Exhibit 99.3
ANTHRACITE CAPITAL, INC.
TELECONFERENCE CALL
May 4, 2004
10:00 am EST
Operator: Good morning. My name is Carmen and I will be your
conference facilitator today. At this time I would like
to welcome everyone to the Anthracite Capital Inc. First
Quarter 2004 Earnings Conference Call.
Our host for today's call will be President and CEO,
Christopher A. Milner; Chief Financial Officer and Chief
Operating Officer, Richard M. Shea; and Director and
Senior Counsel of Blackrock Financial Management Inc.
Vincent Tritto.
All lines have been placed on mute to prevent any
background noise. After the speaker's remarks, there
will be a question and answer period. If you would like
to ask a question during this time, simply press Star
then the number 1 on your telephone keypad. If you would
like to withdraw your question, press Star then the
number 2 on your telephone keypad.
Thank you, Mr. Tritto you may begin your conference.
Vincent Tritto: Thank you Carmen and good morning. This is Vincent
Tritto, I am a Director and Senior Counsel of Blackrock
Financial Management, Inc., Anthracite Capital's
manager.
Before Chris Milner and Richard Shea make their remarks, I would like
to point out that during the course of this conference call, we may make a
number of forward looking statements. We call to your attention the fact that
Anthracite's actual results may differ from these statements. As you know,
Anthracite has filed with SEC reports which list some of the factors which may
cause Anthracite's results to differ materially from these statements.
Finally, Anthracite assumes no duty to update any forward-looking statements.
Chris
Chris Milner: Thank you Vincent and good morning everyone. We
had a very active first quarter during which we
accomplished a number of our previously outlined
business objectives. First we closed our third CDO
offering in March, just before interest rates increased
as a result of improving economic conditions.
In addition, we closed one controlling class CMBS
transaction and priced another during the first quarter.
We were also recently awarded a third CMBS transaction,
which we expect will close late in the second quarter.
All of these investments will be financed by the ramp
facility that was created as part of our recent CDO. We
will also use a portion of the proceeds from the CDO
offering, which has a weighted average cost of funds of
5%, to redeem our 10% Series B Preferred Stock. This
significant cost savings will be reflected in net
earnings starting in the second quarter.
While our pipeline of high yield commercial investment
opportunities continues to grow, competition for such
opportunities is becoming increasingly intense. To
compete effectively in this environment we have added
three new real estate professionals to our staff. We
remain committed to our comprehensive underwriting
discipline and the addition of these experienced
individuals will enhance our ability to complete our
transition to a commercial mortgage focused operation.
I will now turn the call over to Richard Shea for a
brief summary of our financial results for the first
quarter.
Richard Shea: Thank you Chris and good morning everyone. The first
quarter earnings for the Company were zero per common
share, which includes a one-time charge of 20 cents per
share to redeem the Company's 10% Series B Preferred
Stock. Before this charge, the earnings obviously were
20 cents per share versus 18 cents per share for the
first quarter of 2003.
The components of the 20 cents include operating
earnings of 28 cents per share and other losses from
portfolio repositioning and hedging of 8 cents per
share. A breakdown of the 8 cents includes 2 cents for
hedging ineffectiveness, which is a formulaic
computation under (FAS No.) 133, and as we do additional
match funding the noise from this (FAS No.) 133 formula
is expected to abate.
On the GAAP book value, GAAP book was up for the quarter
by 3.5% to $6.87. This is attributable to generally
lower long-term interest rates that occurred from
December 31 to March 31.
Our debt to capital ratio has increased to 7.6 to 1 from
4.4 to 1, as a result of two transactions, one being our
third CDO and the other one being an acquisition of a
commercial loan pool transaction, of which I'll explain
more in a moment.
Both of these transactions involve the issuance of
non-recourse match funded debt. The non-recourse aspect
of this debt means the creditors of the Company cannot
look to the general assets of the Company if there is a
credit loss in excess of the Company's investment.
