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PHILADELPHIA-RAIT Financial Trust has revealed that American Home Mortgage Investment Corp. failed to make its payment on RAIT's trust preferred financing due on July 30. All other issuers of RAIT's trust preferred securities did meet their obligations, the locally based financial REIT says in a statement.
RAIT says its net equity exposure to AHM is approximately $95 million resulting from trust preferred financing RAIT provided to Melville, NY-based AHM in 2005. In tandem with the announcement, RAIT pushed its second-quarter conference call ahead one day to Aug. 2 from the originally scheduled Aug. 3, and says it will further discuss its exposure to the troubled AHM at that time.
On July 27, AHM said it was delaying payment of its quarterly cash dividends and attributed it to "the disruption in the credit markets in the past few weeks." Calling the disruption "unprecedented," management said in a statement that the disruption had caused "major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities."
AHM stock dove to a 52-week low of $6.42 a share and, following the NYSE's request for an explanation of this "unusual activity," AHM issued a statement saying it is "working diligently to determine how best to resolve the liquidity issues." Acknowledging that it was unable to borrow on its credit facilities and fund its existing obligations of $300 million on July 30 and that it anticipated the same inability to fund obligations of between $450 million and $500 million the following day, AHM said it had retained Milestone Advisors and Lazard to assist in evaluating its strategic options, "including the orderly liquidation of its assets."
When AHM stock resumed trading on the NYSE on July 31, shares sunk more than 90% to $1.04 a share. This compares with a 52-week high of $36.40 a share on Dec. 6, 2006. AHM is a mortgage REIT focused on earning net interest income from self-originated loans and mortgage-backed securities. It relies on short-term bank financing to temporarily fund its home loans.
Meanwhile, shares of RAIT stock also took a big hit. With release of the July 31 announcement regarding its exposure to AHM, shares of RAS fell to $10.36 a share on the NYSE, down nearly 36.6% from the day before to set a new 52-week low. This compares with a 52-week high of $38.25 a share, reached on this Feb. 7. This May, the company headed by Betsey Cohen, chair, and Daniel Cohen, CEO, reported that it had approximately $14 billion in assets under management.
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