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WIKI ANALYSIS
CAPITALSOURCE (CSE) is a diversified financial lending company located in Bethesda, MD. The company has three general areas of expertise, as they focus on value added areas and avoid commodity lending areas. The company took a REIT election and pay the majority of earnings in the form of dividends. But they do not pay taxes, which gives them a pricing advantage. CSE can lend money at lower yields than competition and garner above average profitability. Since they do not retain much in the way of earnings, they rely on three sources of capital.
On November 29, 2007, shareholders of TierOne Corp. voted in favor of being acquired by Capital Source, but the transaction could be subject to further price negotiations.[1]
Lines of Business
- Health Care. One key example is when hospital recievables are used as collateral to secure a loan from CSE. They lend in many segments of the health care industry
- Structured finance
- LBO financing. This is the highest source of prepayment fees as the borrower usually sells the company and repays the loan before the term is concluded. Such fees are lumpy and hard to predict in general. Private equity companies often utilize LBO financing when acquiring companies for investment.
Sources of Funds
- Secured lines of credit is a distinguishing feature as most lenders have unsecured credit lines.
- The public markets via issuing bonds, preferred stock, common stock, etc.
Also see Credit cycle vs. economic cycle.
Trends and forces
Acquisitions
One of the main concerns with CSE until now is that they have been too focused on its core competencies. But with the acquisition of the Fremont branches, CapitalSource is looking less a mortgage REIT and more like, well, Countrywide Financial (CFC). In fact, this deal reminds me a bit of the IndyMac (IMB) restructuring from a REIT to a thrift back in 1999 after liquidity concerns forced IMB to seek new sources of funding in order to grow the business. The company commented on the directio : "Actually one thing we can probably comment on is our agency portfolio, which a lot of people know has been driving our REIT optimization -- REIT compliance. We have actually been able to downsize that because we had overinvested in that. That portfolio is probably now down to $2.5 billion. And we think it is going to go smaller because we don't need quite as many assets. So managing the REIT structure right now has not been that difficult for us. So this doesn't change any of that."
References
- ↑ CSE
References
1. http://www.omaha.com/index.php?u_page=1200&u_sid=10197009
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