Dynex Capital (DX) Resecuritizes CMBS Portion of Portfolio
Dynex Capital, Inc. (NYSE: DX) announced today that it has successfully resecuritized a portion of its commercial mortgage backed securities ("CMBS") portfolio. As announced in its November 23, 2009 press release, the Company acquired the rights to call up to approximately $182.5 million in CMBS from its purchase of a joint venture interest previously owned by a third party. The CMBS are collateralized by seasoned commercial mortgage loans originated by the Company from 1996 to 1998. In December 2009 the Company called $111.3 million in 'AAA'-rated CMBS bonds with a weighted average coupon of 7.97% and resecuritized the bonds as further discussed below. As a result of the resecuritization transaction, the Company has added higher yielding investments to its portfolio at a favorable net spread to its funding costs.
The Company also announced that it has recently become eligible to borrow under the TALF program and is currently investigating opportunities to acquire additional investments in CMBS financed through TALF.
Thomas B. Akin, Chairman, stated, "The resecuritization transaction was a very important transaction for us, and we believe that it will be of significant value for our shareholders. These are high quality CMBS bonds that were originated by Dynex in 1998 and have substantial credit protection embedded within the deal structure. We elected to retain a majority of the bonds in this transaction given the attractive net interest spread they currently offer compared to alternative investment opportunities. The bonds also provide diversification to our current asset mix and are complimentary to our short duration high quality investment strategy. The improvement in market prices and liquidity for CMBS over the past six months has given us comfort holding these bonds in our portfolio. However, we may elect to sell some of the retained bonds in the future depending on market conditions and use the proceeds to repay the repurchase agreement financing."
Resecuritization Transaction Details
As noted above, in December 2009 the Company called $111.3 million in 'AAA'-rated CMBS bonds with a weighted average coupon of 7.97%, and financed the call of the CMBS bonds through a new securitization. The new securitization trust issued two new 'AAA'-rated tranches of non-recourse debt collateralized by the $111.3 million of CMBS bonds. The first tranche has a current notional balance of $65.7 million, an estimated weighted average life of 2.6 years, and a coupon of 3.64% excluding transaction costs. The second tranche has a current notional balance of $45.6 million, an estimated weighted average life of 5.8 years, and a coupon of 6.18% excluding transaction costs. The Company has initially retained for its investment portfolio all of the first tranche and $30.6 million of the second tranche, totaling $96.3 million of the new securitization trust bonds. Of the bonds retained by the Company, $86.3 million are pledged to support repurchase agreement borrowings of $73.3 million. The interest rate on the repurchase agreement borrowings currently adjusts monthly based on a spread to LIBOR. The initial interest rate on these borrowings was 1.73%. At December 31, 2009, the overall net interest spread to funding costs on the CMBS bonds was 5.49% excluding transaction costs.
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