SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 6, 2003 (August 6, 2003)
Date of Report (Date of Earliest Event Reported)
ANTHRACITE CAPITAL, INC.
(Exact name of Registrant as Specified in Charter)
Maryland 001-13937 13-397-8906
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
40 East 52nd Street 10022
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 409-3333
N/A
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
Anthracite Capital, Inc. (the "Company") reported the following results on
August 6, 2003:
On August 6, 2003, the Company reported a loss for the second quarter of 2003
of $0.26 per share versus income of $0.18 per share for the first quarter of
2003 and $0.25 per share for the second quarter of 2002. This loss is
primarily the result of an increase in loss expectations on certain 1998
controlling class CMBS assets. As previously disclosed certain of the
Company's controlling class CMBS assets were experiencing cash flow
interruptions. (All numbers are thousands, except per share amounts).
Based upon the $0.35 per common share dividend paid on July 31, 2003 and the
August 5, 2003 closing price of $11.15, Anthracite's annualized dividend yield
is 12.6%.
Second quarter net loss includes a charge of $0.56 per share which resulted
from an increase in expected underlying loan losses on certain 1998 vintage
Commercial Mortgage Backed Securities ("CMBS") assets. The increase in loss
expectations triggered an impairment charge according to previously disclosed
Company accounting policies and as required the accounting standard EITF
(Emerging Issue Task Force) 99-20, "Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets." Actual underlying loan losses recognized to date are still
below original expectations, but the Company believes additional loss
expectations are warranted. The current value of the affected securities was
largely reflected in the Company's March 31, 2003 reported book value because
these assets are held as "available for sale" and marked to market in
"accumulated other comprehensive loss" on the balance sheet.
Included in net loss, for the second quarter, are realized and unrealized
gains and losses that net to a loss of $1,422 ($0.03 per share), which are
attributable to the sale of a portion of the Company's Residential Mortgage
Backed Securities ("RMBS") portfolio. During the quarter, the Company acquired
or committed to acquire $269,000 par amount of Commercial Real Estate
Securities and newly originated mezzanine loans, and reduced RMBS holdings by
over $600,000.
The Company's second quarter net interest margin was 3.0%. Net interest margin
for the year earlier period was 4.7%. This change was due to a significant
reduction in the size of the Company's RMBS portfolio and increased hedging
expenses from greater reliance on interest rate swaps. The components of
realized loss include $21 of hedge ineffectiveness that was reclassified from
interest income to other gains.
During the second quarter, aggregate leverage decreased from 5.41:1 to 3.95:1.
Short-term borrowing on credit sensitive positions was 0.78:1. As of June 30,
2003, the Company's exposure to changes in short-term interest rates result in
a $0.035 change in annual net income per share for every 50 basis point change
in LIBOR. The Company's book value is dependent on long-term interest rates
and credit spreads. As of June 30, 2003, sensitivity to long-term rates is
approximately 3.0% for each 50 basis point change in long-term rates and
approximately 4% for a 50 basis point change in credit spreads. These
percentages will change if fluctuations greater than 50 basis points occur in
long-term rates or credit spreads.
The Company performed an analysis of its current underlying loan loss
expectations and credit performance of its 1998 vintage "controlling-class"
CMBS. The Company increased expected underlying loan loss expectations on four
securities from three 1998 vintage CMBS transactions. As a result of the
increase in loss expectations, the Company is incurring an impairment charge
of $27,014, as required by EITF 99-20. Three of the four securities are not
rated and the fourth security is rated CCC by Fitch Ratings. Securities which
are not rated are highly sensitive to changes in the timing of losses
recognized on the underlying loans. Even though losses recognized on the
underlying loans to date are still significantly less than original estimates,
the Company maintains its belief that losses in 2003 will continue to rise due
to weak conditions in many commercial real estate markets. The Company felt it
was appropriate to increase the total amount of expected losses of these
transactions. The Company's increased loss expectations do not affect the
market value of the securities.
