PennyMac Unit Seeks $750M IPO

A subsidiary of PennyMac, the firm founded by former Countrywide Financial executives to invest in home mortgages, will seek $750 million in an initial stock offering, according to a regulatory filing made on Friday.
PennyMac Mortgage Investment Trust is seeking to invest in home loans, many of which were made to now-delinquent borrowers and are trading at distressed levels. The trust intends to use loan modification programs and other efforts to keep borrowers in their homes.
The PennyMac subsidiary is being structured as a real estate investment trust. It’s part of PennyMac — formally the Private National Mortgage Acceptance Company — which is run by Stanford L. Kurland, Countrywide’s former president.
Mr. Kurland, as The New York Times previously noted, was until late 2006 the No. 2 to Angelo Mozilo, the man most associated with Countrywide and many of the riskiest mortgages that have since exploded, helping to crater the financial markets. Countrywide was for years the nation’s largest and most prominent mortgage lender.
Countrywide itself was saved only through its sale to Bank of America last year. The mortgage lender has become so toxic that Bank of America announced last year that it would retire Countrywide’s name and logo.
PennyMac, however, is meant to invest in distressed home mortgages, which it often will acquire at a steep discount to face value. Its backers include BlackRock, the giant money manager, and Highfields Capital, the big Boston hedge fund.
In its prospectus, PennyMac Mortgage Investment Trust said that it expects a wealth of investment opportunities, given the still-shaky state of the mortgage markets. “We believe that there are unique, current market opportunities to acquire distressed mortgage loans and mortgage-related assets at significant discounts to their unpaid principal balances,” the firm said in its filing.
Among its expected sources of investment opportunities are the Federal Deposit Insurance Corporation’s liquidations of failed bank portfolios; the sale of bank loans through the government’s Public-Private Investment Partnership program; and direct purchases of loans from various institutions.
The Times reported in March that PennyMac’s biggest deal has been with the F.D.I.C., which it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon. PennyMac’s payment was the equivalent of 38 cents on the dollar, according to the full terms of the agreement.
Under the initial terms of the F.D.I.C. deal, PennyMac is entitled to keep 20 cents on every dollar it can collect, with the government receiving the rest. Eventually that share will rise to 40 cents.
The PennyMac trust’s offering is being managed by Merrill Lynch (which is now owned by the same firm that acquired Countrywide, Bank of America), Credit Suisse and Deutsche Bank.