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American Capital Agency Corp. Message Board

  • ritajandj ritajandj Jun 19, 2012 2:05 PM Flag

    Help for a novice.

    If there is anyone patient enough to explain what all this means. When is an SPO offered and why? How does one know when it is offered? How long is it offered? How is it bought? Add anything else I don't know to ask. God bless the patient soul who answers. :-)

    I know very little but am very willing to learn.
    Thank you in advance!

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    • yourbestfriendintheworld yourbestfriendintheworld Jun 19, 2012 3:21 PM Flag

      AGNC, being of a certain size and having done a number of previous offerings, is what's known as a "well-known seasoned issuer", or WKSI, a status that entitles it to announce an offering at the moment it's issuing the shares. Smaller, less well-known, less cognizant of the rules companies are required to give a week or more of formal warning to the public, so the public and the SEC can pore over the documentation and ask questions. For the WKSI and its potential investors that's just painful and unnecessary, so they drop the shares on the street and nail the prospectus to the door and run like rabbits to wait for the cash to roll in.

      AGNC's modus operandi is to make an unpriced announcement after close, then get final pricing from the underwriters (investment bankers and big brokers), then announce pricing in the morning as the shares are being passed through the underwriters to the brokers and to their favored clients. Those clients turn around and sell the shares to the secondary market, i.e., the public markets, i.e., you & me. Since the clients are few and we are legion, and AGNC is a popular and profitable thing, everyone in that chain makes a profit, paid out of the difference between the price we're paying in the market and the formal price on the offering, which the underwriter pays to AGNC.

      There's also this thing called "overallocation." The underwriters actually sell 115% of the offering, meaning they're short 15% immediately. If the market price threatens to drop below the offering price, the underwriters start to cover their short, which props the price up. If they cover their whole 15% short, they stop, and let the price drop again. If, however, there is any short left over, they buy to cover that from AGNC directly. Generally, with AGNC, the price never gets near the offering price, the public ends up with all 115% of the shares, the underwriters remain 15% short, and they buy the whole cover from AGNC. AGNC ends up with 115% of the offering in cash. In reality, that's 100% of what they intended to sell, but playing the numbers this way makes the underwriters' clients more confident they won't get stuck selling at a loss.

      The offering price is negotiated between AGNC and the underwriters. The underwriters auction it beforehand to their clients, who know what AGNC's book value is, and what the current market price is, and how much people want the shares. They won't bid above market because they want a profit. They won't bid below the current BV/share because they know the company won't make the deal. The result is the market knows the offering will be priced below the current market price. Or, at least, anyone paying attention knows that.

      Everyone still paying attention?

      So, now we know what a SPO is. Only question is when. It's been a while. Longer than usual. And the market is clearly hot for mREITs. If you owned an mREIT, what would you do?

      • 1 Reply to yourbestfriendintheworld
      • sell yesterday in my tax advantaged account, capturing a nice run up after the dividend announcement. about 70 cents, having missed the absolute high(dangit). enter a GTC limit for 31.50 to catch the SPO, and use teh extra 2 bucks per share or so for an early dividend and invest it in something. maybe even more AGNC.

        unfortunately, my taxable shares have to sit there and be tortured for a couple of weeks.

    • An SPO is a Secondary Public Offering. SPO are ways that a company, such as AGNC, can raise money by selling additional shares of stock that it recently creates. Then AGNC can use that money to buy more MBS or mortgage backed securities, which mean greater revenue for the company and increased book value for the investor.

    • SPOs are usually shortly after the Ex-Date. They are used to expand the company and to raise more capital for future investments.

      You should keep a close eye on AGNC's website: for news about SPOs, Dividends and Stock Holder Meetings.

      Never bought into an SPO. Call your broker to see if they have the ability to get you shares at SPO prices.

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