American Capital Agency IPO: Betting on the Future of Residential Mortgages

American Capital Agency (AGNC) is a newly formed REIT that plans to invest in mortgage securities.

All quotations are from the company’s most recent S-11 filing with links provided.

Business Overview (from prospectus)

American Capital Agency Corp. is a newly-organized Delaware corporation formed to invest exclusively in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity. We will be externally managed and advised by American Capital Agency Management, LLC, a subsidiary of a wholly-owned portfolio company of American Capital Strategies, Ltd., the only private equity fund and the largest alternative asset management company in the S&P 500. With $19 billion in capital resources under management, as of December 31, 2007, American Capital Strategies, Ltd., is the largest U.S. publicly-traded alternative asset manager. We will elect to be taxed, and intend to qualify, as a real estate investment trust for federal income tax purposes.

Offering: 12.5 million shares at $20 per share. Net proceeds of approx. $283.2 million to be used to build a leveraged investment portfolio comprised exclusively of agency securities.

IPO Underwriters: Citi (C), Merrill Lynch & Co. (MER)

Financial Highlights:

We are a newly-organized, Delaware corporation formed to invest exclusively in agency securities. We intend to qualify as a REIT for federal income tax purposes and will elect to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ending December 31, 2008. We generally will not be subject to federal taxes on our income to the extent that we annually distribute our taxable income to our stockholders and maintain our intended qualification as a REIT.

We will be externally managed and advised by American Capital Agency Management, LLC, a wholly-owned subsidiary of American Capital, LLC, which is a wholly-owned portfolio company of American Capital. American Capital is the only private equity fund and the largest alternative asset management company in the S&P 500. With $19 billion in capital resources under management, as of December 31, 2007, American Capital is the largest U.S. publicly-traded alternative asset manager. Members of American Capital’s senior management and its RMBS investment team will serve as our and our Manager’s officers. We will not have any employees.

Competitors:

Our success will depend, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs. In acquiring agency securities, we will compete with mortgage REITs, mortgage finance and specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities. In addition, there are numerous mortgage REITs with similar asset acquisition objectives and others may be organized in the future. The effect of the existence of additional REITs may be to increase competition for the available supply of mortgage assets suitable for purchase. Additionally, our investment strategy will be dependant on the amount of financing available to us in the repurchase agreement market. Our investment strategy will be adversely impacted if we are not able to secure financing or not on favorable terms.

Resources:

• Company website (Currently in development)
• Online roadshow
• Patrick Harden: Mortgage REITs Rise From Ashes Feb. 13, 2008
• Finance, Investments 'n Trading: American Capital IPO Review
• Housing Prices - Housing Bubble: At Hatteras, a REIT Bet That the Mortgage Mess Has a Silver Lining

Comments

[syndicat]

Leverage is good, right? This should be a closed end fund
but it has to register as a REIT because the proposed
leverage exceeds that which is allowed for funds.

Wait a month (Or however long the brokers have to hold it to keep the sales commission) and then buy it, probably at $19.

Second mouse gets the cheese.