Furthermore, the match funded character of the debt also
means that there is no funding rate mismatch. So if
short-term rates increase, the cost of this debt
remains, fixed. again eliminating an additional
financial risk that the Company has faced prior to the
issuance of these kinds of liabilities.
Another aspect of this debt is that there is no margin
call feature to this. So if there is a rate backup in
the market, there is no capability of our creditors to
call us to make additional payments to additionally
collateralize any of these liabilities. So essentially
what we've done is increased the debt to capital ratio
with non-recourse debt with no short-term rate risk and
margin calls, which is a very higher quality type of
debt than is generally used in this sector.
If we remove these non-recourse match funded
liabilities, then our debt to capital ratio drops to 2.0
to 1. All three of the Company's CDOs and the commercial
loan pool represent this type of higher quality debt.
Our repositioning on the asset side into commercial real
estate continues to progress as planned. At quarter-end
our total investment portfolio was made up of 82%
commercial real estate assets and 18% residential
mortgages. This includes the effect of the acquisition
of this controlling class CMBS transaction which we
listed on our balance sheet as the commercial loan
pools. Without this transaction these percentages would
be 72% commercial assets and 28% residential. So that
compares apples to apples to the percentages we gave at
the end of the fourth quarter where commercial asset
percentages was 68% at 2003 year-end.
If you look at our balance sheet, you can see we have
approximately $600 million of exposure in total to RMBS
and, as we've been discussing over the last few
conference calls that we've had on earnings, we're
looking to continue to reduce that level.
People have often asked us what level do we think is the
right place to be for this. On an absolute basis, we're
feeling that about $300 million to $350 million of
exposure to RMBS in this area would be adequate for us
to consider that we have achieved that goal. And you can
see we have made some significant progress towards that
as in the same quarter last year we were at well over
$1.2 billion of RMBS. So you see we made some
significant progress there.
One constraint in achieving that objective was the
Investment Company Act regulations which require that we
have a certain amount of whole pool residential mortgage
backed securities. One of the things that we've done
with this commercial mortgage loan pool transaction is
to essentially mitigate the constraint from that
compliance test so that we're able to comfortably meet
our compliance requirements with commercial real estate
loans.
This does represent a slight departure from the way we
record other similar type CMBS transactions, but the
simplest way to look at this is essentially to net the
$1.22 billion of assets against the $1.19 billion that
is listed as due to REMIC Trust, which is the
liabilities on that particular trust. You get a $23
million investment number and that essentially is the
controlling class interest that we purchased.
Let me briefly give you some background here. CMBS
transactions like these will typically involve a trust
that owns mortgage loan pools and will issue
non-recourse debt secured by those loans. Typically the
Company will buy the high yield securities issued that
are generally rated BB or lower, and we record them on
our balance sheet at their fair market value.
These securities generally represent 3% to 5% of the par
value of the underlying loans in the pool. Essentially,
our approach now places 100% of the loans in this
particular transaction on the Company's balance sheet,
rather than just the 3% to 5% of the loans represented
by the securities owned.
The other securities that are acquired by other
investors, not related to the Company are then listed as
liabilities of the Company, representing the difference
between the face amount of the actual loans owned by the
securitization transaction and the high yield securities
that the Company actually purchases.
So again, the simplest way to look at this is just to
net the assets of the $1.22 billion versus the liability
of $1.19 billion. This is only a different method of
accounting, and it does not affect the risk profile of
the Company because all the debt issued, as I said
before, is non-recourse to the Company. What this
accomplishes is it provides us with additional
flexibility to continue making progress on our goal of
reducing our RMBS exposure.
The next transaction is something that we'll be doing
this coming Thursday. We will be redeeming the Series B
Preferred Stock for its liquidation preference of $25
per share, for a total cost of $41 million. The Series B
Preferred Stock, if you recall, was originally issued at
a $6 discount to its liquidation value reflecting its
market value at the time of issuance as part of the
acquisition of Core-Cap in May of 2000.
