FBR » Topics » Recent Developments

These excerpts taken from the FBR 10-K filed Mar 16, 2009.

Recent Developments

On October 23, 2008, we announced our plan to downsize the MBS portfolio in order to reduce exposure to deteriorating market conditions while at the same time generating additional cash to fund the extinguishment of long-term debt. We also announced that we have retained financial advisors to evaluate strategic alternatives for the purpose of maximizing the value of our assets and liabilities including all of the trust preferred debt. Potential strategic alternatives include the sale of the Company or the assets or the distribution of the assets to shareholders. Consistent with this strategy, during the twelve months ended December 31, 2008, we extinguished approximately $65.8 million of long-term debt at a gain of approximately $39.1 million and disposed of approximately $1.6 billion of MBS from our MBS portfolio at a net loss of approximately $108.6 million. Subsequent to December 31, 2008 and through March 13, 2009, we extinguished an additional $201.7 million of long-term debt at a gain of approximately $131.5 million and disposed of an additional $56.1 million of MBS from our MBS portfolio at a loss of $1.1 million, substantially completing the current phase of our strategy announced on October 23, 2008. In addition, FBR Capital Markets also liquidated its remaining MBS portfolio of $454.3 million and related interest rate caps and repurchase agreements, recognizing an aggregate net investment loss of $1.0 million. We also liquidated $550.0 million of U.S. Treasury bonds and extinguished related repurchase agreement borrowings, recognizing no gain or loss from the transaction.

On February 23, 2009, we announced that we have begun doing business under the name “Arlington Asset Investment Corporation” and that we will seek shareholder approval at our next annual meeting of shareholders of a proposal to amend our charter to change our corporate name from “Friedman, Billings, Ramsey Group, Inc.” to “Arlington Asset Investment Corporation.” The Company had notified the New York Stock Exchange (NYSE) of the name change and received the approval from the NYSE to change the ticker symbol to “AI” from “FBR” on February 24, 2009. The Company will issue a press release when the symbol change becomes effective.

 

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We have elected to revoke our status as a REIT effective as of January 1, 2009, in part to use the net operating loss (NOL) carry-forwards and net capital loss (NCL) carry-forwards incurred at the parent company level to offset the taxable income of our former taxable REIT subsidiaries (TRSs). At December 31, 2008, we had $391.1 million of NOL carry-forwards and $521.1 million of NCL carry-forwards. Additionally, at December 31, 2008, our former wholly-owned TRSs had $52.0 million of NOL carry-forwards and no NCL carry-forwards. Our NCL carry-forwards and NOL carry-forwards will begin to expire in 2011 and 2027, respectively (see Note 9 to our consolidated financial statements). As a result of the taxable income recognized from the extinguishment of a portion of our former TRSs’ long-term debt during the first quarter of 2009 (described above), we anticipate that the taxable income of our former TRSs during the 2009 taxable year will exceed their NOL carry-forwards and current deductions. We could not use the NOL carry-forwards incurred at the parent level to offset the anticipated taxable income of our former TRSs unless we revoked or terminated our status as a REIT. Even though revoking our REIT status will allow us to use parent-level NOL carry-forwards against our former TRSs’ taxable income, we will still have at least some tax liability for 2009 and subsequent years that is attributable to federal alternative minimum tax and state taxes.

In addition, revoking our REIT status frees us from the income, asset, distribution, and stock ownership requirements applicable to REITs, which will provide us with more flexibility in executing our business strategy. Specifically, because we are no longer required to derive a significant portion of our income from mortgage or other real estate related investments, we will have greater flexibility to invest in other types of assets as part of our principal investing activity, subject to maintaining compliance with our exclusion from regulation as an investment company under the 1940 Act. In addition, because we will no longer be subject to the REIT distribution requirement, we will have greater flexibility to retain our earnings to fund future growth. Accordingly, based on the foregoing, our Board of Directors determined that it was in the best interests of our shareholders to revoke our status as a REIT effective as of January 1, 2009.

Recent Developments


On October 23, 2008, we announced our plan to downsize the MBS portfolio in order to reduce exposure to deteriorating market conditions while at
the same time generating additional cash to fund the extinguishment of long-term debt. We also announced that we have retained financial advisors to evaluate strategic alternatives for the purpose of maximizing the value of our assets and
liabilities including all of the trust preferred debt. Potential strategic alternatives include the sale of the Company or the assets or the distribution of the assets to shareholders. Consistent with this strategy, during the twelve months ended
December 31, 2008, we extinguished approximately $65.8 million of long-term debt at a gain of approximately $39.1 million and disposed of approximately $1.6 billion of MBS from our MBS portfolio at a net loss of approximately $108.6 million.
Subsequent to December 31, 2008 and through March 13, 2009, we extinguished an additional $201.7 million of long-term debt at a gain of approximately $131.5 million and disposed of an additional $56.1 million of MBS from our MBS portfolio
at a loss of $1.1 million, substantially completing the current phase of our strategy announced on October 23, 2008. In addition, FBR Capital Markets also liquidated its remaining MBS portfolio of $454.3 million and related interest rate caps
and repurchase agreements, recognizing an aggregate net investment loss of $1.0 million. We also liquidated $550.0 million of U.S. Treasury bonds and extinguished related repurchase agreement borrowings, recognizing no gain or loss from the
transaction.

