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WIKI ANALYSIS
Chimera Investment Corporation (NYSE:CIM) is a specialty finance company and investment company. The primary focus of Chimera is real estate backed securities. The company is externally managed by Annaly Capital Management (NLY).
Trends and Forces
Mortgage backed leveraging problems
Although the Company had reported leverage of just 0.5 to 1 at 12/31/07, the calculation excluded a $750 million payable for MBS, which was resolved at the end of January, when CIM entered into a $500 million repo facility with CSFB and a $350 million repo facility with Deutsche Bank -- levering up four-fold in the process just as competitor America First Mortgage Investments (MFA) was selling assets to de-lever its balance sheet. The agency-backed and AAA markets dislocated again, and Chimera's repos have created a liquidity problem for the newly-formed company. Chimera held cash and cash equivalents of just $6.0 million at December 31, 2007, and warned in its 10-K that: An increase in prepayment rates substantially above our expectations could cause a temporary liquidity shortfall due to the timing of the necessary margin calls on the financing arrangements and the actual receipt of the cash related to principal paydowns.
Bank Repurchase agreements
Chimera has had to amend its repurchase agreement with Deutsche Bank twice since initiating it in January to bring the liquidity covenant down to $40 million from $100 million. For this, it has had to agree to:
- Provide daily liquidity reports through April 15, 2008
- Provide mark to market positions and advance rates with respect to all loans and securities
In addition, Chimera agreed to allow DB the right to act as the lead underwriter in connection with the next securitization or other similar public or private pass-through disposition of any Loan sponsored by Seller or an Affiliate thereof, for a market-rate fee.
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