This series of preferred stock has a coupon of 10% on
it. As previously discused. The Company issued $372
million of secured debt through our third CDO, and the
weighted average cost of funds on that CDO was 5%. So
we're essentially raising 5% cost of capital money to
redeem 10% cost of capital preferred stock. This
obviously will result in a substantial reduction in the
cost of capital that goes directly to our common
shareholders.
The Company's annualized return on equity on average
reported equity for the fourth quarter, was 16.4% and
our net interest margin was 3.2%. The ROE is down from
last year due to lower market interest rates and the
reduced investment in RMBS assets.
On the credit side, our loss experience remains
consistent with current expectations. Charge-offs during
the quarter occurred on six underlying loans that were
worked out during first quarter. The total losses that
we have recognized since the inception of the Company on
these transactions are 37 basis points on total original
balances, and delinquencies are currently at 1.08% of
unpaid principal balances. Both of these numbers are
well within the 2.06% cumulative losses assumption that
been used by the Company to report its earnings on a net
loss adjusted basis.
And so with that, I'll now turn the call back to Chris
Milner for discussion of the investments and business
outlook.
Chris Milner: Thank you Richard. The Company's third CDO priced on
March 16 in an interest rate environment, where the
ten-year Treasury yield was 3.69 and swap spreads were
37 basis points. Today, less than a month later, those
rates stand at 4.5% and 49 basis points, indicating that
a pricing of the same transaction today would likely
cost the Company nearly 100 basis points in additional
interest expense annually on the $372 million of debt
that was issued.
This market timing benefit is increased by the fact that
we structured a $50 million ramp facility and are able
to buy assets in the current higher interest rate
environment with liabilities that were priced at lower
rates. This gives us a funding advantage in a highly
competitive market environment.
Furthermore, we have reduced the Company's exposure to a
50 basis point increase in LIBOR, from 4.5 cents per
share one year ago, to 1 cent per share as of March 31.
Given the changes in the market sentiment today
regarding a potential Fed tightening, this tactical
position should reduce earnings volatility going
forward.
On the asset origination side of our business, we've
increased the pace of originations and have been
favoring long dated CMBS securities, which can be
financed in transactions similar to our CDO and
specifically in the CDO ramp facility.
While spreads in these assets have decreased due to
increased competition, our cost of funding has been
reduced as well by our other CDO offerings. In addition,
we also maintain our believe that improving economic
fundamentals and reduced additions to supply will result
in better credit performance for recent vintage CMBS
versus the 1999 to 2001 period which was characterized
by significantly high and unsustainable rents.
Overall we're pleased with the progress that we made
during the first quarter and intend to work diligently
toward completing our previously outlined business plans
in succeeding quarters. But we do acknowledge that our
sector has been under significant pressure in recent
weeks, we remain committed to taking actions that
position the fundamental business of the Company for
success and we are pleased with the performance to date.
This concludes our prepared remarks and we will open the
phone lines to address any questions you may have.
Operator: At this time I would like to remind everyone, in order
to ask a question please press Star then the number 1 on
your telephone keypad. We'll pause for just a moment to
compile the Q&A roster.
Your first question comes from Don Destino from JMP
Securities.
Donald Destino: Hi guys. Couple questions. First, mechanically,
can you just walk through how the mortgage pool
transaction is going to run through your P&L, I mean,
are you going to record interest income on the entire
balance and interest expense on the entire balance due
and netted out? Or is going to just flow through as kind
of interest on the net amount?
Richard Shea: As we indicated in the press release, your former
answer is the right one. We will be booking income based
on the loans themselves and we're going to be booking
interest expense based on the liabilities that we listed
on our books.
Really what we're doing is we're returning to what
typical banks do, which is put a loan loss provision on
our loan pool, consistent with the way we underwrite the
CMBS securities now. And you'll just see income, you'll
see a loan loss provision and the interest expense on
the debt that's being issued as non-recourse debt. So
it'll be a lot more consistent with what a typical bank
does.
Donald Destino: Okay that's what I read as well, I guess what confused
me was that you don't have the due to REMIC trust listed
as a borrowing. Is it not considered borrowing?
