Company Overview
| Company Name |
PROVIDENT MORTGAGE CAPITAL ASSOCIATES, INC. |
| Company Address |
1633 BAYSHORE HIGHWAY
SUITE 155
BURLINGAME, CA 94010 |
| Company Phone |
650-652-1300 |
| Company Website |
www.pmca-reit.com |
| CEO |
Mark E. Lefanowicz |
| Employees (as of 2/29/2012) |
0 |
| State of Inc |
MD |
| Fiscal Year End |
12/31 |
| Status |
Filed (3/8/2011) |
| Proposed Symbol |
PMCA |
| Exchange |
New York Stock Exchange |
| Share Price |
$15.00 |
| Shares Offered |
5,000,000 |
| Offer Amount |
$86,250,000.00 |
| Total Expenses |
$3,085,330.00 |
| Shares Over Alloted |
750,000 |
| Shareholder Shares Offered |
-- |
| Shares Outstanding |
5,375,000 |
| Lockup Period (days) |
180 |
| Lockup Expiration |
-- |
| Quiet Period Expiration |
-- |
| CIK |
0001514378 |
We estimate that our net proceeds from this initial public offering of our
common stock, after deducting the underwriting discount paid by us and the
estimated offering and organizational expenses paid by us, will be
approximately $71.9 million. We estimate that our net proceeds will be
approximately $82.7 million if the underwriters exercise their over-allotment
option in full. Our obligation to pay for the expenses incurred in connection
with this offering and the concurrent private placement will be capped at 1% of
the total gross proceeds from this offering and the concurrent private
placement (or approximately $0.8 million, and approximately $0.9 million if the
underwriters exercise their over-allotment option in full). Our Manager will
pay the expenses incurred above this 1% cap.
In addition, we expect that we will sell shares of our common stock to
Provident and its affiliates, including Craig Pica, the Chairman of our board
of directors, and certain other members of our senior management team, in a
separate private placement, at the initial public offering price per share, for
a minimum aggregate investment of 7.5% of the gross proceeds of this offering,
excluding the underwriters’ over-allotment option, up to $5.625 million,
resulting in aggregate net proceeds of $77.6 million (or $88.4 million if the
underwriters exercise their over-allotment option in full) after giving effect
to the transactions described in this “Use of Proceeds.” No underwriting
discount is payable in connection with the sale of shares to Provident and its
affiliates, including Craig Pica and certain other members of our senior
management team, in the concurrent private placement.
We intend to use substantially all of the net proceeds of this initial public
offering, the concurrent private placement and borrowings under repurchase
agreements to acquire an initial portfolio of assets from Provident and its
affiliates consisting primarily of shorter duration Agency RMBS and IO Strips.
Following the acquisition of our initial portfolio, we intend to
opportunistically supplement our portfolio of Agency RMBS and Jumbo loans with
Non-Agency RMBS, other non-conforming residential mortgage loans and other
mortgage-related assets, subject to our asset acquisition guidelines and to the
extent consistent with maintaining our REIT qualification. In addition to the
net proceeds of this initial public offering and the concurrent private
placement, we expect to use what we believe to be prudent amounts of leverage
to finance the acquisition of our target assets from a number of financing
sources, including repurchase agreements, warehouse facilities, securitizations
and bank credit facilities (including term loans and revolving facilities).
In acquiring our target assets, we will compete with a variety of institutional
investors, including other REITs, public and private funds, commercial and
investment banks, money managers, hedge funds, commercial finance and insurance
companies and other financial institutions. Many of our competitors are
substantially larger and have considerably greater financial, technical,
marketing and other resources than we do. A number of other REITs have recently
raised, or are expected to raise, significant amounts of capital, and may have
investment objectives that overlap with ours, which may create additional
competition for opportunities to acquire assets. Some competitors may have
a lower cost of funds and access to funding sources that may not be available
to us, such as funding under programs established by the U.S. government to
the extent that we are not eligible to participate in such programs. Many of
our competitors are not subject to the operating constraints associated with
REIT tax compliance or maintenance of an exemption from the 1940 Act. In
addition, some of our competitors may have higher risk tolerances or different
risk assessments, which could allow them to consider a wider variety of assets
and establish more relationships than us. Furthermore, competition for assets
of the types and classes which we will seek to acquire may lead to the price
of such assets increasing, which may further limit our ability to generate
desired risk-adjusted returns for our stockholders. We may also compete for
opportunities to acquire assets with other clients of our Manager and its
affiliates.
In the face of this competition, we expect to have access to our Manager’s and
its affiliates’ professionals and their industry expertise, which may provide
us with a competitive advantage and help us assess acquisition risks and
determine appropriate pricing for certain potential assets. We expect that
these relationships will enable us to compete more effectively for attractive
opportunities to acquire our target assets. For example, pursuant to our
strategic alliance agreement, we expect to source loans and RMBS primarily
through Provident, which we believe will provide us with a robust pipeline of
attractive assets. Additionally, through this agreement, we will also have
access to Provident’s loan servicing capabilities, which we believe will
enhance the quality and value of our assets. However, we may not be able to
achieve our business goals or expectations due to the competitive risks that
we face.
