Chimera Back at the Capital Water Well (CIM)

Chimera Investment Corporation (NYSE: CIM) is supposed to be a toxic mortgage winner in the land of Real Estate Investment Trusts.  The REIT is also a serial capital raising entity, which keeps selling shares to raise more cash so it can buy more mortgage and loan securities.  The latest offering is rather large as it sold some 125 million shares at a price of $3.85 per share.

The company listed Credit Suisse as the lead underwriter and Barclats and RCap were listed in the underwriting group as well.  Underwriters will have a 30-day option to sell an additional 18.5 million shares to cover overallotments.  The expected gross proceeds come to roughly $480 million before expenses.

Chimera said in the filing that expects to use the proceeds to purchase residential mortgage-backed securities, prime and Alt-A mortgage loans, commercial mortgage loans, commercial mortgage-backed securities, collateralized debt obligations, and other consumer or non-consumer asset-backed securities.  The company did note that it may also use the proceeds for other general corporate purposes such as repayment of outstanding indebtedness, working capital and for liquidity needs.

Before the effects of this offering, Chimera’s market cap is listed as $3.4 billion and today’s  offering comes to nearly a 5% price discount.  What is perhaps most important is that this may allow it to continue its high payout.  As a mortgage REIT you can assume it strives to use all means possible to have a continually high payout rate in the dividend.  If its dividend were able to remain static indefinitely, the implied yield is roughly 17% at today’s share price.

Shares are down but not out on the offering.  The drop is nearly 4% at $3.88 on very active trading volume that is already approaching 50 million shares in only the first 45 minutes alone.  Its 52-week trading range is $3.50 to $4.36 and average volume is about 12 million shares per day.  When this first launched at the end of 2007, Chimera had a share price of roughly $15.00.

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JON C. OGG