EQUITIES: Sutherland Asset Management postpones IPO
Rough markets have claimed their first IPO casualty, even before a new issue has priced in the new year.
Sutherland Asset Management, a REIT that originates and finances small balance commercial loans and is externally managed by Waterfall Asset Management, postponed its offering targeting as much as US$130m, citing market conditions, according to market sources.
One of two IPOs scheduled to price this week, deal sources confirmed the postponement early Thursday ahead of scheduling pricing after the close, though the lack of clear messaging earlier on the progress of the deal earlier in the week suggested raising the money might be challenging.
JP Morgan, Morgan Stanley and FBR were leading the offering.
This week’s other IPOs, a US$150m offering by workers’ compensation insurance outsourced provider Patriot National, is expected to price this evening. On Wednesday, deal sources said demand was “approaching deal size” but with more orders to come and good interest on the West Coast leg of the roadshow from FIG specialists and small cap growth portfolio managers. The deal is expected to price towards the mid-to-lower-end of the range, market sources said.
Sutherland had planned to sell 8.1m shares at US$15-$16 each, valuing the vehicle at up to US$611.2m.
The REIT marketed at a dividend yield of mid-8s to low-9s yield based on projected earnings, though had not committed to a specific payout. That compared with a peer median 8.2% comp group of commercial mortgage REITs such as Starwood Property Trust, Blackstone Mortgage Trust and Ares Capital.
Sutherland is among 13 non-bank financial institutions eligible to participate under the Small Business Administration’s Section 7(A) loan programme under which 75% of the value of loans is generally guaranteed. The amount of loans, which range in size from US$150,000 to US$3.75m, totalled US$19bn last year and there were US$68bn of loans outstanding as of the fiscal year-end of September 30.
This isn’t the first time that Sutherland has tried – and failed – to go public. In 2009, shortly after its formation, the company unsuccessfully attempted to raise US$250m in an IPO that comprised initial funding despite restructuring by lead managers UBS and KBW.
Sutherland held a diversified portfolio of mortgage loans with an unpaid principal balance at September 30 of US$1.5bn, comprising 78.8% performing and 10.4% sub- and non-performing. The company, which is targeting leverage of between 3-to-1 and 4-to-1 on its performing portfolio and 1-to-1 and 3-to-1 on non-performing, generated net income of US$17m on total interest income of US$48.6m in the nine months ended September 30.