Apollo Residential Mortgage files for IPO to invest in MBS
Apollo Residential Mortgage Inc. said it plans to offer 10 million shares in its initial public offering to buy agency mortgage-backed securities. The firm, a newly organized real estate investment trust, or REIT, said it expects the IPO to price at about $20 a share and trade under the ticker AMTG on the New York Stock Exchange. It will invest in residential mortgage assets in the United States. Its assets are expected to consist initially of agency MBS but later expand to include a broader range residential mortgage assets, including nonagency MBS, residential mortgage loans and other residential mortgage assets, the firm said in a Securities and Exchange Commission filing. "We also anticipate that we will purchase single-family residential whole mortgage loans and other mortgage-related assets over time. We plan to source our residential mortgage loans through bulk acquisitions of pools of whole loans originated by third parties that we expect to be available for purchase from existing bulk or pool sellers. In addition, we will seek to purchase legacy nonconforming mortgage loans from a range of financial institutions," Apollo said in its regulatory filing. Its manager is an indirect subsidiary of Apollo Global Management (APO), a global private equity firm that went public in March and a direct subsidiary of Apollo Capital Management, an investment adviser. Apollo already has some experience in residential real estate markets. Apollo bought WMC Mortgage Corp., a subprime lender, in 1997 and sold it in 2004 for approximately $472 million, generating a gross internal rate of return of 28.3%, the company said. In addition, Apollo is the majority owner of Realogy Corp., a global provider of residential real estate services. In 2007, Apollo formed Vantium to take advantage of dislocation in the mortgage markets. Vantium has invested more than $750 million in residential mortgage assets with a combined par value of approximately $2 billion. Apollo Residential said it believes it can capitalize on the significant market disruptions in the housing industry, including the steep yield curve and attractive spread environment. The firm also said it anticipates making "strategic purchases of legacy nonagency MBS at significant discounts to par" in the coming years, when it expects a resurgence in private-label MBS. Larger macro trends in the housing industry also point to a potential promising future for the IPO. "Declining home prices and tightening lending standards reduce the volatility of prepayment risk and will allow us to hedge our interest rate exposure more effectively," it said in the regulatory filing. "In addition, we expect the tightening of lending standards to lead to fewer defaults, which will improve our performance both in terms of lower default rates on nonagency assets, and improve our accuracy in forecasting the duration of our agency assets." Still, the plan to invest in MBS is not without its risks as the housing market languishes and trends involving prepayment rates and delinquency rates remain volatile, which could affect the values of agency and nonagency MBS. Plans to reform Fannie Mae and Freddie Mac, and the uncertainty that still exists on that front, could also affect its profitability, the company said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.