Update on CIM-B

After more than two weeks, investor relations at Chimera Investment Corporation (CIM) responded to investor requests for explicit details on their plans for CIM-B (CIM.PB). Before I get into their response, I want to lay out the framework.

As a reminder, I am not a lawyer, judge, nor any other person who has studied law in a formal setting. I evaluate investments, not legal claims.

Background

After PennyMac Mortgage Trust (PMT) created mayhem in the preferred shares by announcing that they believed “fixed-to-floating” could also mean “fixed-to-not-floating”, we dug into the prospectus for each of the preferred shares we cover.

At the time, I classified CIM-B as “FTFP”, which stands for “Fixed-to-Floating-Probably”.

My initial assessment stated:

CIM-B should be able to land in the “all clear” pile, but they fell a tiny bit short. If we take “the spirit” of what they said, it would clearly be that they are going to use SOFR. However, the spirit of the contracts and the spirit of the law clearly hasn’t been enough. Consequently, I can’t give this an “all clear”. I e-mailed CIM on Monday morning (8/28/2023) and they haven’t replied yet (as of 8/30/2023 around noon Eastern).

The first source is the CIM Q2 2023 Earnings Presentation:

That’s pretty good. It’s almost complete. It should reference each series individually, but it’s close. This is about 90%.

Using CIM’s Q2 2023 10-Q, we have further support:

I think that brings it up to about 95%. Publishing that and then declaring that “will become floating” actually means “CIM-B will be fixed rate” would be indefensible.

To ensure this is clear, I want to provide a timeline.

The Timeline

December 16th, 2022: The Federal Reserve Board issued a press release to explain that they adopted the final rule implementing the LIBOR Act.

June 30th, 2023: US Dollar LIBOR ends, though a synthetic version will still be presented until September 30th, 2024.

August 3rd, 2023: CIM’s Q2 2023 presentation states (as shown in the first screenshot):

As of July 3, 2023, the LIBOR rate payable on the preferred has been replaced by operation of law with the corresponding tenor of Term SOFR plus the applicable statutory spread adjustments.

It becomes more damning when we consider the context.