Richard Shea: That's because, Don, the transaction has not settled yet.
Donald Destino: Oh, okay that makes sense.
Richard Shea: So you will see that line change to non-recourse debt
secured by commercial loans.
Donald Destino: That explains it.
Richard Shea: ...in long-term debt. But we will state that separately
so it's easy to keep track of.
Donald Destino: Got it.
Richard Shea: But not until the certain transaction settles during the
first week of April.
Donald Destino: I got you. And then two questions about the RMBS
portfolio. Number one, has this transaction completely
gotten rid of your `40 Act issue or compliance issues
and therefore there is no `40 act reason to have an RMBS
portfolio? Second part of that question is, if that's
the case what's the purpose of continuing to even keep a
modest RMBS portfolio. And sorry, but the third part of
that question will be, if you did decide to exit the
RMBS business or at least - or even just pair it down,
you know, this week to the $300 million to $350 million
you talked about, would you take a hit to equity to sell
that at current market rates?
Richard Shea: We'll take the questions one at a time. The '40 Act
requirement has certainly not gone away. We still have
issues we have to comply with, such as the '40 Act, tax,
and others. This transaction mitigates that issue, it
provides us with a lot more flexibility to reduce our
RMBS exposure. And that will be happening during the
second quarter.
I think the second question you had is why didn't we do
it at the end of the first quarter, and the answer again
was that, the transaction had not settled yet. And we
want to be able to move out of these positions from much
more of a pure economic perspective without having
regulatory constraints hanging over us. So we want to
make sure we move out with the positions with their
related hedges at the right time.
As far as what loss we would take when we move out of
those, it remains to be seen. It depends on what the
market does, how the hedges perform; but we feel that
over the second and third quarters you should see this
number approach the $300 million to $350 million that I
spoke of and therefore we will have assumed that we've
attained our goal. And I guess the final of your
questions was, are we going to go to zero for RMBS.
As we've said in the past, we did not plan to go to
zero. We do anticipate having a small amount of RMBS
around, think of it again as a store of liquidity,
although much less. But a store of liquidity as we have
now, a very significant part of our balance sheet, is in
very high quality leverage types of transaction through
the three CDOs. So we do feel that a $300 or so million
dollar RMBS number will be there for us going forward.
Donald Destino: Okay great thanks.
Operator: Your next question comes from Don Fendetti from Wachovia
Securities.
Don Fendetti: Good morning. Just to clarify the accounting on your B
Piece assets going forward, is this a one-time
transaction or will you account for your deals - all of
your deals this way going forward?
Richard Shea: This does not represent a change in policy that we're
going to account for all of our CMBS like this. This is,
at the moment, what we're doing with this one
transaction. If there's a reason for us to do it for
additional transactions, we will continue to evaluate
that. But this is not a change in policy that we will be
doing it with all transactions going forward.
Don Fendetti: Okay and can you clarify exactly why, what made this
transaction different than others?
Chris Milner: In terms of the actual technical change in the control
mechanism?
Don Fendetti: Correct.
Richard Shea: There's a rule out there in the accounting literature
called (FAS) 140, which defines what is a qualifying
special purpose entity. If you have a limited amount of
slightly limited amount of, business judgment discretion
on the underlying collateral pool, then you quality as a
QSPE, and therefore you do not gross up the balance
sheet in this manner. If you remove some of that very
small limitations on that exercise of business judgment,
you do not qualify as a QSPE under (FAS) 140, therefore
you become subject to the rules under something else
called (FIN) 46, which is a very technical accounting
statement that drives most accountants crazy but what it
does essentially it pulls you into a more of a gross up
position, which is where we ended up with it. And
obviously that was what we were intending to do.
Don Fendetti: Okay.
Chris Milner: For those of you that have been involved in this
industry for awhile, you may remember over the - what
was it, 15 months ago, FIN 46 came across and generated
a fair amount of angst amongst buyers of this type of
product because there had to be a number of changes made
to the documents to keep these types of transactions
from being consolidated onto the balance sheets of the
buyers.
