Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — SPAC Merger (June 2009)
31 slides from Two Harbors Investment's SPAC merger presentation, Jun 11, 2009
Slide 1: Rule 425 filing legend
Filed by Two Harbors Investment Corp. pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Capitol Acquisition Corp. Commission File No.: 001-33769
Slide 2: Two Harbors Investment Corp. Investor Presentation, Capitol Acquisition Corp.
Two Harbors Investment Corp. Investor Presentation Capitol Acquisition Corp. June 2009
Slide 3: Safe Harbor Statement
Safe Harbor Statement THIS PRESENTATION IS BEING PRESENTED BY CAPITOL ACQUISITION CORP. (“CAPITOL” OR “CLA”), PINE RIVER CAPITAL MANAGEMENT (“PINE RIVER”) AND TWO HARBORS INVESTMENT CORP. (“TWO HARBORS”). NEITHER CAPITOL, TWO HARBORS NOR ANY OF ITS RESPECTIVE AFFILIATES MAKES ANY REPRESENTATION OR W
Slide 4: Forward Looking Statements
Forward Looking Statements THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. TWO HARBORS’S ACTUAL RESULTS MAY DIFFER FROM
Slide 5: Transaction Highlights
Transaction Highlights Capitol Acquisition (NYSE Amex: CLA) to merge with a subsidiary of Two Harbors Investment Corp., a newly created mortgage REIT to capitalize on severe dislocation in residential mortgage backed securities (RMBS) market. Opportunity At current CLA price, an investor creates a s
Slide 6: Transaction Highlights
Transaction Highlights With no legacy assets, Two Harbors is positioned to invest 100% of Capitol’s trust fund proceeds into RMBS with potential for attractive risk adjusted returns and Return on Equity (ROE). Compelling Cross-product approach targeting all sub-sets of the RMBS market enables Target
Slide 7: Overview of Pine River Capital Management
Overview of Pine River Capital Management Global multi-strategy asset management firm providing comprehensive portfolio management, transparency and liquidity to institutional and highnet worth investors. Founded June 2002 with offices in New York, London, Hong Kong, San Francisco and Minnesota. Ove
Slide 8: The Two Harbors Team
The Two Harbors Team Tom Siering, CEO. Jeff Stolt, CFO. Steve Kuhn, Co-Chief Investment Officer. Management Team Bill Roth, Co-Chief Investment Officer. Tim O’Brien, General Counsel. Andrew Garcia, VP Business Development. Board consists of seven directors, majority independent, including: – Chairma
Slide 9: Pine River's MBS Strategy Historical Returns
Pine River’s MBS Strategy Historical Returns Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Net Monthly Return N/A 2.93% 1.26% 2.83% 4.10% 4.09% 2.49% 2.11% 9.56% 2.46% 3.26% 4.32% Net Annual Return N/A 2.93% 4.23% 7.18% 11.57% 16.13% 19.02% 21.52% 33.15% 36.42%
Slide 10: Two Harbors Investment Approach
Two Harbors Investment Approach Holistic approach across non-Agency and Agency RMBS. Continuous top-down market assessment to identify most attractive segments. Detailed analyses to find the most mispricedsecurities. Find and invest in smaller opportunities often ignored by larger funds. Strong focu
Slide 11: Market Opportunity
Market Opportunity Two Harbors will be positioned to capitalize upon severe dislocations in the $11.0 trillion U.S. mortgage market.(1) Traditional providers of capital have left the market. – Fannie Mae & Freddie Mac, historically the overseers of relative value and effectively the world’s two larg
Slide 12: Market Opportunity
Market Opportunity Significant opportunities in both non-Agency and Agency securities. Non-Agency securities are trading at low Agency securities are trading at wide spreads to prices. LIBOR and are likely to remain wide for some time. Historical Pricing on Senior Non-Agency Securities Agency Spread
Slide 13: Hypothetical Portfolio
Hypothetical Portfolio In the discussions leading up to the execution of the merger agreement, Two Harbors presented the following hypothetical portfolio information to the Board of Directors of Capitol for its consideration and review. Such hypothetical portfolio information does not represent any
Slide 14: Non-Agency Discount Example
Non-Agency Discount Example This bond does not represent an actual asset held by Two Harbors. Instead, the presentation illustrates the analysis PRCM Advisors expects to perform in analyzing potential bonds for purchase by Two Harbors. There can be no assurance that an asset of the type presented wi
Slide 15: The TALF Program – Potential Catalyst
The TALF Program – Potential Catalyst Non-recourse term financing, such as that contemplated by TALF II, could have an impact on expected Return on Equity. Currently available for select Asset Backed and Commercial Mortgage Backed securities. Treasury has proposed expansion to include “certain non-A
Slide 16: Prepayment Cycle Creates Pricing Opportunities
Prepayment Cycle Creates Pricing Opportunities Prepayment speeds remain slower than 2003 Some prepayments likely to remain slower than despite government intervention. projections. Capacity constraints of mortgage originators. Low Loan Balance(LLB)– Fixed costs reduce Significant declines in homeown
