Two Harbors Investment Corp. (TWO), a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities (RMBS), has recently announced its offer of 25 million shares at $10.25 each. The company will also grant the underwriters an option to purchase an additional 3.75 million shares to cover any over-allotments.
Credit Suisse Securities (USA) LLC, the investment banking division of Credit Suisse Group (CS), is acting as the leading book-running manager for the offering. Two Harbors anticipates raising total gross proceeds of approximately $256.3 million from the offer. The company intends to utilize the proceeds from the secondary offering to acquire additional RMBS securities and for general corporate purposes.
Two Harbors 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 Two Harbors in the future.
The company is externally managed and advised by PRCM Advisers, LLC, a wholly-owned subsidiary of Pine River Capital Management L.P. We presently have an ‘Outperform’ recommendation on Two Harbors, which currently has a Zacks #1 Rank that indicates a short-term ‘Strong Buy’ rating.
CREDIT SUISSE (CS): Free Stock Analysis Report
FREDDIE MAC (FMCC): Free Stock Analysis Report
FANNIE MAE (FNMA): Free Stock Analysis Report
TWO HARBORS INV (TWO): Free Stock Analysis Report
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