Effectively in simplistic terms, what we did was
document this transaction in the same way that
transactions were documented prior to the implementation
of that (FIN) 46 accounting pronouncement. And as a
result it did not comply with today's standards in
consolidating the transaction.
Richard Shea: Additionally, and I want to repeat this doesn't change
any of the risk of what we're doing. This is exactly the
same type of security that we normally buy, this is our
eleventh such transaction. The only thing that's
changing here is the accounting.
Don Fendetti: Okay.
Chris Milner: And the point that I'm making is the actual
documentation is similar to the first...
Richard Shea: Right it's...
Chris Milner: ...8 or 9 deals that we did.
Richard Shea: Yes, it's basically identical, there's just a very minor
technical tweak that was made to allow us to achieve
this objective.
Don Fendetti: Okay. If I could shift gears to mezzanine lending, we
continue to hear about the large volume of transactions
in the marketplace. But yet it seems like
Anthracitecontinues to be a relatively small player in
that business. Any thoughts on where you might go with
your mezzanine lending?
Chris Milner: Well I think we continue to expand the mezzanine lending
business. If you'll recall, the primary mezzanine
lending activities that have been in Anthracite's
bailiwick of late have been accomplished through the
Carbon Capital mezzanine fund vehicle, that BlackRock
also manages. And that vehicle has continued to see its
investments increase. And in fact, in addition to that,
Anthracite has put significant amounts of capital into
the mezzanine sector.
Whether or not we will expand that activity consistent
with some other market players remains to be seen. I
think we continue to see significant amounts of capital
coming into the market. Competition is increasing and we
have not taken an approach that we are going to
compromise our underwriting or significantly compromise
the return profile that we're willing to accept in order
to significant increases in volume. But actually we're
overall pretty content and pleased with the pace of
investing in that particular sector.
Don Fendetti: Okay great. Good quarter, take care.
Operator: Your next question comes from Richard Shane from
Jefferies and Company. Mr. Shane your line is now open
you may proceed with your question.
Richard Shane: Hi, sorry about that guys. Couple of high level
questions and then couple detailed. There's no outlook
in terms of dividend in the press release. Historically
you've given some sort of guidance there. Would you just
want to talk about that a little bit?
Also could you talk about pricing for the un-rated CMBS
- in the non-investment grade CMBS market and level of
competition you're seeing there? And then the last
question is, what is your achievement of loss
expectation on the new (traunch) that you just
purchased?
Richard Shea: On the dividend side we don't see any change in
our dividend policy. We remain comfortable at 28 cents.
We have set out previously that that was an objective to
get the Company's operating earnings and then as well as
the GAAP earnings to be at that level on a consistent
basis, quarter over quarter. I think we've made some
good progress to maintain that stability, I think we
still have some work to be done there. But we remain
fairly comfortable with that. Now as market environment
changes, our assessment of that will change as well. But
I think as of right now, we're pleased with the progress
we've made towards that goal.
Chris Milner: With respect to the subordinated CMBS market
environment, we do continue to see new entrants to the
market and as a result those new entrants are actively
competing to deploy the capital that they've recently
raised. We have seen spreads in yields come down as a
result. I think that we expect that that will likely
continue for some period of time absent a shock to the
aggregate market in the unexpected at this point.
I think the technical nature of the market right now and
the amount of capital that finds real estate assets
attractive - not to mention higher yielding assets
attractive, is overwhelming the supply at this point in
time. And so we do continue to see spreads come in. I
think Anthracite's competitive position at this point in
time is significantly benefited the Company's as one of
the premier issuers of CDOs liabilities.
A fair amount of time has been spent on this call and in
other discussions talking about that because we do
believe it's of significant importance. Our ability to
issue long dated fixed rate assets at very competitive
rates gives the Company a funding advantage that allows
us to compete effectively. In other words, if spreads
and after loss yields have come down by a certain
amount, it's our belief that our cost of capital,
particularly with respect to liabilities, has come down
by at least that amount if not more. Therefore, the
return on equity that we're able to generate for our
shareholders has, in our assessment, stayed the same or
possibly even improved somewhat.
