Just a month later, the agency-backed and AAA markets dislocated again, and Chimera's repos have created a liquidity problem for the newly-formed company. Chimera held cash and cash equivalents of just $6.0 million at December 31, 2007, and warned in its 10-K that "an increase in prepayment rates substantially above our expectations could cause a temporary liquidity shortfall due to the timing of the necessary margin calls on the financing arrangements and the actual receipt of the cash related to principal paydowns." Not good news when the AP is reporting that mortgage volumes spiked on refinancing last week.
Chimera has had to amend its repurchase agreement with Deutsche Bank twice since initiating it in January to bring the liquidity covenant down to $40 million from $100 million. For this, it has had to agree to
-- Provide daily liquidity reports through April 15, 2008
-- Provide mark to market positions and advance rates with respect to all loans and securities
In addition, Chimera agreed to allow DB the right to act as the lead underwriter in connection with the next securitization or other similar public or private pass-through disposition of any Loan sponsored by Seller or an Affiliate thereof, for a market-rate fee.
Although markets may be stablizing, Chimera's first quarter dividend obligation of $9.6 million is looming overhead, and unless markets continue to improve quickly, the Company could be squeezed dry of cash at the end of April.