Anthracite Gets New Life

We highlight Anthracite Capital Inc. (AHR - Snapshot Report), Bank of America Corp. (BAC - Analyst Report), Morgan Stanley (MS - Snapshot Report), Deutsche Bank AG (DB - Snapshot Report) and BlackRock, Inc. (BLK - Snapshot Report).

Anthracite Capital (AHR - Snapshot Report) announced that it had extended the expiration of its credit facilities until September 30th, 2010. AHR has about $365 million outstanding with Bank of America (BAC - Analyst Report), Morgan Stanley (MS - Snapshot Report) and Deutsche Bank (DB - Snapshot Report).

The company had tripped covenants on its credit facilities and has been negotiating an amendment. In addition, AHR received an extension on another smaller facility until June 30th, which had been breached, with a subsidiary of its parent company, BlackRock (BLK - Snapshot Report).

This announcement gives the company some breathing room; it eliminates all mark-to-market provisions, the right to make future margin calls, and scheduled amortization payments. Instead, the company will follow a cash management plan which will pay interest and principle on its outstanding loans.

The agreement comes at a steep price: AHR’s lenders will receive an interest in all of the company’s unencumbered assets and first position in all cash flows generated. In addition to various other financial covenants, the company is now limited in acquiring new assets.

This agreement is good news, as it will keep AHR out of bankruptcy.

Although, despite 90%+ share price declines over the past, we still view AHR is still a risky investment. The company has a diverse loan portfolio of commercial loans and CMBS. Loan delinquencies and write-offs are increasing at a fast pace. Commercial real estate fundamentals appear to be getting worse, and have not yet reached a bottom; we expect delinquencies to increase as 2009 progresses.

The company pays no dividend -- the main reason for buying a REIT -- and we do not expect any type of payout until 2010 at the earliest. Shares of AHR increased are up about 60% today.