On February 23, 2009, we announced that we have begun doing business under the name “Arlington Asset Investment
Corporation” and that we will seek shareholder approval at our next annual meeting of shareholders of a proposal to amend our charter to change our corporate name from “Friedman, Billings, Ramsey Group, Inc.” to “Arlington Asset
Investment Corporation.” The Company had notified the New York Stock Exchange (NYSE) of the name change and received the approval from the NYSE to change the ticker symbol to “AI” from “FBR” on February 24, 2009. The
Company will issue a press release when the symbol change becomes effective.

 


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We have elected to revoke our status as a REIT effective as of January 1, 2009, in part to use the
net operating loss (NOL) carry-forwards and net capital loss (NCL) carry-forwards incurred at the parent company level to offset the taxable income of our former taxable REIT subsidiaries (TRSs). At December 31, 2008, we had $391.1 million of
NOL carry-forwards and $521.1 million of NCL carry-forwards. Additionally, at December 31, 2008, our former wholly-owned TRSs had $52.0 million of NOL carry-forwards and no NCL carry-forwards. Our NCL carry-forwards and NOL carry-forwards will
begin to expire in 2011 and 2027, respectively (see Note 9 to our consolidated financial statements). As a result of the taxable income recognized from the extinguishment of a portion of our former TRSs’ long-term debt during the first quarter
of 2009 (described above), we anticipate that the taxable income of our former TRSs during the 2009 taxable year will exceed their NOL carry-forwards and current deductions. We could not use the NOL carry-forwards incurred at the parent level to
offset the anticipated taxable income of our former TRSs unless we revoked or terminated our status as a REIT. Even though revoking our REIT status will allow us to use parent-level NOL carry-forwards against our former TRSs’ taxable income, we
will still have at least some tax liability for 2009 and subsequent years that is attributable to federal alternative minimum tax and state taxes.

SIZE="2">In addition, revoking our REIT status frees us from the income, asset, distribution, and stock ownership requirements applicable to REITs, which will provide us with more flexibility in executing our business strategy. Specifically, because
we are no longer required to derive a significant portion of our income from mortgage or other real estate related investments, we will have greater flexibility to invest in other types of assets as part of our principal investing activity, subject
to maintaining compliance with our exclusion from regulation as an investment company under the 1940 Act. In addition, because we will no longer be subject to the REIT distribution requirement, we will have greater flexibility to retain our earnings
to fund future growth. Accordingly, based on the foregoing, our Board of Directors determined that it was in the best interests of our shareholders to revoke our status as a REIT effective as of January 1, 2009.

STYLE="margin-top:18px;margin-bottom:0px">Available Information

You may read and copy the
definitive proxy materials and any other reports, statements or other information that we file with the United States Securities and Exchange Commission (SEC or Commission) at the SEC’s public reference room at 100 F Street, N.E., Washington,
DC 20549. You may call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by
the SEC at http://www.sec.gov. These SEC filings may also be inspected at the offices of the New York Stock Exchange (NYSE), which is located at 20 Broad Street, New York, New York 10005.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Our website address is http://www.fbr.com. This website address will be changed to www.arlingtonasset.com in the near future in connection
with our name change. We make available free of charge through our website this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as well as the annual report to shareholders and Section 16 reports on Forms 3, 4 and 5 as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the
SEC. In addition, our Articles of Incorporation, Bylaws, Statement of Business Principles (our code of ethics), Corporate Governance Guidelines, and the charters of our Audit, Compensation, Nominating and Governance and Risk Policy and Compliance
Committees are available on our website and are available in print, without charge, to any shareholder upon written request in writing c/o our Secretary at 1001 Nineteenth Street North, Arlington, Virginia 22209. Information on our website should
not be deemed to be a part of this report or incorporated into any other filings we make with the SEC.

These excerpts taken from the FBR 10-K filed Feb 29, 2008.

Recent Developments

 

Because of the continued deterioration of the non-prime mortgage market, on January 18, 2008, First NLC, our non-conforming residential mortgage loan origination subsidiary, filed a voluntary petition for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in order to effectuate an orderly liquidation of First NLC’s assets. The filing was made in the United States Bankruptcy Court for the Southern District of Florida, West Palm Beach Division. In connection with the liquidation, we also announced that we would not close the previously disclosed recapitalization of First NLC. We do not expect to recover our remaining $12 million investment in First NLC.

