Item 8.01. Other Events
On May 31, 2016, Chimera Investment Corporation (the “Company”, “we”,
“us”), through a wholly-owned subsidiary, acquired and simultaneously
securitized seasoned residential mortgage loans with an unpaid principal
balance of approximately $3.5 billion. The mortgage loans were acquired
from an unaffiliated financial institution and have similar credit
characteristics to the mortgage loans underlying the CIM 2016-1
securitization completed on April 29, 2016.
The mortgage loans were securitized in two identical transactions: CIM
2016-2 and CIM 2016-3. Securities with an aggregate balance of
approximately $3.0 billion were sold in a private placement to
institutional investors. The senior securities issued by the
securitizations represented approximately 70% of the respective capital
structures and had an initial coupon of 2.94%. We retained subordinate
interests in securities issued in the securitizations, including the
eligible horizontal residual interests, with an aggregate balance of
approximately $537 million. Chimera also retained an option, with
respect to each securitization, to call the related outstanding notes of
such securitization at any time beginning in May 2020. We funded the
purchase of the retained interests with available cash, the proceeds
from the sale of approximately $1.9 billion, by principal balance, of
Agency mortgage-backed securities, and recourse financing. As a result
of these transactions and the previously announced CIM 2016-1
securitization, we expect our total leverage to increase from 4.0:1 as
of March 31, 2016 to 5.2:1 and our total recourse leverage to decrease
from 2.6:1 as of March 31, 2016 to 2.3:1. Substantially all of the
retained interests in the securities in CIM 2016-1, CIM 2016-2, and CIM
2016-3 are subject to the holding requirements under the credit risk
retention rules. In addition, we expect to realize aggregate expenses
in the second quarter related to these three transactions of
approximately $13 million. We also expect our total GAAP assets to
increase by a net of approximately $3 billion, after the sale of the
Agency mortgage-backed securities, as the mortgage loans underlying
these three securitizations will be consolidated on our balance sheet.
* * *
On May 31, 2016, the Company issued a press release announcing the two
securitizations. A copy of the press release is being furnished hereto
as Exhibit 99.1.
Disclaimer
This filing includes “forward-looking statements” within the meaning
of the safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Actual results may differ from
expectations, estimates and projections and, consequently, readers
should not rely on these forward-looking statements as predictions of
future events. Words such as “expect,” “target,” “assume,” “estimate,”
“project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,”
“will,” “could,” “should,” “believe,” “predicts,” “potential,”
“continue,” and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements involve
significant risks and uncertainties that could cause actual results to
differ materially from expected results, including, among other things,
those described in our Annual Report on Form 10-K for the year ended
December 31, 2015, and any subsequent Quarterly Reports on Form 10-Q,
under the caption “Risk Factors.” Factors that could cause actual
results to differ include, but are not limited to: the state of credit
markets and general economic conditions; changes in interest rates and
the market value of our assets; the rates of default or decreased
recovery on the mortgages underlying our target assets; risks associated
with our securitization transactions, including increases in our
leverage; the occurrence, extent and timing of credit losses within our
portfolio; the credit risk in our underlying assets; declines in home
prices; our ability to establish, adjust and maintain appropriate hedges
for the risks in our portfolio; the availability and cost of our target
assets; our ability to borrow to finance our assets and the associated
costs; changes in the competitive landscape within our industry; our
ability to manage various operational risks and costs associated with
our business; interruptions in or impairments to our communications and
information technology systems; our ability to acquire residential
mortgage loans and successfully securitize the residential mortgage
loans we acquire; our ability to oversee our third party sub-servicers;
the impact of any deficiencies in the servicing or foreclosure practices
of third parties and related delays in the foreclosure process; our
exposure to legal and regulatory claims; legislative and regulatory
actions affecting our business; the impact of new or modified government
mortgage refinance or principal reduction programs; our ability to
maintain our REIT qualification; and limitations imposed on our business
due to our REIT status and our exempt status under the Investment
Company Act of 1940.
Readers are cautioned not to place undue reliance upon any
forward-looking statements, which speak only as of the date made.
Chimera does not undertake or accept any obligation to release publicly
any updates or revisions to any forward-looking statement to reflect any
change in its expectations or any change in events, conditions or
circumstances on which any such statement is based. Additional
information concerning these and other risk factors is contained in
Chimera’s most recent filings with the Securities and Exchange
Commission (SEC). All subsequent written and oral forward-looking
statements concerning Chimera or matters attributable to Chimera or any
person acting on its behalf are expressly qualified in their entirety by
the cautionary statements above.
Readers are advised that the financial information in this filing is
based on company data available at the time of this presentation and, in
certain circumstances, may not have been audited by the Company’s
independent auditors.