Business Context and Reporting Period
Chimera Investment Corporation (CIM) filed a Form 8-K on April 6, 2020, disclosing preliminary results of operations and financial condition for the quarter ended March 31, 2020. The filing addresses significant portfolio restructuring, liquidity management, and dividend adjustments in response to market volatility and the ongoing impact of the novel coronavirus (COVID-19).
Key Financial Metrics
- GAAP Book Value: Preliminary estimated range of $12.25 to $12.75 per common share as of March 31, 2020 (down from $16.15 at December 31, 2019).
- Liquidity: Approximately $217 million in cash and cash equivalents as of April 3, 2020 (including receivables and after margin calls, but before dividend payments).
- Unencumbered Assets: Approximately $300 million as of April 3, 2020.
- Debt/Financing: Outstanding repurchase agreement financing was approximately $7 billion as of March 31, 2020, a reduction of approximately 45% from $13.4 billion at December 31, 2019.
- Portfolio Composition (March 31, 2020): 73% residential mortgage loans, 15% Agency CMBS, and 12% Non-Agency RMBS. The Agency RMBS portfolio was sold.
- Securitizations: Sponsored two residential mortgage loan securitizations in March: CIM 2020-R1 ($390.7 million) and CIM 2020-R2 ($492.3 million).
- Dividends: Q1 2020 common stock dividend of $0.50 per share declared; Q2 2020 common stock dividend expected to be $0.30 per share.
- Share Repurchases: Under a $150 million program announced March 13, 2020, approximately $22 million of common stock was repurchased as of March 31, 2020.
Material Changes Versus Prior Period
- Book Value Decline: GAAP book value per share decreased significantly from $16.15 (Dec 31, 2019) to a range of $12.25–$12.75 (Mar 31, 2020).
- Debt Reduction: Repurchase agreement financing decreased by approximately $6.4 billion (45%) due to the sale of the Agency RMBS portfolio and proceeds used to pay off related indebtedness.
- Portfolio Shift: The Company sold its entire Agency RMBS portfolio to strengthen the balance sheet, shifting the portfolio mix heavily toward residential mortgage loans.
- Dividend Adjustment: Management anticipates reducing the quarterly common stock dividend from $0.50 to $0.30 starting in Q2 2020 to enhance liquidity.
Guidance, Outlook, and Risks
Management Commentary: The Company is actively managing liquidity by selling assets and reducing leverage. The reduction in the common stock dividend is a strategic move to strengthen the cash position until market conditions stabilize. Management successfully rolled financing for approximately $11.8 billion of collateral since March 1, 2020.
Risks and Contingencies: The filing highlights significant risks including the economic effects of COVID-19, credit market conditions, interest rate changes, asset valuation volatility, and potential credit losses. The preliminary financial estimates are unaudited and subject to material variance based on fair market value assumptions during periods of stress.
Investor Verification Checklist
- Verify the final audited GAAP book value per share in the upcoming 10-Q filing, as the current $12.25–$12.75 range is preliminary.
- Confirm the official declaration of the Q2 2020 common stock dividend of $0.30 by the Board of Directors.
- Monitor the Company's ability to continue rolling its $7 billion in repurchase agreement financing given market volatility.
- Review the impact of the Agency RMBS portfolio sale on future yield and liquidity generation.
- Assess the status of the remaining $128 million under the common stock buyback program.