate descriptions of loan structures, failure to accurately describe the Axos lending counterparty, failure to mention guarantors or fund partners that provide significant support to the Axos credit position, as well as inaccurate discussions of loans that that have already been repaid but not represented in the report as having been repaid. We provided a detailed credit update on our last earnings call and there has not been any material change in credit performance as of today. As Axos disclosed in its investor presentation filed as Exhibit 99 to its Form 8-K filed with the Securities and Exchange Commission on May 7, 2024, its largest commercial real estate portfolio, CRE Specialty lending, with $5.22 billion dollars of outstanding balances as of March 31st, 2024 is a business that works almost exclusively through fund relationships, including many of the largest real estate funds in the world, such as Carlyle, the Related Group, Fortress Investment Group, Madison Realty Capital and others. When working with its fund partners, Axos structures the credits to take the most senior secured position in these loans. As a result of this structure, for Axos to lose any principal on these loans, the Axos fund partners would first have to lose the entire principal value of their position. In other words, the fund partners bear significant risk of loss from their investments prior to any risk of loss to Axos. This structure provides Axos strong collateral protection even in adverse market scenarios. As of March 31, 2024, the weighted average LTV of the Axos CRE Specialty Portfolio is 40%. The other large commercial real estate exposure is Multifamily mortgages. These mortgages are generally full warm-body recourse to the underlying borrower and originated at an average loan-to-value ratio of 55% as of March 31, 2024. The short-seller refers to loan repricing risk associated with this portfolio. A significant portion of the portfolio has already repriced with increased prepayment speed among loans that have repriced. Axos also provides lines of credit to its fund partners. These lines of credit are secured by multiple assets, have low advance rates, are cross-collateralized, and can, depending upon the circumstances, have direct recourse to the fund itself. Selecting any one asset on a multi-asset line of credit, as was done in this short-seller report, does not accurately portray the underlying risk of the facility. Additional data correcting some of the inaccuracies and misstatements in the report are provided below. The volume of inaccuracies and confidentiality obligations prevent addressing all of the inaccuracies, but a sufficient level of detail is provided to demonstrate that the report is not reliable.”