Hatteras to Offer Shares - Analyst Blog

Hatteras Financial Corp. (HTS), a real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS), has recently announced its offer of 14.5 million shares at $28.50 each. The company will also grant the underwriters an option to purchase an additional 2.175 million shares to cover any over-allotments.

BofA Merrill Lynch, the investment banking and wealth management division of Bank of America Corporation (BAC); Wells Fargo Securities, LLC, part of Wells Fargo & Company (WFC); and Keefe, Bruyette & Woods or KBW Inc. (KBW) – a leading investment banking firm, are acting as the joint book-running managers for the offering.

Hatteras anticipates raising gross proceeds of approximately $413.3 million. The company intends to utilize the proceeds from the secondary offering to acquire additional RMBS securities and for general corporate purposes.

Hatteras primarily acquires, owns and manages a portfolio of Agency and non-Agency RMBS and related investments. Agency RMBS are those whose principal and interest payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae (FNMA), Freddie Mac (FMCC) and Ginnie Mae. On the other hand, non-Agency RMBS are neither issued nor guaranteed by the government-affiliated agencies.

The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the mortgage market. However, the residential mortgage market in the U.S. has experienced defaults, credit losses and liquidity concerns in the recent past. These factors have impacted investor perception of the risk associated with real estate related assets, including Agency securities and other high-quality RMBS assets.

As a result, values for RMBS assets, including some Agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance of Hatteras in the future.

The company is externally managed and advised by Atlantic Capital Advisors LLC. We presently have a ‘Neutral’ recommendation on Hatteras, which currently has a Zacks #3 Rank that indicates a short-term ‘Hold’ rating.