Loss expectations of the underlying loans for the 1998 vintage transactions
prior to June 30, 2003 were $127,080, or 1.71% of collateral outstanding, net
of defeased loans. A defeased loan is a loan that has not paid off, but is
fully collateralized by U.S. Treasury obligations. The Company's loss
expectations for its 1998 vintage transactions now total $158,292, or 2.13% of
collateral outstanding, net of defeased loans. These loss expectation levels
are consistent with the current loss estimates for transactions underwritten
after 1998. As of June 30, 2003, the Company's loss expectations by vintage
year are as follows:
Loss Collateral % of
Expectation Balance * Collateral
-------------------------------------------
1998 $158,292 $7,418,035 2.13%
1999 18,675 727,525 2.57%
2001 23,756 968,448 2.45%
2003 23,131 1,003,183 2.31%
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$223,854 $10,117,191 2.21%
* net of defeased loans
The CMAC 98-C2 CMBS transaction credit performance has lagged all other
transactions in the Company's CMBS portfolio and is the only 1998 vintage
transaction owned by the Company which has delinquencies above that of the
Lehman index of 1998 vintage transactions. During the second quarter of 2003,
the outstanding principal balance of the Class M security was reduced by
$6,996 to $36,406. Eleven underlying loans with an original principal of
$24,342 have been resolved with a weighted average loss severity of 34.6%;
five loans resulted in no loss. The Company has active loss mitigation
strategies with respect to the loan seller including pursuing an
indemnification, initiating a put back of an asset, and initiating litigation
against the loan seller regarding mis-representations made in connection with
one of the loans.
Over the remainder of 2003, the Company expects an additional seven underlying
loan resolutions for CMAC 1998-C2. These seven loans have an original
principal balance of $62,768. Fitch Ratings has placed the B and B- rated
classes of CMAC 98-C2 on negative watch due to the pending loan resolutions.
As shown in the table below, the delinquency experience of the underlying
loans is the highest of the three transactions and significantly above loss
expectations for comparable 1998 transactions as reported in the Lehman
conduit guide. The June 30, 2003 impairment charge related to the non-rated
and CCC rated classes of this transaction is $19,217, or $0.40 per share.
The Company owns 65% of the non-rated Class M security from the LBCMT 98-C1
CMBS transaction. During the second quarter 2003, the outstanding principal
balance for this security was reduced by $9,284 to $7,991. Two loans with an
original par of $29,779 were resolved and resulted in a 33.4% loss severity.
The June 30, 2003 impairment charge related to this security is $5,573, or
$0.12 per share.
The Company owns 65% of the non-rated Class N security of the GMAC 98-C1 CMBS
transaction. During the second quarter 2003, the principal balance for this
security was reduced by $904 to $8,396. One loan was resolved at a loss of
$887, which represented a 18% loss severity. The June 30, 2003 impairment
charge related to this security is $2,224, or $0.05 per share.
Prior to the impairment charge, the weighted average loss-adjusted yield on
the Company's controlling-class CMBS was 10.25%. After the impairment charge,
the weighted average loss-adjusted yield is 10.14%.
The table below shows current delinquency and underlying loan losses
recognized on the Company's controlling-class CMBS, and the impact of
increased underlying loan loss expectations as a percentage of underlying
loans.
June 30, Post Losses
2003 Impairment Losses Recognized
Underlying Underlying Recognized as % of
Loan Loan Loss as % of Loss Underlying
Delinquency Expectations Expectations Loans*
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CMAC 98-C2 3.67% 2.63% 26.46% 0.57%
LBCMT 98-C1 1.92% 2.63% 28.67% 0.65%
GMAC 98-C1 2.12% 1.56% 3.83% 0.06%
CMAC 98-C1 0.23% 1.44% 28.66% 0.45%
DLJ 98-CG1 1.27% 1.76% 20.25% 0.32%
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Sub-total 1998 2.16% 2.13% 23.09% 0.45%
transactions
1999 Transactions 1.39% 2.57% 2.93% 0.07%
2001 Transactions 0.11% 2.45% 0.00% 0.00%
2003 Transactions 0.43% 2.31% 0.00% 0.00%
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Total-All Transactions 1.74% 2.21% 16.85% 0.34%
*As a % of cutoff balance
The table below shows the Lehman Brothers June 2003 Conduit Guide delinquency
statistics by vintage year.
