Chimera Investment Corporation Sponsors Residential Mortgage Loan Securitization

Rhea-AI Summary

Chimera Investment (NYSE: CIM) has sponsored a $468.1 million securitization of seasoned reperforming residential mortgage loans, named CIM 2024-R1. The company sold $351.8 million in senior securities to institutional investors, representing 75.15% of the capital structure. Chimera retained $116.3 million in subordinate interests and certain interest-only securities. The securitization features a 75.15% advance rate with a 5.7% weighted average cost of debt. Chimera also retained an option to call the securitized mortgage loans when their unpaid principal balance reaches 30% or less of the initial balance. The securitization is rated by Fitch and Morningstar DBRS.

Positive

• Successful securitization of $468.1 million in reperforming residential mortgage loans
• 75.15% of capital structure sold to institutional investors, indicating strong demand
• Retention of $116.3 million in subordinate interests, potentially yielding higher returns
• Option to call securitized mortgage loans at 30% of initial balance, providing flexibility

Negative

• 5.7% weighted average cost of debt, which may impact profitability depending on market conditions

Insights

Financial Analyst

Chimera Investment 's recent securitization of $468.1 million in seasoned reperforming residential mortgage loans marks a significant move in the mortgage-backed securities market. The transaction, known as CIM 2024-R1, demonstrates Chimera's continued strategy to leverage its portfolio of mortgage loans.

Key points to consider:

• The $351.8 million in securities sold to institutional investors represents 75.15% of the capital structure, indicating strong investor appetite for these assets.
• Chimera's retention of subordinate interests worth $116.3 million and certain interest-only securities shows the company's confidence in the performance of these loans and aligns its interests with those of investors.
• The 75.15% advance rate and 5.7% weighted average cost of debt suggest favorable terms for Chimera, potentially enhancing the company's return on equity.
• The retention of a call option when the unpaid principal balance reaches 30% provides Chimera with flexibility in managing the long-term performance of the securitization.

This transaction could positively impact Chimera's financial position by generating upfront cash from the sale of senior securities while maintaining potential upside through retained interests. However, investors should monitor the performance of the underlying mortgage loans, as any deterioration could affect the value of Chimera's retained interests.

Mortgage Market Specialist

The CIM 2024-R1 securitization by Chimera Investment is a noteworthy development in the reperforming loan market. This transaction highlights several important trends:

• The market for seasoned reperforming loans remains active, indicating ongoing demand for yield in a challenging interest rate environment.
• The 75.15% advance rate suggests that investors are comfortable with the risk profile of these reperforming loans, likely due to their seasoned nature and improved performance history.
• Ratings from Fitch and Morningstar DBRS add credibility to the securitization, potentially broadening the investor base for these securities.

The structure of the deal, with Chimera retaining subordinate interests and interest-only securities, is typical for these types of transactions. It allows the company to benefit from any outperformance of the underlying loans while providing a credit enhancement for senior bondholders.

The 5.7% weighted average cost of debt is particularly interesting. In the current high-interest rate environment, this rate could be considered attractive, potentially allowing Chimera to generate a healthy spread over its funding costs.

For the broader mortgage market, this transaction signals continued liquidity for reperforming loans, which could encourage other holders of similar assets to consider securitization as a funding strategy.

NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) announced that on July 30, 2024 it had sponsored CIM 2024-R1, a $468.1 million securitization of seasoned reperforming residential mortgage loans. Securities issued by CIM 2024-R1, with an aggregate balance of approximately $351.8 million, were sold in a private placement to institutional investors. These senior securities represented approximately 75.15% of the capital structure. Chimera retained subordinate interests in securities with an aggregate balance of approximately $116.3 million and certain interest-only securities. Chimera also retained an option to call the securitized mortgage loans when their unpaid principal balance is less than or equal to 30% of the unpaid principal balance of the securitized mortgage loans as of the cut-off date. The advance rate was 75.15% with a 5.7% weighted average cost of debt. The securitization is rated by Fitch and Morningstar DBRS.

About Chimera Investment Corporation

Chimera is a publicly traded real estate investment trust, or REIT, that is primarily engaged in the business of investing directly or indirectly through its subsidiaries, on a leveraged basis, in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency RMBS, Non-Agency RMBS, Agency CMBS, and other real estate related securities.

Forward-Looking Statements

This press release 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 most recent Annual Report on Form 10-K, and any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, under the caption “Risk Factors.” Factors that could cause actual results to differ include, but are not limited to: our business and investment strategy; our ability to accurately forecast the payment of future dividends on our common and preferred stock, and the amount of such dividends; our ability to determine accurately the fair market value of our assets; availability of investment opportunities in real estate-related and other securities, including our valuation of potential opportunities that may arise as a result of current and future market dislocations; our expected investments; changes in the value of our investments, including negative changes resulting in margin calls related to the financing of our assets; changes in inflation, interest rates and mortgage prepayment rates; prepayments of the mortgage and other loans underlying our mortgage-backed securities, or MBS, or other asset-backed securities, or ABS; rates of default, forbearance, deferred payments, delinquencies or decreased recovery rates on our investments; general volatility of the securities markets in which we invest; our ability to maintain existing financing arrangements and our ability to obtain future financing arrangements; our ability to effect our strategy to securitize residential mortgage loans; interest rate mismatches between our investments and our borrowings used to finance such purchases; effects of interest rate caps on our adjustable-rate investments; the degree to which our hedging strategies may or may not protect us from interest rate volatility; the impact of and changes to various government programs; impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters; market trends in our industry, interest rates, the debt securities markets or the general economy; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; our ability to find and retain qualified personnel; our ability to maintain our classification as a real estate investment trust, or, REIT, for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or 1940 Act; our expectations regarding materiality or significance; and the effectiveness of our disclosure controls and procedures.

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 any financial information in this press release 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.

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Investor Relations

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www.chimerareit.com

Source: Chimera Investment Corporation

FAQ

What is the total value of Chimera Investment 's CIM 2024-R1 securitization?

The total value of Chimera Investment 's CIM 2024-R1 securitization is $468.1 million.

How much of the CIM 2024-R1 securitization was sold to institutional investors?

Chimera Investment sold $351.8 million in senior securities to institutional investors, representing 75.15% of the capital structure.

What is the advance rate and weighted average cost of debt for CIM's 2024-R1 securitization?

The advance rate for CIM's 2024-R1 securitization is 75.15%, with a 5.7% weighted average cost of debt.

What option does Chimera Investment (CIM) retain in the 2024-R1 securitization?

Chimera Investment retains an option to call the securitized mortgage loans when their unpaid principal balance is 30% or less of the initial balance.