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American Capital Agency (AGNC) announces a 50M share secondary offering. The company expects to...

American Capital Agency (AGNC) announces a 50M share secondary offering. The company expects to use net proceeds from the offering to acquire additional agency securities as market conditions warrant and for general corporate purposes. BAML, Citigroup, Credit Suisse, Goldman, Sachs, JPMorgan and Morgan Stanley are all joint book-running managers. Shares -3% AH.
Comments (28)
  • ControlledRisk
    , contributor
    Comments (269) | Send Message
     
    Weren't they just doing buybacks?
    27 Feb 2013, 06:14 PM Reply Like
  • Seeker4
    , contributor
    Comments (94) | Send Message
     
    ControlledRisk: I'm no analyst by any stretch, just a vaugely informed retail investor. That be as it may, weren't they just doing buybacks and previously a secondary offering? It appears that they are just trying to 'keep the ball in the air' (read: liquidity).
    27 Feb 2013, 06:27 PM Reply Like
  • ControlledRisk
    , contributor
    Comments (269) | Send Message
     
    Never mind, figured out the strategy. Book value = $31.66, if stock is below book, buyback, if stock is above book, sell more shares. Seems like a brilliant way to mint money, so why does the stock tank with the announcement of something that adds value?
    27 Feb 2013, 06:33 PM Reply Like
  • Pinkrabbit
    , contributor
    Comments (186) | Send Message
     
    In my view, the uninformed investor sees the issue of stock as a dilution of the EPS resulting in lower dividends. They may fail to realize that REIT's can only expand their business by issuing new shares since they cannot retain earnings like other businesses to increase their holdings.

     

    Like you I view the issue of new stock as a good thing because it portends future earnings growth. Let others sell their stock. As for me, I buy on the dips when REITs issue new shares.
    27 Feb 2013, 07:21 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2604) | Send Message
     
    ControlledRisk,

     

    I do not think the stock tanked, the after hours 3% drop is the anticipated public offering price that will be announced tonight or tomorrow morning.

     

    LONG: AGNC and lovin it!!!
    27 Feb 2013, 07:27 PM Reply Like
  • Scottonthespot
    , contributor
    Comments (27) | Send Message
     
    I generally hate it when companies dilute their shares, especially when - as it often turns out - insiders get a special price that retail investors don't. I'm thinking of selling.
    27 Feb 2013, 06:54 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2604) | Send Message
     
    scottonthespot,

     

    Since AGNC has been doing public offering since their IPO, 3 in 2009, 3 in 2010, 4 in 2011 and 2 in 2012, why does this one bother you?

     

    Their strategy seems to be working just fine. If you want to sell, sell, but I would hope you can explain why this time is different then the past.
    27 Feb 2013, 07:25 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2542) | Send Message
     
    Selling on the offering has been historically the worst thing you can do, unless you of course want to miss an opportunity. I wrote about the fact the stock was higher 1 month later after 3 equity raises almost 2 years ago, and I'd wager that its still true today. http://seekingalpha.co...
    27 Feb 2013, 10:59 PM Reply Like
  • Scottonthespot
    , contributor
    Comments (27) | Send Message
     
    Well, on that basis, it has under-performed, during a period when the market has more than doubled. So yes, I think the multiple dilutions have hurt the stock. Of course, the 15.25% (soon to be 16%+?) dividend keeps people in the stock, treating it more-or-less like a risky high yield bond, and maybe all this capital raising is how they can keep their dividend so high - money is fungible, after all - but if that ever cracks, watch out below.
    28 Feb 2013, 09:15 AM Reply Like
  • fkevin1029
    , contributor
    Comments (28) | Send Message
     
    I concur with Pinkrabbit: recent share issuances by this company have immediately or in very short order accreted book value, and I'd by surprised if the same didn't occur now. Wilkus and Kain have demonstrated remarkable navigation skills in recent choppy waters, and I expect the new money, after being levered 7 or 8 times, to produce additional earnings and thus to support the dividends.

     

    Dividends#1 is also correct: this issuance can't surprise anyone with a working knowledge of the company's history.

     

    I hope others sell the stock off soundly tomorrow morning so I can buy more AGNC at a lower price.
    27 Feb 2013, 08:32 PM Reply Like
  • RichardWolf1
    , contributor
    Comments (10) | Send Message
     
    G_d Bless AGNC management! They keep doing something right....AGNC for the long term. Love the dividends and increasing book value. What an investment.
    27 Feb 2013, 09:58 PM Reply Like
  • Seeker4
    , contributor
    Comments (94) | Send Message
     
    Increased liquidity (more cash) presents a lot of options for AGNC. Many investors view this move as at least a short-term dilution to EPS, hence the -3% drop in price, but I don't quite get why seasoned investors or funds would participate in the sell off.
    27 Feb 2013, 10:06 PM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Undoubtedly the question of Why the new issue? will be asked and answered at the 6 March presentation, which will be webcast from agnc.com.

     

    In general, though, an mREIT new stock issue is accretive, since it goes directly into assets. It it were not accretive, then you would see a lowering of book value per share.

     

    mREITs must distribute 90% of their earnings and so use new issues to raise capital. mREITs are subject to the imperative of all capitalist enterprises, indeed of all organisms: grow or die.