Delinquency as a % Losses Recognized as % of
of Underlying Loans Underlying Loans
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1998 2.22% 0.42%
1999 1.91% 0.15%
2001 0.77% 0.03%
2003 0.02% 0.00%
After the close of the 2003 second quarter, the Company acquired $62,111 of
par of a 2003 vintage controlling-class CMBS transaction. $20,000 of these
securities will be used to complete the ramp-up financing facility from the
December 2002 CDO. Underlying loan loss expectations on the collateral are
estimated at 2.35%. The loss-adjusted yield on the securities rated B- and
lower in aggregate is 11.36%. The non-rated and B- rated tranches of this
transaction were purchased to yield an initial cash-on-cash return of 21.17%
and 18.86%, respectively, and loss-adjusted yields of 9.00% and 14.42%,
respectively. The coupon for these two securities is 5.11%.
The assets in the Company's two CDOs are unaffected by the new credit
expectations. The net asset value of the CDOs increased by $7,922 net of
hedges. A breakdown of the Commercial Real Estate Securities portfolio income
for the quarters ended June 30, 2003 and March 31, 2003 is as follows:
For the three months ended
June 30, 2003 March 31, 2003
-------------------------------
Interest Income $23,032 $22,573
Interest Expense* (11,776) (11,391)
-------------------------------
Net Interest Income from Commercial
Real Estate Securities $11,256 $11,182
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*Including hedges in CDO I and II
Direct holdings of commercial loans are held at cost unless a specific
indication of impairment exists. To date, the Company's portfolio of
commercial loans has never experienced a delinquency and all of the assets
securing such loans are performing within the range of originally underwritten
expectations.
A breakdown of the commercial real estate loan portfolio income performance
for the quarters ended June 30, 2003 and March 31, 2003 is as follows:
For the three months ended
June 30, 2003 March 31, 2003
----------------------------------
Interest Income $2,103 $1,187
Interest Expense (108) (102)
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Net Interest Income from Commercial
Real Estate Loans $1,995 $1,085
==================================
During the second quarter, the Company reduced its investments in RMBS as the
need to maintain liquid assets continued to decline. Total investment in RMBS
was reduced 41% from approximately $1,500,000 at December 31, 2002 and was
reduced further from March 31, 2003 balances. The Company's remaining
investments in RMBS at June 30, 2003 is $888,878. The RMBS markets have been
extremely volatile on a mark-to-market basis as prepayments reached record
levels through June 2003, and as interest rates increased sharply in June and
July 2003.
At the beginning of the second quarter, the Company changed its strategy of
hedging RMBS with U.S. Treasury futures to utilizing interest rate swaps
which, while more expensive to use, have tended to demonstrate a more
consistent relationship with RMBS. This change resulted in an increase in the
Company's swap notional by $606,000. A breakdown of the RMBS portfolio income
performance for the quarters ended June 30, 2003 and March 31, 2003 is as
follows:
For the three months ended
June 30, 2003 March 31, 2003
-----------------------------------
Interest Income $16,126 $17,909
Interest Expense * (9,867) (7,940)
-----------------------------------
Net Interest Income 6,259 9,969
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Realized loss (1,928) (8,672)
Unrealized gain (loss) in value 506 (1,731)
-----------------------------------
Net Income (loss) from RMBS $4,837 $(434)
===================================
* Includes hedging expense
Net book value per share at quarter end was $7.17 based upon market prices
provided by dealers for securities available for sale. As the Company's
portfolio matures, the net book value of credit sensitive CMBS securities held
by the Company will increase towards its original purchase cost provided that
the Company's estimates of expected credit losses are reasonably accurate.
