AGNC news: American Capital down after starting offering

American Capital down after starting offering

AMERICAN CAPITAL AGENCY CORP.

NEW YORK | Fri May 14, 2010 8:53am EDT

NEW YORK (Reuters) - Shares of American Capital Agency Corp (AGNC.O) fell 6.9 percent to $25.65 in premarket trading on Friday, a day after the company commenced a public offering of common stock.

(Reporting by Ryan Vlastelica; Editing by Theodore d'Afflisio)

Article link: http://www.reuters.com/article/idUKTRE64D34P20100514?type=companyNews

Here is the press release courtesy of www.PRnewswire.com:

AGNC Announces Pricing of Public Offering of Common Stock

 

BETHESDA, Md., Dec. 9, 2010 /PRNewswire-FirstCall/ -- American Capital Agency Corp. (Nasdaq: AGNC) (“AGNC” or the “Company”) announced today that it priced a public offering of 8,000,000 shares of common stock for total net proceeds of approximately $219 million. Citi and Deutsche Bank Securities acted as underwriters for the offering.  In connection with the offering, the Company has granted the underwriters an option for 30 days to purchase up to an additional 1,200,000 shares of common stock to cover overallotments, if any. The offering is subject to customary closing conditions and is expected to close on December 14, 2010.

AGNC expects to use the net proceeds from this offering to acquire additional agency securities as market conditions warrant and for general corporate purposes.

To read the whole press release go here: http://www.prnewswire.com/news-releases/agnc-announces-pricing-of-public-offering-of-common-stock-111598429.html

Let’s do some simple back of the envelope math.  The press release mentions that AGNC expects $219 million in new capital will be raised by the new offering.  $219 million divided by 8 million shares = $27.38/share.  If the full 9.2 million shares are purchased then the per share price drops to $23.48/share.

No wonder AGNC dropped from $29.50/share at the close on December 8^th, to $25.65 in pre-market trading.  At 9:42 am MST it has climbed to $28.52.

So how many agency securities can AGNC buy with $216 million dollars in new capital.  AGNC maintained an average leverage level of 8.5x in the third quarter of 2010 according to their latest 10-K quarterly report.  If we apply that leverage level to the amount of new capital to be leveraged we get:

$216 million times 8.5 equals $1.836 billion dollars in new agency securities.

Their portfolio size was $9.7 billion at the end of the third quarter 2010.  Add the $1.836 billion in new agency securities and I expect their portfolio to grow to $11.536 billion by the end of the fourth quarter 2010.  I also expect AGNC interest rate spread to tighten.  If I use the tighter interest rate spread of 2.12% from 2009, then I get a total revenue of $244.6 million for four quarters.  Divide that number by four to represent expected net income in the 4^th quarter 2010 and you get: $61,140,000 per quarter net income.

According to Google Finance there are 52.19 million AGNC shares outstanding.  If AGNC keep its dividend of $1.40/share, then it will need to pay a $73,066,000 dividend payment in the 4^th quarter of 2010.  That is unlikely to happen because net income in the 3^rd quarter was $60.0 million with a $9.7 billion portfolio and an interest rate spread of 2.21%.  The question remains whether AGNC can grow the portfolio and the interest rate spread sufficiently to generate enough income to keep paying that $1.40/share dividend.  I don’t think they can do it.  Time will tell.

Be seeing you!