Capitol Acquisition Corp. (stock symbol: [t]CLA[/t]), which raised $250 million when it went public in November 2007, has announced that it has reached an agreement with Pine River Capital Management L.P. to merge into and fund an entity focused on residential mortgage backed securities that will be managed by Pine River Capital Management L.P.
This deal has some interesting terms:
Capitol's founders will retire 100% of their pre-IPO founders' shares. As a condition of the transaction, Capitol's warrant holders will be asked to amend the strike price of their warrants to $11.00 per share in exchange for extending the warrant expiration by one year to November 7, 2013.
Capitol Acquisition Corp. and Two Harbors Investment Corp. to Merge, Form New Residential Mortgage REIT Managed by an Affiliate of Pine River Capital Management
On Thursday June 11, 2009, 8:27 am EDT
Veteran Pine River Investment Team with Proven Track Record Well Positioned to Capitalize on Unprecedented Dislocation in RMBS Market
NEW YORK, June 11 /PRNewswire-FirstCall/ -- Capitol Acquisition Corp. ("Capitol") (NYSE Amex: CLA), a public investment vehicle, Pine River Capital Management L.P., a multi-strategy asset management firm with over $800 million in assets under management, and Two Harbors Investment Corp. ("Two Harbors"), a newly organized real estate investment trust (REIT), announced today that they have signed an agreement and plan of merger pursuant to which Capitol will be acquired by Two Harbors. Two Harbors intends to focus on residential mortgage backed securities and will be externally managed by PRCM Advisers LLC ("PRCM"), a subsidiary of Pine River Capital Management L.P. ("Pine River"). The transaction is expected to be completed by the end of the third quarter of 2009, pending approval by Capitol's stockholders and warrant holders and subject to certain closing conditions, including the amendment of Capitol's charter to remove certain provisions customarily contained in the charters of special purpose acquisition companies, in order to permit the merger.
"We believe Two Harbors represents a compelling opportunity for investors to capitalize on historically unprecedented values in the $11 trillion U.S. mortgage market," said Mark Ein, Chairman and Chief Executive Officer of Capitol who will become Vice Chairman of Two Harbors upon completion of the transaction. "We are excited to partner with Pine River and their veteran team with a proven track record of investing in residential mortgage backed securities. We believe that Two Harbors, as a newly formed REIT, created at or near book value with no legacy assets, will be well positioned to generate attractive risk-adjusted returns," added Mr. Ein.
Two Harbors intends to pursue a relative value strategy targeting all subsets of the RMBS market. This strategy seeks to capture inefficiencies created by the current dislocations in non-Agency and Agency securities, and longer-term opportunities in residential mortgage assets.
Under the terms of the merger agreement, the common stock of Capitol issued through Capitol's November 2007 initial public offering will convert on a share-for-share basis into 100% of the common stock of Two Harbors. Capitol's founders will retire 100% of their pre-IPO founders' shares. As a condition of the transaction, Capitol's warrant holders will be asked to amend the strike price of their warrants to $11.00 per share in exchange for extending the warrant expiration by one year to November 7, 2013.
"We are delighted to partner with the Capitol team to create an efficient public vehicle for investors to access the RMBS market," said Brian Taylor, Founder and Chief Executive Officer of Pine River who will serve as Chairman of Two Harbors upon completion of the transaction. "Together with Capitol's team of accomplished investors and executives, we look forward to offering Pine River's expertise in portfolio management and mortgage backed securities to a new group of investors," added Mr. Taylor.
RMBS Investment Veterans Named Co-CIOs
Two Harbors' investment team will be led by Co-Chief Investment Officers Steve Kuhn and Bill Roth. Mr. Kuhn joined Pine River from Goldman Sachs Asset Management in January 2008. He has over 16 years of experience investing in and trading mortgage backed, asset backed and related securities at Goldman Sachs, Citadel and Cargill. Mr. Roth will join Pine River effective June 16, 2009 after having worked at Citigroup Global Markets Inc. since 1981, most recently as a Managing Director in the firm's proprietary trading group managing mortgage backed and asset backed securities portfolios.
High Quality Infrastructure and Oversight
Two Harbors will be externally-managed by PRCM, a wholly-owned subsidiary of Pine River. Pine River is a leading independent global alternative investment advisor with over $800 million in assets under management, 54 employees, 19 investment professionals and six partners, with an average of 18 years experience in the alternative investment management industry. Pine River has regulatory registrations in five nations and operates from offices in New York, London, Hong Kong, San Francisco and Minnesota. Under a management agreement between PRCM and Two Harbors, PRCM will earn an annual management fee of 1.5% of shareholders' equity, but will not charge any additional performance fees.
The management of Two Harbors will be led by Chief Executive Officer Tom Siering, who joined Pine River as a Partner in 2006 from EBF & Associates where he was head of the Value Investment Group. Jeff Stolt, a Pine River Partner and Chief Financial Officer, will serve as Two Harbors' Chief Financial Officer.
The Board will be led by Messrs. Taylor and Ein. Prior to Founding Pine River in 2002, Mr. Taylor was Partner and head of the convertible arbitrage group at EBF & Associates, a Minnesota based private investment firm. Mr. Ein has a long track record of building successful growth businesses. Prior to founding and serving as CEO of Capitol, he established Venturehouse Group, LLC, a technology holding company that spawned and grew several notable portfolio companies. Mr. Ein was also a Principal with The Carlyle Group and worked at Brentwood Associates and in the CMBS business at Goldman Sachs. They will be joined by Mr. Siering and four independent directors to be named later.
Credit Suisse Securities (USA) LLC is serving as financial advisor to Pine River. Clifford Chance US LLP is advising Pine River and Graubard Miller and Latham & Watkins LLP are advising Capitol.
Other Merger Agreement Terms
Upon completion of the merger, the approximately $260 million currently held in trust by Capitol, less expenses and any amounts released to Capitol's common stockholders electing their right to conversion or used by Capitol to purchase shares in forward sales or other transactions, will be used by Two Harbors for the purposes of investing in residential mortgage backed securities. The merger is conditioned upon a minimum amount of proceeds remaining after expenses and completion of such conversions or forward sales.
Under a sub-management agreement between PRCM, Pine River and CLA Founders LLC, an affiliate of the founders of Capitol, CLA Founders LLC will receive a portion of the management fees paid to PRCM in exchange for providing services in support of PRCM's performance under its management agreement with Two Harbors.
Conference Call Information
Capitol and Pine River will host a conference call at 11:30am Eastern Time today (June 11, 2009) to discuss the proposed merger of Two Harbors and Capitol. The call will be open to the public and can be accessed by dialing 877-941-2332 (callers within the U.S.) or 480-629-9726 (callers outside the U.S.). The number should be dialed at least 10 minutes prior to the start of the call. The passcode for the call will be 4094795. The slides complementary to the presentation will be available prior to the call on the web site of the SEC at sec.gov as part of Capitol's 8-K filing today and on the Investor Relations page of Capitol's website, www.capitolacquisition.com.
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