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Front Yard Residential: Attractive IRR With Merger Expected To Close By Q2

Double S Capital profile picture
Double S Capital


  • RESI's shareholder approved the transaction but the company has gone radio silence since the vote on 4/27.
  • There are still a few obstacles before the consummation of the Merger including Freddie Mac Loan Consent.
  • The Merger Agreement reads strong in favor of the Target (e.g. Material Adverse Effect).
  • I still think it's more likely than not the deal closes shortly, providing a quick ~10% return.

Company Overview

Front Yard Residential (NYSE:RESI-OLD) is an externally-managed single-family (SFR) rental REIT. As of Q3-2019, RESI owns 14,403 SFR units across various states in the U.S. It's managed by Altisource Portfolio Solutions, a publicly-traded real estate management and mortgage services provider. As of FY2019, RESI has an accounting total assets of $2.05 billion vs. ~$1.65 billion of debt.

RESI's portfolio grew primarily through acquisition, which includes:

Source: Company Presentation


In May 2019, Snow Park Capital Partners started a proxy fight against Front Yard's board (presentation). The proxy fight ended in May 2019 with two new independent board members appointed and RESI formally launching a strategic view, with Deutsche Bank hired as the financial advisor.

Since then, a long marketing process went on for more than 6 months and finally on Feb 18, 2020, RESI announced that it's being taken private by Amherst Residential for $12.5/share. The transaction is valued at ~$2.3 billion, ~$690 million equity value, plus debt to be assumed or refinanced.

Goldman Sachs will be providing the debt financing, while Amherst has delivered an equity commitment letter for ~$270.1 million.

Lenders' Consent

Below is my understanding of the treatment of RESI's debt capital:

  • To be refinanced:
    • CS Repurchase Agreement
    • Nomura Loan Agreement
  • To be assumed (lenders):
    • Term Loan Agreement (Great American Life Insurance)
    • FYR SFR Loan Agreement (Freddie Mac)
    • MS Loan Agreement (Morgan Stanley)
    • Home II, III and IV Loans (Metropolitan Life Insurance)

Source: Company 10-K

Use/Source of Funds

To be clear, this is a levered transaction with the acquirer writing an equity cheque ~12% of the total transaction value, and pro forma ~8.2% equity-financed. I

This article was written by

Double S Capital profile picture
Event-driven, fundamentally oriented value investor. My favorite quote - if you want to be the smartest person in the room, go to an empty room - something like that.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in RESI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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