Richard Shane: On this class of assets, yes.
Chris Milner: On this particular class of assets. That's particularly
the case for transactions that we are putting into the
ramp facility, given the changes in market rates that we
discussed a little bit ago. We definitely have a
competitive funding advantage for those assets. And I
think we do expect to capitalize on that in the coming
weeks and quarter.
Richard Shane: Great and then the last question was what was the
lifetime loss assumption on the new CMBS?
Richard Shea: As we indicated, on a weighted average basis, our
general loss assumption that collateral pools is just
over 2%. And that's generally the way we've been
underwriting everything, including the three deals that
Chris referred to earlier. And I don't see a significant
deviation from that. You know, having said that, I could
see that if the economy continues to improve, the
collateral quality that we look at on a case-by-case
basis, every pool is going to be different.
It is possible that that number will come down from 2%
if the economy continues to improve, but it really
depends on actual results what we see out there in terms
of economic activity. As well as the types of loans that
are in a particular pool.
Richard Shane: Thank you.
Operator: Once again I would like to remind everyone, in order to
ask a question, please press Star then the number 1 on
your telephone keypad. Your next question comes from Bob
Napoli with Piper Jaffray.
Robert Napoli: Good morning. Just wanted to clarify a couple
things before I post questions. But essentially the net
economic effect from the REMIC trust through your P&L is
going to be just tied to the $23 million you invested
Richard Shea: That's correct.
Robert Napoli: Correct?
Richard Shea: Yes.
Robert Napoli: Now, is that the net P&L effect that we're going
to see accounting - P&L effect that we're going to see
as well the net effect is just going to be tied - or is
there some other accounting reserving and other issues
that flow through your P&L that throw off, at least
temporarily, the economic effects of your investment
versus the GAAP accounting result?
Richard Shea: I don't think there's going to be a significant
change or difference between the way we would have
booked the securities themselves on a loss adjusted
yield basis the way we do with everything else, versus
the process that we will be setting up which will be one
where there is a loss provision. Since a loss provision
will be set up based on the exact same underwriting
standards that we use for our CMBS, I don't see there
being a significant deviation. Though there may be some
minor differences due to timing.
One of the things that I think may actually be a
positive is that we no longer have to follow EITF 99-20,
where you actually have to measure loss adjusted yields
on each security in the trade, but you just have this
simple loss provision which could actually simplify the
way these things are indicated. But really to answer
your question more directly I think that there will be
very modest minor changes from what the loss adjusted
yield would have resulted in because everything else is
really identical. The underwriting is going to be the
same.
Robert Napoli: Okay.
Richard Shea: So it'll flow through pretty much the same as it would
have had we just put them on...
Chris Milner: I think it's fair to say that we would expect that those
modest variations wouldn't be material.
Richard Shea: Right.
Robert Napoli: Okay. And as you said you don't expect future
transactions to be structured like this?
Robert Napoli: Now, the leverage cap. What, you know, kind of
backing those out of leverage. The backing of the net
and just effecting the balance sheet for the net effect,
what is your outlook for leverage at this point? Where -
I mean are you relatively maxed out on leverage at this
point, I mean you're getting your leverages tweaked up a
bit, even X that, and what is - where are you
comfortable in leverage, where are you limited on
leverage, and maybe give some outlook on that?
Richard Shea: I think that's a good question. As I indicated before
there's two types of leverage now in the Company. One,
which is the non-recourse match funded type, which we
very much look to to issue that as much as we can to
reduce the financial risk of the Company. So I think you
really need to look at both of the numbers that I
alluded to earlier, which is not just 7.6 to 1, but also
the 2 to 1, which is the non-recourse leverage.
And I think that as we go forward, the non-recourse
leverage generally will increase and I think the
recourse leverage will generally decrease. Although in
between issuing CDOs, you'll probably see some isolation
there, whereas the full recourse leverage will move up a
little bit as we aggregate assets to do CDO number four.
