The net proceeds of this offering will be equal to the gross proceeds of this
offering, which we estimate will be approximately $35.4 million (or
approximately $40.7 million if the underwriters exercise their overallotment
option in full). Our Manager will pay all of our offering expenses and the
other costs of the offering, including underwriting discounts and commissions.
We will not reimburse our Manager for its payment of these offering expenses
and costs.
We intend to invest the net proceeds of this offering of our common stock in
(i) pass-through Agency RMBS backed by hybrid ARMs, ARMs and fixed-rate
mortgage loans and (ii) structured Agency RMBS. Specifically, we intend to
invest the net proceeds of this offering as follows:
• Approximately 50% to 70% in pass-through Agency RMBS. Of the 50% to 70% of
the net proceeds allocated to pass-through Agency RMBS, the net proceeds will
be further allocated as follows:
• approximately 0% to 50% in pass-through Agency RMBS backed by fixed-rate
mortgage loans;
• approximately 0% to 50% in pass-through Agency RMBS backed by ARMs; and
• approximately 0% to 50% in pass-through Agency RMBS backed by hybrid ARMs.
• The remaining 30% to 50% of the proceeds will be allocated to structured
Agency RMBS.
We expect to fully invest the net proceeds of this offering in Agency RMBS
within approximately three months of closing the offering and, for our
pass-through Agency RMBS portfolio and a certain portion of our structured
Agency RMBS portfolio, to implement our leveraging strategy within
approximately three additional months. We then expect to borrow against the
pass-through Agency RMBS and a portion of our structured Agency RMBS that we
purchase with the proceeds of this offering through repurchase agreements and
use the net proceeds of the borrowings to acquire additional pass-through
Agency RMBS and structured Agency RMBS in accordance with a similar targeted
allocation. We reserve the right to change our targeted allocation depending
on prevailing market conditions, including, among others, the pricing and
supply of Agency RMBS and structured Agency RMBS, the performance of our
portfolio and the availability and terms of financing.
Until these assets can be identified and obtained, we may temporarily invest
the balance of the proceeds of this offering in interest-bearing short-term
investment grade securities or money market accounts consistent with our
intention to qualify and maintain our qualification as a REIT, or we may hold
cash. These investments are expected to provide a lower net return than we
hope to achieve from our intended investments.
When we invest in Agency RMBS and other investment assets, we compete with a
variety of institutional investors, including other REITs, insurance
companies, mutual funds, pension funds, investment banking firms, banks and
other financial institutions that invest in the same types of assets. Many
of these investors have greater financial resources and access to lower costs
of capital than we do. The existence of these competitive entities, as well
as the possibility of additional entities forming in the future, may increase
the competition for the acquisition of mortgage related securities, resulting
in higher prices and lower yields on assets.
Company Description
Orchid Island Capital, Inc. is a specialty finance company that invests in
residential mortgage-backed securities, or RMBS. The principal and interest
payments of these RMBS are guaranteed by the Federal National Mortgage
Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation,
or
Freddie Mac, or the Government National Mortgage Association, or Ginnie Mae, and
are backed primarily by single-family residential mortgage loans. We refer to
these types of RMBS as Agency RMBS. Our investment strategy focuses on, and our
portfolio consists of, two categories of Agency RMBS: (i) traditional
pass-through Agency RMBS and (ii) structured Agency RMBS, such as collateralized
mortgage obligations, or CMOs, interest only securities, or IOs, inverse
interest only securities, or IIOs, and principal only securities, or POs, among
other types of structured Agency RMBS.
Our business objective is to provide attractive risk-adjusted total returns to
our investors over the long term through a combination of capital appreciation
and the payment of regular monthly distributions. We intend to achieve this
objective by investing in and strategically allocating capital between the two
categories of Agency RMBS described above. We seek to generate income from
(i) the net interest margin, which is the spread or difference between the
interest income we earn on our assets and the interest cost of our related
borrowing and hedging activities, on our leveraged pass-through Agency RMBS
portfolio and the leveraged portion of our structured Agency RMBS portfolio, and
(ii) the interest income we generate from the unleveraged portion of our
structured Agency RMBS portfolio. We intend to fund our pass-through Agency RMBS
and certain of our structured Agency RMBS, such as fixed and floating rate
tranches of CMOs and POs, through short-term borrowings structured as repurchase
agreements. However, we do not intend to employ leverage on the securities in
our structured Agency RMBS portfolio that have no principal balance, such as IOs
and IIOs. We do not intend to use leverage in these instances because these
securities contain structural leverage.
Pass-through Agency RMBS and structured Agency RMBS typically exhibit materially
different sensitivities to movements in interest rates. Declines in the value of
one portfolio may be offset by appreciation in the other. The percentage of
capital that we allocate to our two Agency RMBS asset categories will vary and
will be actively managed in an effort to maintain the level of income generated
by the combined portfolios, the stability of that income stream and the
stability of the value of the combined portfolios. We believe that this strategy
will enhance our liquidity, earnings, book value stability and asset selection
opportunities in various interest rate environments.
We were formed by Bimini in August 2010 and commenced operations on November 24,
2010. Bimini has managed our portfolio since inception by utilizing the same
investment strategy that we expect our Manager, an investment advisor registered
with the Securities and Exchange Commission, or SEC, and its experienced RMBS
investment team to continue to employ after completion of this offering. As of
September 30, 2012, our Agency RMBS portfolio had a fair value of approximately
$66.8 million and was comprised of approximately 89.3% pass-through Agency RMBS
and 10.7% structured Agency RMBS. Our net asset value as of September 30, 2012
was approximately $15.0 million.
We intend to qualify and will elect to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended, or the Code, commencing with our short taxable
year ending December 31, 2013. We generally will not be subject to U.S. federal
income tax to the extent that we annually distribute all of our REIT taxable
income to our stockholders and qualify as a REIT.
We are an emerging growth company as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act, and will remain such for up to five
years. However, if our non-convertible debt issued within a three year period or
our total revenues exceed $1 billion or the market value of our shares of common
stock that are held by non-affiliates exceeds $700 million on the last day of
the second fiscal quarter of any given fiscal year, we would cease to be an
emerging growth company as of the following fiscal year. Although we are an
emerging growth company under the JOBS Act, we have elected to opt out of the
extended transition period for complying with new or revised accounting
standards, and such election is irrevocable.
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Our offices are located at 3305 Flamingo Drive, Vero Beach, Florida 32963,
and the telephone number of our offices is (772) 231-1400. Our internet
address is www.orchidislandcapital.com.