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Kyle Bass Buys 5.2% of Distressed Mortgage Buyer PennyMac

October 01, 2013 | About:
Holly LaFon

Holly LaFon

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Kyle Bass, the founder of Hayman Advisors, purchased 3,570,000 shares of PennyMac Mortgage Investment Trust (PMT) on Sept. 27, 2013, as reported by GuruFocus Real Time Picks. The transaction would be valued at around $80.8 million at a closing price of $22.64 the previous day, and give Hayman a 5.2% stake in the company.

PennyMac is a mortgage investment trust structured as a real estate investment trust (REIT), with a $1.63 billion market capitalization. The company buys distressed mortgage loans and seeks to keep mortgage holders in their homes through value-adding loan modification programs, special servicing and other activities. In the lending aspect of its business, it purchases newly originated prime-quality mortgage loans, investing in and retaining the mortgage servicing rights.

The company has experienced significant growth beginning in 2012. That year it raised and invested $600 million in new equity capital into accretive investments. A nascent housing recovery underpinned growth, as sales of new and existing homes reached a five-year record. Historically low mortgages rates drove demand for mortgage originations, pushing total mortgage originate volumes to over $1.8 trillion, their second highest level since the housing crisis, the company noted in its 2012 annual report.

The company is continuing its investment in growth. On Aug. 13, PennyMac announced the offering of 11.3 million common shares. It intends to use the proceeds to fund “business and investment activities, which may include the acquisition of distressed mortgage loans or other investments; the funding of its correspondent lending business, including the purchase of jumbo loans; the repayment of indebtedness; and for general corporate purposes,” the company said in a statement.”

The company raised $250 million in the senior exchangeable note offering.

In the second quarter results, reported Aug. 8, PennyMac said it had earnings of $54.5 million, a 2% increase from the prior year, or $0.86 per diluted share, a 4% decline from the previous year. Net investment income increased 9% to $129.7 million, as the company’s book value per share grew to $21.06, from $20.72 at March 31.

A REIT, PennyMac paid a dividend of $0.57 per common share of beneficial interest that was paid on Aug. 30 and has a dividend yield of 9.86.

PennyMac Chairman and Chief Executive Officer Stanford L. Kurland commented, “The second quarter results demonstrate the strength of PMT’s strategy pursuing multiple investment opportunities across the residential mortgage market. PMT achieved new investments in distressed whole loans, grew its correspondent lending activities, and acquired a bulk portfolio of jumbo loans as we prepare for PMT’s first securitization targeted for the third quarter. The ability to pursue diverse and changing opportunities across the mortgage landscape differentiates PMT from other mortgage REITs and we continue to pursue new opportunities for growth as we head into the second half of 2013.”

Revenue and earnings history of PennyMac since 2010:



After declining almost 9% year to date, PennyMac’s share price closed at $23.12 Tuesday. It trades with a P/E of 6.7, P/B of 1.3 and P/S of 2.8.

Hayman Capital Management Lp is a Dallas-based investment adviser with approximately $1.49 billion in assets under management. Bass is primarily a macro-focused investor who foresaw and bet against the subprime crisis in 2007.

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