Sachem Capital to Sell New Notes

Real estate finance REIT Sachem Capital (SACH) will be selling a new issue of notes with a maturity date in 2024.

SACH is a small company with assets of just $96 million, but they have only $23 million in debt.

The notes will have an early redemption date in 2021.

SACH had issued notes earlier in 6/2019 with a 7.125% coupon under ticker SCCB–which can be seen here. Those notes have traded pretty decently since issuance and are at $25.95 today.

The preliminary prospectus can be read here.

Just to remind newer readers these notes will be senior to the common stock and pari passu (equal) to all outstanding and future unsecured unsubordinated debt. The only debt the company has is $22 million from their SCCB issuance (noted above and which is pari passu to this new issue) and mortgage debt of $800,000 which is senior to this issue.

17 thoughts on “Sachem Capital to Sell New Notes”

  1. Update: One of the two founding brothers of Sachem Capital, Jeff Villano resigned as co-CEO and President of the company about a month ago. The company was tight lipped about why he resigned and as of yesterday Jeff has also resigned from the Sachem board of directors.

    Currently the other founding brother John Villano is wearing all the executive hats, (CEO, President, CFO, and Treasurer) and no announcement has been made yet as to whether someone from the board is going to step up or an executive from the outside will be hired.

    This is a small company so it may not matter in the short term, but investors should be wary after losing one of its founders. My sense is the two brothers had a profound disagreement about the future direction of the company.

  2. Just to follow up:
    Sachem Capital Corp. Announces Additional $4.5 Million Gross Proceeds From Exercise of Over-Allotment Option in Connection With Public Offering of 6.875% Notes Due 2024

    BRANFORD, Conn.–(BUSINESS WIRE)– Sachem Capital Corp. (NYSE American: SACH) today announced that it sold an additional $4.5 million original principal amount of its 6.875% unsecured unsubordinated notes due December 30, 2024 (“Notes”) (NYSE American: SACC), pursuant to the exercise of the underwriters’ over-allotment option, resulting in additional net proceeds to the company of approximately $4.3 million. Overall, Sachem sold 1,380,000 Notes for aggregate gross proceeds of $34.5 million and net proceeds, after paying underwriting discounts and commissions and other deal related expenses, of approximately $32.9 million.

    Ladenburg Thalmann & Co. Inc., a subsidiary of Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS), and Janney Montgomery Scott LLC acted as joint book-running managers for the offering. National Securities Corporation, a wholly owned subsidiary of National Holdings Corporation (NASDAQ: NHLD) acted as the lead manager for the offering.

    About Sachem Capital Corp.

    Sachem Capital Corp. specializes in originating, underwriting, funding, servicing and managing a portfolio of mortgage loans secured by first mortgage liens on real property (referred to in the industry as “hard money” loans). Its customers include real estate investors and developers who use the proceeds of the loans to fund their acquisition, renovation, development, rehabilitation and/or improvement of properties located primarily in Connecticut. The properties securing Sachem Capital Corp.’s loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Sachem Capital Corp. does not lend to owner occupants. Sachem Capital Corp.’s primary underwriting criteria is a conservative loan to value ratio. Sachem Capital Corp. has elected to be taxed and operates as a real estate investment trust (REIT) for federal income tax purposes.

  3. Just to update everyone; I just bought 1000 shares of SACC 6.875% due 2024 at Vanguard for $24.79. I had a heck of a time finding this issue as Merrill Edge and Vanguard (up until today) both told me that through their dealer to dealer network no one was selling. This is a very small issue of $30 million with a greenshoe of another $4.5 million avaliable. Please let us know if your broker is able to offer this issue for sale…
    Be well my friends, Nomad

  4. Traded out my SCCB for this new issue, CUSIP 78590A307. Significantly better YTW and YTC with 5 months later maturity. Got 2k on Schwab at 24.74, but TDA claimed they could not get.

  5. I own the common; took a very small position around $4. The common was doing well, reaching a high of $5.70 until they had a secondary offering of 2M shares at a value of $5 and started increasing their debt load with two series of notes. Now the common is anchored to $5. Let’s see how wisely they use all this new cash, investing near a real estate market top. Fortunately, I’m still solidly in the black and enjoying the dividend, so I’ll hold. Maybe I should have sold the common and gone with the notes instead, but they didn’t tell me their plans in advance. The nerve!

