Anthracite Capital (AHR) – Part 2 – Business Issues

Anthracite Capital is managed by BlackRock Financial Management Inc – a subsidiary of BlackRock, Inc. (BLK) a publicly traded asset management company with $1.37T in assets. With this structure the company can afford to have NO employees. BlackRock Financial Management provides the operating platform for Anthracite’s CMBS operations as well as the expertise with asset originations and risk management. Investments in mezzanine level debt and preferred-equity is managed through Carbon Capital Funds, a private real-estate debt fund management by BlackRock.

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 TypeWithin 30 days31 to 59 days60 days to 1 year1 year to 3 years3 years to 5 yearsover 5 yearsTotal, 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

* Weighted Average Maturity – 6.5 years.

Below is a summary of the company’s investments by maturity, type, and cost taken from their annual report:












































































Commercial real estate securities outside CDOsEstimated Fair ValueAdjusted Purchase PriceLoss Adjusted Yield
Investment Grade CMBS$149.86M$158.22M6.56
Investment Grade REIT Debt$20.03M$23M5.49
CMBS rated BB+ to B$316.21M$417.20M8.71
CMBS rated B- or lower$144.80M$166.38M10.73
CDO Investments$46.24M$63.99M20.56
CMBS Interest Only (IO) securities$15.92M$14.73M8.80
Multifamily Agency Securities$37.12M$36.82M5.37
Sub Total$730.18M$880.32M9.34
Commercial real estate loans and equity outside CDOs














Commercial real estate loans$618.33M$601.14M




Commercial mortgage loan pools$1.24B$1.24B4.15
Commercial real estate$9.35M$9.35M




Sub Total$1.87B$1.85B4.15
Commercial real estate assets included in CDOs














Investment grade CMBS$768.67M$759.52M7.09
Investment grade REIT debt$226.06M$224.61M5.85
CMBS rated BB+ to B$466.56M$486.16M10.01
CMBS rated B- or lower$54.34M$68.69M14.98
CDO investments$3.39M$3.48M7.79
Credit Tenant Lease$24.95M$23.87M5.66
Commercial Real Estate Loans$464.46M$434.36M8.73
Sub Total$2B$2B8.28
Total$4.61B*$4.73B6.57

* Face Value - $6.53B

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 pointsProjected Change in Earnings Per Share*
-200$(0.03)
-100$(0.02)
-50$(0.01)
Base CaseNone
+50$0.01
+100$0.02
+200$0.03






*Their 5/15 quarterly report states a significant change to this with a 50 basis point LIBOR resulting in an adjustment of $0.04.

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.
Changes in portfolio valuation affect the company’s ability to borrow. While the interest rate sensitivity is quantifiable as indicated above, the yield curve risks are somewhat less so. Anthracite uses a hedging strategy to limit risks.

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.
Related Posts:

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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