Alternatively, if the Company's loss expectations prove to be too high an
increase in the yield may be required in the future. The unrealized loss on
all subordinated CMBS at June 30, 2003 was $44,289. This amount reflects the
amount of recovery net of expected underlying loan losses if the portfolio is
held to maturity. Net book value per share decreased approximately 5.4% from
$7.58 at March 31, 2003 due to sharp rises in interest rates and wider
interest rate spreads on certain CMBS assets.
On May 21, 2003, the Company lowered its cost of long-term capital with the
issuance of $57,500 of Series C Cumulative Redeemable Preferred Stock. The new
Series C Preferred Stock will pay an annual dividend of 9.375%. The Company
invested part of the proceeds in investment grade CMBS and unsecured REIT
debt. As a result, investments in Commercial Real Estate Securities increased
by 20% to $1,147,398.
This Current Report on Form 8-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act with respect to future
financial or business performance, strategies or expectations. Forward-looking
statements are typically identified by words or phrases such as "trend,"
opportunity," "pipeline," "believe," "comfortable," "expect," "current,"
"intention," "estimate," "position," "assume," "potential," "outlook,"
"continue," "remain," "maintain," "sustain," "seek," "achieve," and similar
expressions, or future or conditional verbs such as "will," "would," "should,"
"could," "may" or similar expressions. Anthracite cautions that
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time.
Forward-looking statements speak only as of the date they are made, and
Anthracite assumes no duty to update forward-looking statements. Actual
results could differ materially from those anticipated in forward-looking
statements and future results could differ materially from historical
performance. In addition to factors previously disclosed in Anthracite's
Securities and Exchange Commission (the "SEC") reports and those identified
elsewhere in this press release, the following factors, among others, could
cause actual results to differ materially from forward-looking statements or
historical performance: (1) the introduction, withdrawal, success and timing
of business initiatives and strategies; (2) changes in political, economic or
industry conditions, the interest rate environment or financial and capital
markets, which could result in changes in the value of Anthracite's assets;
(3) the performance and operations of Anthracite's manager; (4) the impact of
increased competition; (5) the impact of capital improvement projects; (6) the
impact of future acquisitions; (7) the unfavorable resolution of legal
proceedings; (8) the extent and timing of any share repurchases; (9) the
impact, extent and timing of technological changes and the adequacy of
intellectual property protection; (10) the impact of legislative and
regulatory actions and reforms and regulatory, supervisory or enforcement
actions of government agencies relating to Anthracite, BlackRock or PNC; (11)
terrorist activities, which may adversely affect the general economy, real
estate, financial and capital markets, specific industries, and Anthracite and
BlackRock; and (12) the ability of Anthracite's manager to attract and retain
highly talented professionals.
The Company is filing the Anthracite Capital, Inc. Consolidated
Statements of Financial Condition and Consolidated Statements of Operations as
Exhibit 99.1
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
99.1 Anthracite Capital, Inc. Consolidated Statements of
Financial Condition and Consolidated Statements of
Operations.
99.2 Press Release issued by Anthracite Capital, Inc.,
dated August 6, 2003.
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On August 6, 2003, Anthracite Capital, Inc. issued a press release
reporting the Company's earnings for the quarter ended June 30, 2003, which
the Company is furnishing under this Item 12 as Exhibit 99.2.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ANTHRACITE CAPITAL, INC.
By: /s/ Robert L. Friedberg
__________________________
Name: Robert L. Friedberg
Title: Vice President and Secretary
Dated: August 6, 2003
ANTHRACITE CAPITAL, INC.
CURRENT REPORT ON FORM 8-K
Report Dated August 6, 2003 (August 6, 2003)
EXHIBIT INDEX
Exhibit No. Description
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99.1 Anthracite Capital, Inc. Consolidated Statements of Financial
Condition and Consolidated Statements of Operations.
99.2 Press Release issued by Anthracite Capital, Inc., dated August
6, 2003.