Capstead Mortgage calls series A, B cumulative convertible preferreds

By Toni Weeks

San Luis Obispo, Calif., May 13 - Capstead Mortgage Corp. announced it will redeem all 186,249 outstanding shares of its series A $1.60 cumulative convertible preferred stock and all 16,493,110 outstanding shares of its series B $1.26 cumulative convertible preferred stock.

According to a press release, both series will be redeemed June 13.

The series A convertibles will be redeemed at $16.40 per share plus $0.3165 of accrued dividends for the period from April 1 through the day immediately prior to the redemption date for a total redemption price of $16.7165 per share.

Holders may convert their series A shares into common stock by June 6. The conversion rate is 1.6584 shares of common stock for each preferred.

Based on the $13.01 closing price of Capstead's common stock on May 10, it is in the economic interest of holders to exercise their conversion rights, the release noted. The company expects most of the series A shares will be converted, which will result in a modest amount of dilution to Capstead common stockholders, since the $16.40 liquidation preference divided by the current conversion rate results in the effective issuance of common stock at $9.89 per share, less than the company's current book value per share of common stock. If all 186,249 shares are converted, the company will record a $0.01 decline in book value per share of common stock.

The series B convertibles will be redeemed at $12.50 per share plus $0.042 of accrued dividends for the period from June 1 through the day immediately prior to the redemption date for a total redemption price of $12.542 per preferred.

Holders may convert their series B shares into common stock by June 6. The conversion rate is 0.6407 shares of common stock for each preferred.

Based on the May 10 closing share price, it is not in the best interest of holders to exercise their conversion rights, the release noted. As a result, the company expects nearly all of the series B preferreds to be redeemed rather than converted, resulting in a one-time decrease in net income available to common stockholders of up to $198 million, which represents the $206.2 million redemption price ($12.50 per series B preferred), less the $186.4 million recorded value of these shares ($11.30 per series B preferred).

The series B redemption price will be funded from the proceeds of Capstead's recently completed offering of its 7.5% series E cumulative redeemable preferred stock and cash on hand, the release noted.

Redemption notices will be mailed to series A and series B preferred stock holders of record on May 13.

Dallas-based Capstead is a self-managed real estate investment trust.

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