     

    I regard an AGNC/MTGE new issue as a buying opportunity.
    28 Feb 2013, 12:20 AM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Sorry, for restating what's already been pointed out before. Just adding a vote. It should be noted that AGNC still has a little over a third of NLY's outstanding, though of course NLY has been around a little bit longer.
    28 Feb 2013, 12:46 AM Reply Like
  • Dividends#1
    , contributor
    Comments (2604) | Send Message
     
    Hi Jack,

     

    Can you explain what you mean by AGNC still has a little over a third of NLY's outstanding, though of course NLY has been around a little bit longer.?
    28 Feb 2013, 06:56 AM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Oops, answered you below, under the wrong post. Here it is again:

     

    Just trying to offer some perspective. Pre-new issue, AGNC has about 340M shares outstanding, while while NLY has around 947. But NLY has been around some 10 years longer than AGNC, presumably issuing new shares along the way. ("A little bit longer" was facetious.)
    28 Feb 2013, 12:24 PM Reply Like
  • teeth26
    , contributor
    Comments (58) | Send Message
     
    This is a good time to buy as the price will go up again toward the ex dividend date. Consider any substantial price drop on this stock as a buying opportunity.
    28 Feb 2013, 02:10 AM Reply Like
  • jamesefretty
    , contributor
    Comments (3) | Send Message
     
    This kind of enterprise is valued primarily on book value. The per share book value is in fact very close to the market price. AGNC's balance sheet is pretty straight-forward; for example, no intangible assets and, I think, no overvalued assets that are booked on a cost basis. So if the new shares are sold at approximately the current market price, dilution of present shareholders should not be an issue. The main question becomes whether management can deploy the new cash successfully, i.e., profitably, so per share book and/or dividends can increase (taking into account the new shares). Leverage is reduced by the issuance of new shares, and enables further leverage; management has shown it can successfully manage this challenging ingredient. So if you believe in management, the new offering is a positive, and actually an essential extension of its strategic business plan. I will hold.
    28 Feb 2013, 02:29 AM Reply Like
  • RonBiend
    , contributor
    Comments (8) | Send Message
     
    Stock down 3%? Time to buy more.
    28 Feb 2013, 02:54 AM Reply Like
  • luna1344
    , contributor
    Comments (4) | Send Message
     
    Personally I am OK with holding AGNC. I have been holding onto a naked PUT at a strike of $32 that I sold for Jan 2014 for $2.20. I'm OK with it being exercised anywhere near $32.
    28 Feb 2013, 04:55 AM Reply Like
  • coininvestor1943
    , contributor
    Comments (3) | Send Message
     
    What special price are insiders getting?
    28 Feb 2013, 05:03 AM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Just trying to offer some perspective. Pre-new issue, AGNC has about 340M shares outstanding, while while NLY has around 947. But NLY has been around some 15 years longer than AGNC, presumably issuing new shares along the way. ("A little bit longer" was facetious.)
    28 Feb 2013, 12:01 PM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Sorry, the above replied to wrong post.

     

    To your question, insiders will be at the head of the line to get the new issue. Most retail investors will get the crumbs. Last time I asked for a few thousand and got a few hundred.
    28 Feb 2013, 12:22 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2604) | Send Message
     
    Jack,

     

    Thanks for your reply.

     

    Now, another question, when you say insiders will be at the head of the line to get the new issue and retail investors will get the crumbs, how does that come about, when I can buy AGNC this morning at $31.50 -31.70 or so, maybe an average price of 31.60 which is what I calculated was the public offering price. I divided 50M into 1.58B and came up with 31.60. I think I got that right.

     

    Also, I have noticed in the past that since the underwriters can buy another 7.5M shares af AGNC for the next 30 days at 31.60, the price will invariably go higher and then the shares will be bought at 31.60, keeping the price stable for the next 30 days.

     

    If, the big banks (underwritters) buy AGNC at 31.60, they must think it is a good buy, good value.

     

    So, how do the insiders get it cheaper then 31.60? What am I missing?
    28 Feb 2013, 12:58 PM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    They won't get the shares at a cheaper price, but if they get them directly from the underwriters rather than from the open market, then they get them commission-free. So they get that bump, which adds up on big blocks.
    28 Feb 2013, 01:21 PM Reply Like
  • AztecSC
    , contributor
    Comment (1) | Send Message
     
    Could they be using some of these proceeds to cover dividends that are not covered by earnings so as to keep payouts stable??
    28 Feb 2013, 05:05 AM Reply Like
  • Jack Rice
    , contributor
    Comments (844) | Send Message
     
    Well, this is inevitable, since 90% of additional taxable income generated by the additional capital will be distributed. But isn't this the purpose of all new issues that are accretive (as opposed to dilutive, i.e. to capitalize expenditures)?

     

    Speaking of capitalize expenditures, yes, some of the new capital raised will eventually go to that, since management fees, paid to a subsidiary of ACAS, will take a slice of that new income, so that not every dollar generated by the new issue will make it to the bottom line. In that way the new issue will be incrementally dilutive.
    28 Feb 2013, 12:18 PM Reply Like
  • dzzv10
    , contributor
    Comment (1) | Send Message
     
    because the secondary offering has to come at a price significantly below close in order to entice buyers.
    28 Feb 2013, 05:06 AM Reply Like
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