Slide 17: Agency Inverse IO Example
Agency Inverse IO Example This bond does not represent an actual asset held by Two Harbors. Instead, the presentation illustrates the analysis PRCM Advisors expects to perform in analyzing potential bonds for purchase by Two Harbors. There can be no assurance that an asset of the type presented will
Slide 18: Pine River Offers Extensive MBS Expertise
Pine River Offers Extensive MBS Expertise Pine River’s Mortgage Backed strategy has returned 95.6% net of fees since inception, February 2008.(1) Two Harbors’ Co-Chief Investment Officers Steve Kuhn – Partner and Head of Fixed Income Trading. – Goldman Sachs Portfolio Manager from 2002 to 2007. – 16
Slide 19: Two Harbors Investment Team Goals
Two Harbors Investment Team Goals Create highest return on equity in the mortgage REIT sector. Capture significant capital appreciation resulting from government policies, including if TALFis expanded to cover RMBS. Maintain investment flexibility across entire RMBS sector to best take advantage of
Slide 20: Opportunity for Investors
Opportunity for Investors Capitol’s common stockholders expected to create Two Harbors at or near Book Value. Estimated Value at Closing June/July 2009 Valuation Summary ($ in millions, except per share amounts) Assumed Price Per Share(1) $9.61 Fully Diluted Shares (treasury method) 26.25 Fully Dilu
Slide 21: Opportunity for Investors
Opportunity for Investors Efficient structure creates Two Harbors at a lower Price to BookValue, using less leverage than other publicly traded residential mortgage REITs. Price to Book Value Target Leverage(1) 170.0% 8.0x 7.0x 7.0x 6.6x 150.0% Non-Agency Mean: 140% 6.0x 130.0% 5.0x 156% Non-Agency
Slide 22: Opportunity for Investors
Opportunity for Investors Transaction expected to create Two Harbors closer to Book Value than would be possible in a traditional IPO or through secondary market purchases. Price to Book Value 1.5x Non-Agency 1.4x Mean: 1.40x 1.3x 1.2x 1.1x 1.0x 0.9x 0.8x 0.7x 0.6x 0.5x $9.50 $9.61 $9.75 $10.00 $10.
Slide 23: Investment Summary
Investment Summary Severe dislocation has led to capital outflows and potential Market investment opportunities throughout the sector. Opportunity Government programs to inject liquidity into market provides additional upside. Deep, broad experience and disciplined investment approach. Investment Te
Slide 24: Appendix
Appendix Two Harbors Investment Corp.
Slide 25: Comparables: Non-Agency and Agency REITs
Comparables: Non-Agency and Agency REITs ($ in millions, except per share data) Price Market Price / Div. Yield: Debt / % Expense (1) (1) Company Ticker 6/9/2009 Cap 2009E EPS 2010E EPS Book Most Recent(2) Equity(3) Agency Ratio(4) Non-Agency REITs (5) Chimera Investment Corp. CIM $3.51 $2,353 8.6x
Slide 26: We de-SPAC the SPAC
We de-SPAC the SPAC By re-striking warrants at $11.00, retiring the sponsor shares, and restructuring the deferred fees, we de-SPAC the SPAC. Current CLA Share Price (1) Multiple of Book Value 1.5x Non-Agency Mean: 1.40x 1.4x 1.3x 1.26x 1.2x (0.14x) 1.1x (0.13x) 1.00x 1.0x 0.02x (0.01x) 0.9x Initial
Slide 27: Restructured Warrants Source of Growth Capital
Restructured Warrants Source of Growth Capital Warrant strike price to be amended to $11.00. Warrant Exercise Consent requires majority of warrant ($ in millions, except per share data) Pre Post holders. Book Value $251.1 $616.8 Basic Shares Outstanding (mm) 26.25 59.50 Any cash warrant exercises wi
Slide 28: Capitol Shareholder Options
Capitol Shareholder Options Holders of record of CLA stock have the option of receiving a share of Two Harbors or a pro rata distribution of the cash held in CLA’s trust (currently $9.87). CLA shareholder Shareholder holds share of votes “yes” Two Harbors. The acquisition is approved Shareholder rec
Slide 29: Experienced Team
Experienced Team BrianTaylor, Chairman.BrianTaylor founded PineRiverin 2002 and is responsiblefor managementof the businessand oversightof the funds. Prior to Pine River’s inception, Brian was with EBF & Associates from 1988 to 2002; he was named head of the convertible arbitrage group in 1994 and P
Slide 30: Experienced Team
Experienced Team Jeff Stolt, Chief Financial Officer. Prior to co-founding Pine River in 2002, Jeff was the Controller at EBF & Associates from 1997 to 2002. In this role, Jeff oversaw the preparation of all fund accounting statements, managed the offshore administrator relationship, managed the aud
Slide 31: Contact Details
Contact Details For further information, please contact: Mark Ein Andrew Garcia Chairman and CEO VP of Business Development Capitol Acquisition Corp. Two Harbors Investment Corp. 202 654 7001 612 238 3307 mark@capitolacquisition.com andrew.garcia@twoharborsinvestment.com Two Harbors 30 Investment Co