Chimera Learns Painful Leverage Lesson

The initially successful Chimera Investment Corp. (CIM), which came public back in November, is having to admit they may have bitten off more than they can chew.

I originally posited in March that Chimera was quietly struggling to stay afloat after levering up at just the wrong time -- levering up four-fold just as competitor MFA Mortgage (MFA) was selling assets to de-lever its balance sheet.

After torching MFResidential's planned IPO, the poor conditions in the non-agency RMBS market chopped into Chimera, who slashed its quarterly dividend by 37.5%.

Matthew Lambiase, CEO and President of Chimera, commented on the dividend situation thusly:

 

Specifically, conditions compelled us to adjust our ramp-up pace and run our leverage at a more defensive level as we headed into the second quarter.

 

In other words, maybe that $500 million repo facility with CSFB and a $350 million repo line with Deutsche Bank back in January wasn't such a good plan.

To be fair, Chimera did manage to complete a $619.7 million securitization, a long-term financing transaction whereby it securitized its then-current inventory of mortgage loans. Perhaps a lesson well learned.

Disclosure: none