And then once we do that, you'll see that number drop
down again. I could see that moving from its current
state to 2 to 1, up to maybe three or 3 1/2 to 1 and
then coming back down again, just on the full recourse
leverage as we add additional non-recourse liabilities.
And then over a long period of time I anticipate you'll
see more and more of the Company's liabilities and with
higher quality type of liability with the non-recourse
match funding.
Chris Milner: But then given that type of structure you
probably will see leverage over a long period of time on
the aggregate basis, non-recourse and recourse.
Potentially rising somewhat because as we generate a
diversified pool of non-recourse liabilities the
benefits of that non-recourse characteristic improve.
In other words, when we just had one large CDO, and most
of our assets were inside of that transaction the
benefits of non-recourse financing were limited by the
fact that substantially all of our equity matched those
liabilities. And so while we may not have been exposed
to the liabilities substantially all of the Company's
equity was vested in that transaction.
As we go forward to CDOs, four, five and six, and we
begin to diversify our equity commitment to each
individual transaction, the value of that non-recourse
financing increases significantly.
Robert Napoli: Okay. With respect to your Series C Preferred Stock, do
you have any intent to redeem the Series C Preferred?
Chris Milner: No we don't. That was issued in May 2003. It's not
redeemable for - it was a non-call five, therefore it's
not redeemable four years approximately.
Robert Napoli: Okay.
Robert Napoli: And can you be more specific on the new competition that
you're seeing? Like name names of some of the B players?
Chris Milner: If we could do that offline Bob.
Robert Napoli: Okay. All right thank you.
Operator: Your next question comes from Don Destino from JMP
Securities.
Donald Destino: Hi guys, I just had a follow-up on the competitive
environments. I think it's pretty uncontroversial that
you guys, at least accounting wise, are much more
conservative or at least more conservative than some of
your public comps in terms of accumulative loss
assumptions. Is that a competitive disadvantage when
you're out bidding for business?
In other words, is that just a pure earnings recognition
conservatism or are you guys more conservative in your
loss assumptions when you're out bidding for business?
And if that's the case, I would think it would be very
difficult for you to win business in this kind of
environment. Can you kind of comment on that?
Chris Milner: Sure I'll take the first attempt at that then
I'll have Richard discuss the accounting implication.
But from a competitive bidding standpoint, frankly it
probably is a bit of an offset to the competitive
advantage that describe, with respect to funding, to the
extent that our loss expectations exceed the competitor
on the other side of the transaction. We are at a
disadvantage unless our aggregate yield expectations are
lower than theirs.
And remember that there's multiple variables in this
equation, right? The assets in question, the losses that
you anticipate you will incur and the cost of capital
that you have from an equity standpoint and from the
debt standpoint in order to generate your leveraged
returns to your investors.
So, we may have a higher loss expectation. And, as a
result, a lower loss adjusted yield expectation. And
that could conceivably be a disadvantage. It's our
understanding of the market, and belief that the
combination of our funding advantage and the fact that
in today's environment with public vehicles, I think,
have somewhat of a cost of equity capital advantage as
well as compared to some of the private vehicles that
may still be emitting 20% plus type return profiles to
their investors.
And so when you bring all of these things together, we
do believe that at the end of the day this approach is
the most consistent and conservative and on balance we
think we have a competitive funding advantage overall
for the Company.
Donald Destino: Got it. That's helpful, thank you very much.
Operator: There are no further questions at this time. Mr. Milner,
do you have any closing remarks?
Chris Milner: We would like to thank everyone for their continued
support. We've run through a number of the issues that
we're facing and we will continue to diligently pursue
our business.
If you have any questions, feel free to give either
Richard or myself a call and we will report back to you
a quarter from now. Thank you.
Richard Shea: Thank you.
Operator: Thank you for participating in today's Anthracite
Capital Inc. First Quarter 2004 Earnings Conference
Call. You may disconnect at this time.
END