CIM (Chimera) – First Look

I was initially introduced to this company at 3:00 pm on November 16^th, 2007 when I was getting ready for a conference call and overheard one of the CNBC anchors say “Michael Farrell celebrates Chimera IPO by ringing the closing bell at the NYSE.” At that point I have never heard of Chimera but I have certainly heard of Farrell and immediately downloaded Chimera’s S1.

This analysis will be a bit different than those in the past and I will spend less time talking about Chimera and more time talking about Michael Farrell and Annaly Capital Management which is Chimera’s parent and Farrell’s main investment vehicle.

Currently:
Share price: $15.25
Market Value: $564M
Enterprise Value: $520M (this is book value for CIM)
Investment Type: Time Arbitrage

CIM completed its IPO almost exactly 1 month ago on November 15, 2007. Per the filling on the day of the IPO, CIM planned to sell 33.3M shares at $15 per share raising $500M with an additional 5M shares optioned for overallotments. Off the $500M raised, $31.25M would be paid to the investment banks doing the IPO so CIM would received $14.0625 per share in actual proceeds.

Based on the 11/30/07 13D filling, Annaly owns 3.62M shares representing 9.8% of total shares outstanding, a maximum percentage of shares outstanding allowed to be owned by any shareholder under this structure. This implies that the final number of shares sold was 36.94M for a net proceeds after selling expenses of $520M.

CIM is basically a publicly traded hedge fund managed by an asset management group called FIDAC which is led by Michael Farrell (Annaly technically owns FIDAC but the same people that manage FIDAC also manage Annaly). The company is structured as a REIT which means at least 90% of its income will be paid out as dividends and virtually all of its investments will be real estate backed mortgage loans and structured products backed by mortgage loans.

I will spend more time in the next post on the company’s business model and may do a quick primer on the basic accounting of mortgage REITs.

* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.