AMAC's Advisor Provides Repo Refuge

It didn't require Scooby and the Mystery Machine to decipher American Mortgage Acceptance's (AMC) oddball Friday 8-K. The 8-K disclosed a hasty written consent to amend AMC's bylaws regarding affiliate transactions -- specifically, to allow for a majority vote of the Board to sell property to AMC's sponsor, Centerline Holding (CHC). Why was AMC in such a hurry to amend its bylaws when the Board would surely be meeting in a couple of weeks to review fourth-quarter results?

A good memory and a terrible nerdy habit of devouring SEC filings reminded me of this disclosure from the third-quarter 10-Q:

[I]n October 2007, we decided not to pursue a second CDO securitization. In connection with that determination, we entered into an agreement that will terminate our Citigroup repurchase facility on February 28, 2008....

We also plan to sell all of the first mortgages pledged as collateral for the Citigroup line to a third party and recognized an impairment loss of $1.3 million as of September 30, 2007, reflecting the market value of the loans as of that date….

To the extent that any of these assets remain on the facility after February 1, 2008, the rate will increase to a range from LIBOR plus 0.95% to LIBOR plus 1.60%.

Is it possible that AMC was in a big hurry to unload mortgages financed by the Citi line? Decide for yourself, but the issue seemed pretty clear-cut for me when I saw this Tuesday afternoon 8-K disclosure:

On January 30, 2008, the Registrant sold four first mortgage loans to an affiliate of Centerline. This sale resulted in sales proceeds of $23.3 million, of which $16.5 million was used to repay principal amounts on a repurchase facility collateralized by these investments. Based on the amortized cost of $24.6 million prior to the sale, the transaction resulted in a realized loss of $1.3 million.

American Mortgage shares closed Tuesday at $2.08/share, down 88% from its 52-week high.

AMAC Faces More Forced Sales

American Mortgage Acceptance Company (AMC) delivered a serious blow to shareholders late Friday when the Company announced that $99.3 million in debt securities and CMBS were liquidated to meet margin calls and repay existing repurchase arrangements. The sale only brought in proceeds of $86.8 million, leaving AMAC with a whopping $12.5 million loss. Further, of the $86.8 million, AMAC had to use $81.5 million to pay off the associated repurchase agreements, so the asset sales did little to bolster liquidity.

AMAC admitted that it has further exposure to more margin calls and that it may be forced to liquidate more assets. The company suspended its dividend and vowed to explore "all strategic options to protect and maintain the value" of the Company. Obviously, the forward-looking guidance was withdrawn. The announcement sent shares lower by more than 40% in after-hours trading.

While the announcement may have seemed shocking, a quick read of the 10-Q filed last month hinted at the problems ahead. The company's CMBS portfolio is comprised of BBB rated securities and fully funded with repurchase agreements. In fact, repurchase agreements comprised about half of AMAC's liabilities at September 30. Not exactly a stable balance sheet in this environment.

Things will only get worse for AMAC unless market conditions dramatically improve in the next few weeks, which seems unlikely. AMAC has entered into an agreement to terminate its Citigroup repurchase facility by 2/28/08. This facility had an outstanding balance of $290 million at 9/30/07. Refinancing these assets will be an expensive and potentially insurmountable obstacle for the Company if the results are anything like AMAC's last refinancing. In November, AMAC refinanced about $62 million in CMBS holdings with Bear Stearns - and had to pay Bear $27 million for the pleasure of parking those assets, since the haircut on the repo was much greater than for the previous facilities.

With AMAC tanking, the heat is on for the Company's manager and advisor, Centerline Holding (CHC). Centerline owns about 13% of AMAC, and in the last few months, purchased an additional $1 million stake in the open market. Centerline does provide a limited amount of financing for AMAC, and may have to consider a complete buyout of AMAC or face significant equity method losses and impairment charges.

AMAC Can't Make It Add Up

American Mortgage Acceptance (AMC) posted a shocking miss on FFO, losing $0.02/share versus a dividend of $0.225 for the third quarter. Shares fell by 40% in heavy trade before recovering somewhat after the conference call.

A failed 2007 CDO attempt was management's explanation for the poor results. AMAC had to take a $1.1 million charge (booked through G&A) for the writeoff of CDO costs and termination costs for the repo facility currently housing the planned CDO securities. Additionally, the Company had a $1.3 million impairment charge on its CMBS portfolio. Excluding those charges, FFO would have been approximately $0.26/share. American Mortgage Acceptance has distributed $0.675/share in dividends thus far this year versus earning only $0.59/share in FFO.

With a book value of $9.55/share, AMAC should consider repurchasing shares, but does not currently have the liquidity to do so pending the refinancing of its CMBS. The fourth quarter of 2007 will be a time of transition for AMAC as it looks to alternative financing structures outside the CDO market.