8-K: Angel Oak Mortgage REIT Prices $300 Million Securitization, Unlocking Capital for Growth

Angel Oak Mortgage REIT has priced a $300 million securitization of residential mortgage loans, which is expected to release capital for further investment and improve earnings.

Summary

• Angel Oak Mortgage REIT (AOMR) has announced the pricing of a $300 million securitization, named AOMT 2024-4, backed by a pool of residential mortgage loans.
• The securitization is expected to release approximately $40 million in capital.
• This capital is intended to be used for purchasing current market coupon loans and high-yielding assets.
• The company anticipates this will drive additional net interest margin growth.
• The underlying loan portfolio consists of 701 non-QM loans with a total principal balance of $299.8 million.
• The loans have a weighted average coupon of 7.4%, a weighted average original loan-to-value ratio of 69.8%, and a weighted average original FICO score of 748.
• The senior tranche of the securitization received an AAA rating from Fitch Ratings.
• The deal is expected to lower the weighted average funding cost for the underlying loans by over 100 basis points compared to prior warehouse funding costs.
• The company will reduce its whole loan warehouse debt by $236 million as a result of the securitization.
• AOMR intends to accelerate purchases of current market coupon loans, with recently-locked loans having an 8.0% 8.5% weighted average coupon.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook with the successful pricing of the securitization, expected capital release, and improved funding costs. The AAA rating on the senior tranche further supports a positive sentiment.

Positives

• The securitization is expected to drive meaningful earnings growth and yield expansion.
• The deal improves the positioning of the portfolio to perform in changing rate environments.
• The company will reduce its recourse debt to equity ratio.
• The company will accelerate purchases of current market coupon loans.
• The senior tranche of the securitization received an AAA rating from Fitch Ratings.

Risks

• The press release contains forward-looking statements that are subject to various risks and uncertainties.
• Actual results and performance could differ materially from those set forth in the forward-looking statements.

Future Outlook

The company intends to use the capital released by the securitization to continue to purchase additional high quality current market coupon non-QM loans, compounding the positive impact to their net interest margin on a go-forward basis and positioning themselves well for future accretive securitization transactions.

Management Comments

• AOMT 2024-4, our first standalone securitization of the year, is expected to drive meaningful earnings growth and yield expansion in both the nearand long-term while further improving the positioning of our portfolio to perform in changing rate environments, said Sreeni Prabhu, Chief Executive Officer and President of Angel Oak Mortgage REIT, Inc.
• With this securitization, we will lock in over 100 basis points of savings on the funding costs of the loans underlying the deal.

Industry Context

This securitization is part of a broader trend of REITs utilizing securitization to manage their balance sheets and optimize funding costs. The focus on non-QM loans reflects a strategy to target higher-yielding assets in the current market environment.

Comparison to Industry Standards

• Other mortgage REITs, such as AGNC Investment Corp. and Annaly Capital Management, also utilize securitizations as part of their funding strategies, but the specific details of their transactions and loan portfolios differ.
• The AAA rating on the senior tranche is a positive indicator of the quality of the underlying assets and the structure of the securitization, which is comparable to other high-quality securitizations in the market.
• The 100 basis points reduction in funding costs is a significant improvement and is likely to be a key driver of increased profitability, which is a common goal for all mortgage REITs.

Stakeholder Impact

• Shareholders are expected to benefit from increased earnings and potential capital appreciation.
• The company's employees may benefit from the company's growth and stability.
• Customers may benefit from the company's ability to provide competitive mortgage products.
• Creditors may benefit from the company's improved financial position.

Next Steps

• The company intends to deploy the released capital into purchases of current market coupon loans and high-yielding assets.
• The company will continue to monitor the performance of the securitized loans and the overall market environment.

Key Dates

Keywords

securitization, mortgage loans, non-QM loans, residential mortgage, Angel Oak Mortgage REIT, AOMT 2024-4, net interest margin, funding costs, capital release, FICO score, loan-to-value