Impac Mortgage plans tender offer for preferreds, won't pay dividends unless it succeeds

By Angela McDaniels

Tacoma, Wash., May 13 - Impac Mortgage Holdings, Inc. is planning to begin a tender offer and consent solicitation for its 9 3/8% series B cumulative redeemable preferred stock and 9 1/8% series C cumulative redeemable preferreds, according to a company news release.

The company warned that if the offer and solicitation are not successful, there may be a near-term negative effect on its business, results of operations and financial position, including the potential inability to satisfy its liabilities and the cash requirements related to long-term dividend and interest obligations.

The company expects that the purchase price for the tender offer will be equal to one-half of a quarterly dividend payment, which would be $0.29297 for each series B preferred and $0.28516 for each series C preferreds.

In the consent solicitation, the company will seek changes that will:

• Make the dividends on the preferreds noncumulative;

• Make the preferreds callable prior to the fifth anniversary of their issuance;

• Allow the company to redeem less than all of the outstanding preferreds if full cumulative dividends have not been paid;

• Remove the requirement that it pay accrued dividends upon redemption or liquidation;

• Eliminate any premiums payable upon the liquidation, dissolution or winding up of the company;

• Reduce the number of series B preferreds to 2 million from 7.5 million;

• Eliminate the provisions that prevent the payment of dividends on junior stock and the repurchase of junior or parity stock if full cumulative dividends are not paid;

• Eliminate the right of preferred holders to elect two directors if dividends are in arrears for six quarterly periods; and

• Eliminate the right of preferred holders to consent to or approve the authorization or issuance of preferred stock that is senior to the preferreds.

Consents will be needed from holders of at least two-thirds of the series B and series C preferreds, voting together as a single class, and approval will also be needed from holders of a majority of the company's common stock.

Dividends

If the offer and consent solicitation are successfully completed, Impac will also pay all accumulated dividends on the preferreds and all unpaid deferred amounts on its trust preferred securities, according to a schedule TO filed with the Securities and Exchange Commission.

The accumulated unpaid dividends are $1.17 for each series B preferred and $1.14 for each series C preferred.

Impac did not pay dividends on the preferreds for the fourth quarter of 2008 or first quarter of 2009 and has deferred payments on the trust preferreds since December.

The company said on March 31 that it would not be paying dividends "indefinitely" on the preferreds and would instead let the dividends accumulate.

In the SEC filing, Impac said it does not plan to pay future dividends on the preferreds if the offer and solicitation are not successfully completed.

It noted, however, that it may not be able to raise additional capital if it cannot pay dividends on the preferreds and, as a result, may not be able to rebuild its business and may be required to change its current plan of operations, which could include a wind down of the company.

The accumulated dividends on the preferreds totaled $7.4 million as of March 31, and the unpaid deferred amounts on the trust preferreds totaled $518,500, including interest, as of April 30.

"During the past few years, we have been seriously challenged by the unprecedented turmoil in the mortgage market, causing us to discontinue our mortgage funding operations, eliminate all but one of our reverse repurchase facilities and reduce our operating costs," the company said in the SEC filing.

"One of our goals in this challenging market environment has been to align the costs of our operations to our cash flows. We believe the elimination of the preferred stock and the related dividends through the offer to purchase and consent solicitation will give us the enhanced balance sheet flexibility to operate and grow our business."

The information agent for the offer will be D.F. King & Co., Inc. (800 269-6427).

Impac Mortgage is primarily invested in non-conforming mortgage loans and, to a lesser extent, small balance commercial and multi-family loans. The company is based in Irvine, Calif.

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