Company Description
We are a newly formed real estate finance company that will acquire residential
mortgage loans, including primarily Jumbo loans, residential mortgage-backed
securities and other mortgage-related assets. Our objective is to provide
attractive risk-adjusted returns to our stockholders over the long
term,
primarily through dividend distributions and secondarily through capital
appreciation. We intend to achieve this objective by selectively constructing
a diversified portfolio of high quality assets, many of which we expect to be
of shorter duration, and by efficiently financing those assets primarily
through repurchase agreements, warehouse facilities, securitizations, bank
credit facilities (including term loans and revolving facilities) and other
secured and unsecured forms of borrowing. We will be externally managed and
advised by our Manager, an affiliate of Provident. For the nine months ended
September 30, 2011, according to Inside Mortgage Finance, Provident was the
largest wholesale mortgage originator, representing mortgage loans sourced and
submitted to Provident by independent mortgage brokers on behalf of borrowers,
the third largest non-bank mortgage originator and the ninth largest mortgage
originator in the United States, in each case in terms of loans funded directly
to the borrower, with $13.8 billion in origination volume. In the nine months
ended September 30, 2011, Provident’s origination volume totaled $14.9 billion.
Provident’s business philosophy has been built around leveraging proprietary
technology to create a standardized loan experience with a “no exceptions”
mindset, which requires strict adherence to policies and procedures and does
not allow for any transactions to be conducted outside of specified parameters.
This approach has enabled Provident to maintain a low cost structure, which in
turn allows it to offer its loan products at attractive prices in the
marketplace. In return for lower prices in the marketplace, Provident attracts
high quality mortgage loans. An indication of the high quality of these
products is that, for the nine months ended September 30, 2011, the average
FICO score of Provident’s originated mortgage loans was 773 and the average
loan-to-value ratio at origination was 62%. Another indication of this quality
is evidenced by the loss experience related to breaches of representations and
warranties of 8.4 basis points, or bps (0.084%) on the approximately $208
billion of loans originated by Provident from 2001 through September 30, 2011.
Additionally, as of September 30, 2011, Provident’s $51.5 billion mortgage
servicing portfolio had a rate of delinquencies 30 days or greater or in
foreclosure of 2.41% based on the total dollar volume of loans serviced, which
Provident believes compares favorably to the rate reported by Inside Mortgage
Finance Large Servicer Delinquency Index of 10.70%.
Our asset acquisition strategy will focus on acquiring a diversified portfolio
of residential mortgage loans, RMBS and other mortgage-related assets that
appropriately balances the risk and reward opportunities our Manager observes
in the marketplace. Given the current state of the mortgage market, which is
heavily dominated by the origination and securitization of conforming mortgage
loans, we expect to initially focus on acquiring primarily Agency RMBS and, to
a lesser extent, Jumbo loans. Given our long-term view that the market for non-
conforming residential mortgage loans including, in particular, Jumbo loans,
will grow, we expect our portfolio to become increasingly focused on this asset
class over time. We expect to source mortgage loans and securities primarily
through Provident pursuant to the terms of a strategic alliance agreement that
we will enter into with Provident, or our strategic alliance agreement. Under
our strategic alliance agreement, Provident will be required to offer any loan,
RMBS or MSRs (and/or participation interests in MSRs) originated or owned by
Provident to us before offering any such loan, security or right to any other
fund or investment vehicle managed or advised by Provident or one of its
affiliates. In addition, Provident will not purchase any loan, RMBS or MSRs
(and/or participation interests in MSRs) from any other fund or investment
vehicle managed or advised by Provident or one of its affiliates, unless such
loan, security or right is first offered to us.
Upon completion of this offering and the concurrent private placement, we will
apply substantially all of the net proceeds of this offering, the concurrent
private placement and borrowings under repurchase agreements to acquire an
initial portfolio of assets from Provident and its affiliates consisting
primarily of shorter duration Agency RMBS and IO Strips. These assets are
expected to generate positive earnings immediately following the closing of
this offering and the concurrent private placement.
We are a Maryland corporation, incorporated on March 2, 2011, and intend to
elect and qualify to be taxed as a REIT commencing with our taxable year ending
December 31, 2012. We also intend to operate our business in a manner that will
permit us to maintain our exemption from registration under the Investment
Company Act of 1940, or the 1940 Act. As of the date of this prospectus, we
have not commenced any operations other than organizing our company. We
currently have no assets and will not commence operations until we have
completed this offering and the concurrent private placement.
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Our principal executive offices are located at 851 Traeger Avenue, Suite 380,
San Bruno, California 94066. Our telephone number is (855) 653-4300. Our
website is www.pmca-reit.com.
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