Anthracite’s board of directors has adopted an indebtedness policy that limits the company’s recourse debt-to-equity ratio at 3:1. This is consistent with the financial covenants in the company’s credit facilities and the strategy helps with limiting risk.
Below is a recap of the company’s borrowings by maturity, type, and cost taken from their annual report:
| Borrowing Type | Within 30 days | 31 to 59 days | 60 days to 1 year | 1 year to 3 years | 3 years to 5 years | over 5 years | Total, Cost |
| Reverse Repurchase Agreements | $80.12M | $80.12M, 5.44 | |||||
| Credit Facilities | $261.89M | $409.71M | $671.60M, 6.06 | ||||
| Commercial Mortgage Loan Pools | $17.93M | $44.27M | $368.43M | $130.68M | $657.78M | $1.22B, 3.99 | |
| CDOs | $16.74M | $16.43M | $149.54M | $548.80M | $1.09B | $1.82B, 6.11 | |
| Senior Unsecured Notes | 162.50M | $162.50M, 7.59 | |||||
| Senior Convertible Notes | $80M | $80M, 11.75 | |||||
| Junior Unsecured Notes | $73.1M | $73.1M, 6.56 | |||||
| Junior Subordinated Notes | $180.48M | $180.48M, 7.64 | |||||
| Totals | $80.12M | $34.67M | $322.60M | $927.69M | $679.68M | $2.25B | $4.29B, 5.72 |
Below is a summary of the company’s investments by maturity, type, and cost taken from their annual report:
| Commercial real estate securities outside CDOs | Estimated Fair Value | Adjusted Purchase Price | Loss Adjusted Yield |
| Investment Grade CMBS | $149.86M | $158.22M | 6.56 |
| Investment Grade REIT Debt | $20.03M | $23M | 5.49 |
| CMBS rated BB+ to B | $316.21M | $417.20M | 8.71 |
| CMBS rated B- or lower | $144.80M | $166.38M | 10.73 |
| CDO Investments | $46.24M | $63.99M | 20.56 |
| CMBS Interest Only (IO) securities | $15.92M | $14.73M | 8.80 |
| Multifamily Agency Securities | $37.12M | $36.82M | 5.37 |
| Sub Total | $730.18M | $880.32M | 9.34 |
| Commercial real estate loans and equity outside CDOs | |||
| Commercial real estate loans | $618.33M | $601.14M | |
| Commercial mortgage loan pools | $1.24B | $1.24B | 4.15 |
| Commercial real estate | $9.35M | $9.35M | |
| Sub Total | $1.87B | $1.85B | 4.15 |
| Commercial real estate assets included in CDOs | |||
| Investment grade CMBS | $768.67M | $759.52M | 7.09 |
| Investment grade REIT debt | $226.06M | $224.61M | 5.85 |
| CMBS rated BB+ to B | $466.56M | $486.16M | 10.01 |
| CMBS rated B- or lower | $54.34M | $68.69M | 14.98 |
| CDO investments | $3.39M | $3.48M | 7.79 |
| Credit Tenant Lease | $24.95M | $23.87M | 5.66 |
| Commercial Real Estate Loans | $464.46M | $434.36M | 8.73 |
| Sub Total | $2B | $2B | 8.28 |
| Total | $4.61B* | $4.73B | 6.57 |
Anthracite is exposed to losses resulting from fluctuations in interest rates. Specifically, changes in the level of LIBOR money market rates affect the company’s net interest income – Anthracite’s short-term collaterized liabilities outside of CDOs are floating rate based on a market spread to LIBOR. As the level of LIBOR increases or decreases, Anthracite interest expense moves in the same direction. Below is a look at the company’s quantification of the risk, taken from their annual report:
| Change in LIBOR +/- basis points | Projected Change in Earnings Per Share* |
| -200 | $(0.03) |
| -100 | $(0.02) |
| -50 | $(0.01) |
| Base Case | None |
| +50 | $0.01 |
| +100 | $0.02 |
| +200 | $0.03 |
There are also risks associated with the treasury/credit yield curves/levels:
- When treasuries are priced to a higher yield, Anthracite’s portfolio becomes less valuable and vice-versa.
- Treasury yield curve changes affect Anthracite’s portfolio valuation, as the prepayment assumptions have to be adjusted.
- Anthracite’s portfolio valuation is dependent on the market’s perception of how valuable the company’s assets are as reflected by the credit curve and relation to the treasury yield curve. Specifically, as supply increases, the assets become less valuable as yield needs to increase.
There are also a few other risks that can have an impact on Anthracite’s business:
- Credit Risk: This is the exposure to loss from loan defaults. The risk is mitigated by the fact that most of these assets are financed on a non-recourse basis in the company’s CDOs, where a significant portion of the risk of loss is transferred to the CDO bondholders.
- Asset and Liability Management: The risk is associated with the timing and magnitude of the re-pricing and/or maturing of assets and liabilities. The risk is mitigated by matching the term of the liabilities as closely as possible to the holding period of assets. Exact matching is however not possible because different kinds of assets and liabilities react differently to market conditions.
- Currency Risk: Certain of Anthracite’s CMBS and loans are in Euro, British Pounds, Canadian dollars, and other currencies. Fair-values of assets and earnings can both be impacted by currency fluctuations. The risk is mitigated by using local-currency denominated financings and foreign currency forward commitments and swaps.
1. Anthracite Capital (AHR) - Part 1 - Introduction.
2. Anthracite Capital (AHR) - Part 2 - Business Issues.
3. Anthracite Capital (AHR) - Part 3 - Outlook.
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