Government Lending

Mortgage REIT merger: Two Harbors acquiring CYS Investments

Companies plot expansion into agency RMBS

Nearly two years ago, Two Harbors Investment Corp., a mortgage real estate investment trust, shuttered its mortgage securitization business, wherein the REIT bought jumbo mortgages and securitized them.

Since then, the company has focused on investing in residential mortgage-backed securities, mortgage servicing rights, and other financial assets.

And now, the company is preparing to expand its agency RMBS business by acquiring CYS Investments, a fellow mortgage REIT that specializes in investing in agency RMBS backed by fixed-rate single-family residential mortgage loans, adjustable-rate mortgages and hybrid ARMs.

In a release, Two Harbors said that adding CYS’ capital base will allow the company to grow its interests in its target assets.

“We are pleased to announce the acquisition of CYS Investments, which we believe represents a unique opportunity to create value for our stockholders,” Thomas Siering, Two Harbors’ president and chief executive officer, said.

“This transaction offers Two Harbors stockholders the opportunity to benefit from additional capital, supporting continued growth in our target assets, as well as an improved cost structure,” Siering added. “The combination of the two companies also supports the potential for the premium valuation of a pro forma Two Harbors.”

As part of the deal, CYS stockholders will trade in their shares of CYS common stock for newly issued shares of Two Harbors common stock, plus aggregate cash consideration of $15 million.

In the release, CYS said that its investors will benefit from Two Harbors’ more diverse business model, which is “positioned to withstand periods of market volatility and is comprised of a mix of asset classes and a platform that is challenging to replicate.”

“We are excited about the opportunity to merge with Two Harbors and believe that our stockholders will benefit from the increased scale, diversification and liquidity of the combined companies,” Kevin Grant, CYS Investments’ chairman, chief executive officer, president and chief investment officer, said. “Two Harbors has a long history of being strong stewards of capital and we believe this transaction should enhance value for our stockholders over the long-term.”

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