Saturday, April 23, 2011

AGNC's Offering Raises NAV

AGNC's newest offering of 28,000,000 shares has been priced to yield gross proceeds of "approximately $780 million." That means approximately $27.85 per share. Given that the last-reported NAV was $24.24, and the company's shares were just south of 65m outstanding, the issuance should result in a NAV north of $25.


This isn't the first time existing shareholders have been blessed with a NAV boost like this. In the last quarter of 2010, the effect of issuance was 97¢ (see p.20 of the 4Q2010 presentation). Holy cow, right?

I think ACAS' management of AGNC has not only been brilliant for ACAS, but a terrific ride for shareholders of AGNC. (I told my mother to buy after the IPO at $20, then again about a year later at $15; the current quarterly dividend of $1.40 is going to do nicely for her as it continues to compound for her tax-deferred on a DRIP in her rollover IRA.)

And what does the issuance do for ACAS? Well, two things. First, 1.25% of $780,000 would be $9.75m in annual fees, but of course the gross proceeds aren't all turning into funds under management; the underwriters are getting paid from that gross. Still, adding a fee income of over $2m/quarter is nothing to sneeze at. It's about 0.7¢ per share per quarter of indefinite income, without requiring ACAS to deploy any more assets. The whole firm just got more valuable.

Dig it?

ACAS is now worth more, and so is AGNC. Who says you can't have a win-win deal on Wall Street?


Anonymous said...

Should this IPO go off as expected, ACAS will get 1.25% of approx $450 million. Another $5.6 million in added fee income yearly or about a penny and a half per share per quarter.

Added to the most recent AGNC issuance and we are talking about .34 cents a year additional fee income for ACAS right around the corner. A nice cushion for ACAS, as the portfolio exits are non linear.

The moving parts with this company seem to be worth well more that the price of the shares indicate.

Jaded Consumer said...

1.25% per year on $450m, divided across the 341m shares ACAS had outstanding at the end of 3Q2010 would result in $5.625m/year or 1.6¢/sh/year, right? Quarterly, nearly half a penny per share. And if it's successful, ACAS would cause the company to issue still more shares, growing that revenue ...

It'll be interesting to see how an IPO for a non-government-backed mortgage product is accepted. Presumably, ACAS expects to use its expertise in valuing illiquid assets to identify under-priced investments. The case for capital appreciation should be better than in AGNC, but let's face it: without the government guarantee, this will be volatile and potentially a rough ride.

Of course, if the economy improves and the assets do better than expected because the loans perform closer to nominal than to predicted/feared by the markets, the returns could be exciting.

The extra pennies will be good to see, particularly once ACAS is again obligated to pay a dividend.

Anonymous said...


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