Residential mortgage REIT PennyMac Mortgage Investment Trust (PMT) has priced their new senior notes with a coupon of 9%.
This is a large issue with 6 million shares (bonds) being sold with another 900,000 shares available for over allocation.
PMT has a 8.50% senior note issue outstanding (PMTU) which fell around 40 cents on the announcement of this new issue.

The pricing term sheet can be read here.
I just sold my PMT/PRA which was yielding 8.5% and planning to swap that with this new issue. I calculated that PMT/PRA would need to drop by nearly $1 per share to yield closer to 9%. and not sure why anyone would want to hold the perpetual preferred with a lower yield than the debt.
Tim let me know if I am not thinking about this correctly.
Well that was annoying. I just bought back my PMT/PRA at a slightly higher price. Will hold out for the lawsuit – wish I read through yesterday’s comments first.
https://seekingalpha.com/article/4631805-pennymac-and-now-for-something-different-for-preferred-holders
I’ve not seen anyone put in the research and depth of effort on this case than CWM…. That being said, if I had to bet, I would not buy back into PMT-A simply in anticipation of a plaintiff win…. purely gut opinion, though…
For others not following, this is presumably the lawsuit that Dan is referring to: https://www.courtlistener.com/docket/68857557/roberto-verthelyi-v-pennymac-mortgage-investment-trust/
I didn’t understand this either at first but the bulk of the capital they raised was equity financing, so this borrowing is only incremental to that base. Imagine a company issues 100M equity and 100M of debt at 10% the effective cost of all that capital is only 5%. Thats how these guys can stay in the game.
Not sure borrowing money at 9% and lending it out at 7% is sustainable. Does PennyMac expect mortgage rates to rise to double digits in the near future?
Fortunately that is not how MREITs work.
You see there is this thing called leverage and they know how to use it.