AGNC to Offer Common Shares – Analyst Blog

American Capital Agency Corp. (AGNC), a leading real estate investment trust (REIT), has recently announced plans to offer 6.0 million common shares at $25.75 each to raise cash. The company will also grant the underwriters an option to purchase an additional 0.9 million shares to cover any over-allotments. Credit Suisse Securities (USA) LLC, UBS Investment Bank, Citi, and Deutsche Bank Securities Inc. are acting as joint book-running managers for the public offering.

 

American Capital expects to raise total net proceeds of approximately $147 million, excluding the over-allotment options. The company intends to utilize the proceeds to acquire additional agency securities and for general corporate purposes. The shares fell $2.11 or 7.7% on the impact of the news to $25.43 in midday trading on Friday.

 

American Capital invests only in fixed-rate agency securities where payments are guaranteed by the U.S. government or government-owned entities such as Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae. Specifically, American Capital invests in Freddie Mac Gold certificates, and certificates of Fannie Mae and Ginnie Mae. We like the company’s focused investment approach, which is not distracted by originations, servicing, or credit risk from investments in mortgages that do not have the backing of the U.S. government.

 

Agency residential lenders such as American Capital are the only residential mortgage REITs left with a viable business model, more specifically, with access to capital to fund growth during recession and still having liquid assets. With the government takeover of Fannie Mae and Freddie Mac, American Capital’s securities now have an explicit government guarantee, which makes agency REITs a much more attractive prospect for investors. Additionally, the company’s portfolio of government-backed assets is relatively liquid and credit risk is limited.