Mortgage REIT Insider: Chimera Gets a Lesson on Leverage

Earlier this year, Chimera Investment Corp. (CIM) bit off more than it could chew, and indigestion finally set in this past week. I wondered back in March if Chimera was quietly struggling to stay afloat after leveraging up at just the wrong time — it had quadrupled its reliance on repurchase lines just as competitor MFA Mortgage (MFA) was selling assets to de-lever its balance sheet. After torching MFResidential’s planned IPO, the poor conditions in the non-agency RMBS market chopped into Chimera this week, who slashed its quarterly dividend by 37.5 percent. Matthew Lambiase, CEO and president of Chimera, commented on the dividend situation thusly: “Specifically, conditions compelled us to adjust our ramp-up pace and run our leverage at a more defensive level as we headed into the second quarter.” In other words, maybe going after that $500 million repo facility with CSFB, and another $350 million repo line with Deutsche Bank back in January, wasn’t such a good plan. To be fair, Chimera did manage to later complete a $619.7 million securitization, a long-term financing transaction whereby it securitized its then-current inventory of mortgage loans. Chimera is also, not surprisingly, headed to the capital markets for a $345 million secondary offering. Perhaps a lesson well learned. Thornburg’s still thinking Who knew one late quarterly filing could cause this much drama? Thornburg Mortgage (TMA) needs more time to sort out its financial mess, again postponing the filing of its first quarter 10-Q, citing the ongoing complexity of the accounting issues raised by its infamous “Hail Mary” deal at the end of March. Until Thornburg dutifully sorts out its homework, it’s rightfully going to face the wrath of quite a few angry investors. To add to the accounting headaches, the company said it had received a letter from the NYSE stating that it’s not in compliance with the NYSE’s continued listing criteria, because the common stock price has been less than $1.00 for 30 consecutive trading days. The company intends to rectify the deficiency technically, by implementing a reverse stock split, which doesn’t require shareholder approval. With all the gymnastics and gyrations Thornburg has performed in the last year, however, a reverse split should be no problem. Capital Trust captures more income Capital Trust (CT) announced that it has formed a new venture fund, CT High Grade Partners II, with $667 million of commitments from two institutional investors. The new fund will invest in “high grade” commercial real estate debt, including investment grade securities (CMBS, REIT debt and CDOs) as well as whole loans and participations therein. It’s worth noting that investments will be funded 100 percent with the investors’ capital utilizing no leverage. CT seemed pleased with the new fund’s creation, with CEO John Klopp commenting, “In this difficult market, the true winners will be the firms that can manage their existing assets and liabilities while raising fresh capital to exploit new opportunities.” BRT gets burned Maybe BRT Realty Trust (BRT) will have more luck being landlords than lenders: the company admitted on Monday that after a due diligence period, buyers had walked away from purchasing seven distressed properties encumbered by BRT loans. With one property already in foreclosure, BRT reluctantly decided it would be best to foreclose on the other six to protect its collateral. Rising from the ashes? Former pink sheet resident New York Mortgage Trust (NYMT) got back on its feet this week -– and back on a major exchange. Just a week after completing its 1 for 2 reverse split, NYMT’s headed for the NASDAQ. Incidentially, the “NYMT” ticker is the Company’s fifth ticker symbol in a year – is that some sort of record for a single entity? Dead REIT walking It may finally be curtains for former subprime lending giant NovaStar Financial. NovaStar once attracted plenty of fans for its fat dividends –- and the ire of former Marketwatch columnist Herb Greenberg for its accounting practices –- but the company flamed out during last year’s credit crisis. It’s been limping along ever since, but now the Kansas City Business Journal is reporting that JPMorgan Chase & Co. (JPM) is no longer giving NovaStar an extension on its quarterly trust preferred interest payments, which were initially due March 31. That might be the final nail in the coffin for the company, which has dodged the grim reaper for months on end now. On Wednesday, JPM put NovaStar on notice that it would exercise its right to declare NovaStar in default –- thereby making the principal and interest on the TruPS, worth about $51 million as of May 31, immediately due and payable. For its part, NovaStar said it will attempt to restructure the debt, but warned that it can’t guarantee it will be successful. If NovaStar can’t convince JPM to hold off, it would “likely cause the company to seek the protection of applicable bankruptcy laws.” Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past two years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday. Disclosure: The author held no positions in publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.