American Capital Agency Debuts

REIT Sees Opportunity in Single-Family Mortgage Securities

American Capital Agency, a real estate investment trust owned by Bethesda-based American Capital Strategies, debuted yesterday on the Nasdaq Stock Market, raising $200 million in its initial public offering.

The REIT, a newly formed subsidiary of American Capital Strategies, sold 10 million shares at $20 per share. The company said it would trade in single-family mortgage securities, an area that has been battered the past several months by the credit markets.

The new company will trade in Ginnie Mae, Fannie Mae and Freddie Mac mortgage-backed securities, known as agency securities, which are considered ultra-safe because they have the backing of a government agency or a government-sponsored enterprise.

"We are looking to expand our asset management platform," said Justin Cressall, vice president of equity capital markets for American Capital Strategies.

He added, "The recent turmoil in the mortgage market has resulted in more favorable pricing for mortgage-backed securities in general."

Market analysts said launching the company was a logical evolution for American Capital Strategies.

"What you are seeing here is part of [parent] ACAP's strategy to be more of an asset manager, which is to have several other vehicles underneath it," said John Stilmar, an analyst with FBR Capital Markets. "Basically, this is one of several vehicles that employ a specific investment strategy for which American Capital" provides backup.

Investors sold nearly 4 million of the shares back into the market rather than hold onto them, which shows the continuing volatility of the markets. Shares of the new REIT closed yesterday at $19.35, off 65 cents from the IPO price. The stock's symbol is AGNC.

American Capital Strategies last week posted a first-quarter loss of $813 million ($4.16 a share) because of a new accounting rule that forced it to change the value of its loans on its books. The rule, introduced this year, requires that companies value assets based on fair market value rather than on the asset's original cost or on internal methods of valuing the asset.

Such "mark to market" repricing of assets has wreaked havoc on the financial markets, forcing banks to ask borrowers to put up more cash or face foreclosure. Carlyle Capital, a public subsidiary of the Carlyle Group, the District-based private-equity giant, collapsed in March after lenders demanded that the subsidiary put up more cash to cover declining assets.

Publicly traded American Capital Strategies is known as a business development company because it lends money to various kinds of businesses and has a history of paying healthy dividends.