Recent Developments

 

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Because of the continued deterioration of the non-prime mortgage market, on January 18, 2008, First NLC, our non-conforming residential mortgage loan
origination subsidiary, filed a voluntary petition for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in order to effectuate an orderly liquidation of First NLC’s assets. The filing was made in the United States
Bankruptcy Court for the Southern District of Florida, West Palm Beach Division. In connection with the liquidation, we also announced that we would not close the previously disclosed recapitalization of First NLC. We do not expect to recover our
remaining $12 million investment in First NLC.

This excerpt taken from the FBR 10-K filed Mar 1, 2007.

Recent Developments

On February 6, 2007, we appointed J. Rock Tonkel, Jr., previously President and Head of Investment Banking, as our President and Chief Operating Officer, where he will oversee our principal investment portfolio and our First NLC subsidiary. Richard J. Hendrix, previously our President and Chief Operating Officer, will be responsible, as President and Chief Operating Officer of FBR Capital Markets Corporation, for our investment banking, institutional brokerage and research, and asset management businesses. Messrs. Tonkel and Hendrix will continue to report to Eric F. Billings, Chairman and Chief Executive Officer of both our company and FBR

 

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Capital Markets and, together with Mr. Billings, both will continue to be members of our Office of the Chief Executive. Mr. Tonkel remains an executive officer of FBR Capital Markets and Mr. Hendrix remains an executive officer of our company.

On February 9, 2007, we acquired certain assets and a team of more than two dozen investment banking professionals from Legacy Partners Group, LLC, an independent investment banking and advisory firm, specializing in providing merger and acquisition advisory services and raising private capital. We believe this is a significant step in implementing our strategy to build out our capital markets platform.

This excerpt taken from the FBR 10-K filed Mar 16, 2006.

Recent Developments

 

We announced on December 21, 2005 our decision to reposition our MBS portfolio to eliminate a negative cash spread on much of the portfolio and to be in a position to take advantage of reinvestment opportunities presented by the changing environment over the coming quarters. During the first quarter of 2006, we completed the sale of mortgage-backed securities valued at $6.7 billion, substantially completing the liquidation phase of the portfolio repositioning. We intend to reinvest patiently the net proceeds from the $6.7 billion liquidation throughout 2006.

 

This excerpt taken from the FBR 10-K filed Mar 16, 2005.

Recent Developments

 

Institutional Fixed Income and MBS Trading Business

 

On January 6, 2005, we created our institutional fixed income and MBS trading business when a team of Freddie Mac professionals joined our company. This new team has joined our existing Asset-Backed Securities trading unit.

 

Non-conforming Mortgage Loan Business

 

On February 16, 2005, we completed the acquisition of First NLC, a non-conforming residential mortgage loan originator, for $101 million, paid with a combination of cash and our stock. Non-conforming residential mortgages include loans to borrowers who do not meet the conforming underwriting guidelines of Fannie Mae, Freddie Mac and Ginnie Mae because of higher loan-to-value ratios, the nature or absence of income documentation, limited credit histories, high levels of consumer debt, past credit difficulties or other factors. Non-conforming loans also include loans to more creditworthy borrowers where the size of the loan exceeds underwriting guidelines. Loans are originated primarily based upon the borrower’s willingness and ability to repay the loan and the adequacy of the collateral. First NLC currently operates in 38 states and originates mortgage loans through both wholesale and retail channels, with a current origination run rate of approximately $4 billion annually. First NLC is a part of our principal investment group but operates as a wholly-owned subsidiary. We anticipate that the First NLC acquisition will help us to expand and add flexibility to our mortgage loan business by giving us the ability to originate, price, portfolio and sell non-conforming mortgage loan assets based on market conditions. See “Risks Related to our Residential Mortgage Loan Origination Business” at page 36.

 

We expect to hold in our portfolio a significant portion of the loans that First NLC originates and finance those loans through the issuance of asset-backed securities. The financing of these loans with asset-backed securities will significantly reduce the interest rate risk of these assets. We are also exploring the possibility of employing loss mitigation and credit enhancement strategies for these assets. The strategies we are considering include private mortgage insurance. Our decision of whether or not to employ these strategies will depend on, among other things, our assessment of the loss history of these assets and the cost effectiveness of employing various strategies.

 

In 2005, we anticipate redeploying a significant amount of our equity capital currently deployed in our agency backed MBS investments into non-conforming mortgage assets for investment purposes. The amount of capital deployed will vary from time to time and will depend on our ongoing evaluation of risk adjusted returns in our mortgage-backed securities, non-conforming mortgage loan and merchant banking businesses. We will acquire non-conforming mortgage assets through First NLC and from unaffiliated third parties.

 

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