American Capital Boosts Liquidity

Recently, American Capital Agency Corp. (AGNC - Analyst Report) announced an offering of 50 million equity shares. Gross proceeds from the offering are expected to be $1.58 billion, excluding expenses. The company intends to use this amount to obtain additional agency securities as market conditions warrant and for other corporate purposes.

To cover any over-allotments, American Capital plans to offer a 30-day option to the underwriters to purchase an additional 7.5 million shares. The offering is expected to close on Mar 5, 2013, subject to customary closing conditions.

J.P. Morgan Securities LLC, Citigroup Inc (C - Analyst Report), BofA Merrill Lynch of Bank of America Corporation (BAC - Analyst Report), The Goldman Sachs Group, Inc. (GS - Analyst Report), Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC acted as joint book-running managers for the public offering.

We expect that the offering would aid the company achieve financial flexibility and position it favorably to pursue investment opportunities, which will go a long way in improving the top-line growth. However, the resulting impact of share dilution cannot be ignored.

Earlier last month, American Capital reported fourth-quarter results with net spread income per share of 89 cents, which fell short of the Zacks Consensus Estimate of $1.01. However, it exceeded the prior quarter figure of 79 cents per share.

During the fourth quarter, American Capital recorded an annualized economic return on common equity of 5%. As of Dec 31, 2012, the company's investment portfolio comprised $85.2 billion worth of agency securities and $12.9 billion of net TBA (to-be-announced) mortgage positions, at fair value.

As of Dec 31, 2012, American Capital’s cash position stood at $2.4 billion.

American Capital currently has a Zacks Rank #3 (Hold).