Salary Bump

Call me a cynic.  It fits.

When I heard about the Annaly secondary last night, I estimated $1.2 billion in additional paid-in capital from the 60 million shares and 15% “greenshoe.”

Today comes word that the deal is done, and that the stock went out at $17.60.  That’s a decent haircut off yesterday’s trading price, about equal to its quarterly dividend.

The company got a lot of good press over the past week or two, including several pieces in the general business press.  It was up about 2% over the four days since July 7th, and the new issue turned that into a 2% loss.

Merrill Ross sent me the flash report this morning that based its analysis on a “guesstimated” offering price of $17.70.  Once underwriting expenses and commissions are removed, that would translate into $1.15 billion of new capital at the $17.70 price.

Since they placed it all, I am pretty confident that the “greenshoe” will be exercised, since the dealers get to buy with a nice discount, and the option is good for 30 days on another 9 million shares.

Merrill estimates that the deal will be neutral as to book value per share, netting them (adjusted) $16.70 per share, which is close to the $16.80 per share that she expects they’ll announce as the Q2 book value.

For years now, Annaly has had a unique way to define the top few people’s salaries.  They use the equity capital under management, and multiply by 20 basis points per annum.

This secondary will probably lower earnings per share a bit this third quarter since the new cash won’t be deployed until the second half of the quarter.  They can, of course, buy MBS “forward,” so the margin is locked in today, though not earned until the purchases are completed later in the quarter.

I’m figuring Mike and Wellington will each get salary increases of a million dollars or so from this new capital.   That’s only 5%.




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