    It seems to be a well-managed company positioning to expand their geographical focus outside of a few New England states. I’m in it for the income and potential growth with limited downside due to my very small position.

  6. I looked at their website. They originate loans of $200K to home flippers. Avg rate = 12+%; default rate = 18%. I.E. payday loans for home flippers.

    I will pass.

    1. xwords, EJ rating aside, the financials look interesting. As Tim indicated, the balance sheet is a net positive with June 30, 2020, primary receivables up near 5.9% from December 2019. REO is up 67% during that period though is working off a small starting number and remains at 6% of mortgages receivable. The income statement reflects a significant decline, though includes a one-off charge related to the termination of a line of credit (LOC) ( a net plus?) and increased compensation – which without drilling in we might expect to be related to the increased REO activity. There’s been a significant increase in common outstanding, the proceeds from which may have been used in whole or part to retire the LOC. This creates increased flexibility for the company going-forward. The company reports $82M of primary receivables against total liabilities of $26M. That’s stellar.

      Much of the receivables are short-term paper giving them additional benefit of being able to pivot as the market changes. Important to keep in mind house flipping loans are as safe as the lending terms. In the case of Sachem, they only loan a maximum of 50% LTV, meaning the buyer/borrower must come in with 50% of equity from other sources. That provides enormous cushion for Sachem. In fact, the investment property, commercial and bridge loans offered by the company all require 50% down. FICOs are ignored, though that makes perfect sense – would one rather lend to a great FICO, or a 2-1 secured asset? Easy choice. We’ve made one-to-one loans previously and loan to value is more important than any other criteria so long as the asset properly secures the loan and is not some functionally obsolete mess. But Sachem is surely conducting at least drive-by inspections of the properties. If there’s a downside I’d identify that they’re concentrated into Connecticut and Massachusetts. A regional-recession could hurt them, but it would only mean a decrease in loan volume as the assets appear well-secured. Wouldn’t want to own the common but the preferred appear worth a look over.

      1. SACH may have changed their underwriting policy regarding LTV. The new note prospectus states, “As a matter of policy, we do not make any loans if the loan-to value ratio exceeds 70%.” Not horrible, but 50% is better cushion. I currently hold a full allocation of SCCB.

    2. Interesting…I’m shocked the default rate is 18%. I’ve done some home flipping. You really have to be clueless to lose money doing it the past 10 years of rising home values. If you have any concept of renovation cost and prevailing market prices, you won’t lose money as long as home values are at least steady.

    3. I reread the investor presentation and I have to make a correction to my above statement. There was some confusing language. The default rate is the interest rate charged to loans in default – not the actual rate at which loans go into default. That rate is about .5%. With all that being said, this is a very small company that is dependent upon constantly originating mortgages to home flippers in Connecticut – a very small market and probably could be materially affected by a recession. I would not purchase the common. Still figuring out the preferred

  7. The Notes are expected to be listed on the NYSE American under the trading symbol “SACC”.

    And Egan Jones hooked us up again!! YES!!! Another good rating! (uggh)

    The Notes have a private credit rating of BBB+ from Egan-Jones Ratings Company, an independent, unaffiliated rating agency.

      1. Gabriele, Normally I’d just agree with you but I’m not so sure on this one. If EJ isn’t giving them an A-something, then they don’t even get the neutral “unknown” rating of an NR, and instead I assume it’s absolutely less then IG.

        1. doesn’t it cost a lot to get rated by Moody or S&P? If this is a small deal and a smaller company, maybe they were prudent not to spend the money for the rating? Your thoughts?

          1. Prottty,
            Take this for what it’s worth. I cannot verify this to be true, so am just posting for giggles… I found this posted a short time ago… It was posted about 6 years ago.

            Standard & Poor’s- 42% market share. Cost 4.95 basis points of the total amount of the bond offering or $80,000 whatever amount is greater.

            Moody’s Investors Service- 37% market share. Cost 5 basis points of the total amount of the bond offering or $73,000 whatever amount is greater.

      2. I think an E-J rating is possibly worse than nothing. The institutional crowd ignore it so it’s aimed at the “dumb money”, that is to say retail. The issuer must think they need it to sell the issue. Going without any rating suggests, to me, more confidence that the issuer can sell the issue based on merit.

        I own lots of “NR” issues but very few (zero?) E-J rated issues.

        That said, alpha8 makes good points about the company.

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