NEW YORK--(BUSINESS WIRE)--Two Harbors Investment Corp. (NYSE: TWO) announced today that it has elected not to renew its Management Agreement with PRCM Advisers LLC, a subsidiary of Pine River Capital Management L.P. Notice of non-renewal was provided under Section 13(a)(ii) of the Management Agreement on the basis of unfair compensation to the Manager. As a result, the Management Agreement will terminate on September 19, 2020.
Following the termination of the Management Agreement, Two Harbors will become a self-managed company. We expect to continue to be managed by our strong and experienced senior management team along with the other personnel currently providing services to Two Harbors, to whom our Board of Directors intends to extend offers of employment. The Board anticipates a smooth and timely transition of all functions necessary to operate the Company’s business without interruption.
We believe that the non-renewal of the Management Agreement and the transition to self-management will result in material benefits to our stockholders, including:
- Substantial Anticipated Cost Savings. The elimination of the unfair compensation to the Manager and the transition to a self-managed structure are expected to be accretive to earnings and significantly reduce the Company’s general and administrative expenses. Excluding the one-time costs associated with the termination fee payable to the Manager on the termination date, we currently expect to generate annual cost savings of approximately $42 million or $0.15 per share of common stock.
- Potential for Enhanced Returns on Future Capital Growth. The elimination of the management fee, which is calculated on the Company’s stockholders’ equity, will create the potential for enhanced incremental returns with respect to future equity capital growth.
- Further Aligns Management with Stockholders and Reduces Conflicts of Interest. The self-managed structure will further strengthen the alignment of interests of the management team and those of the Company and its stockholders.
- Potential for Attracting New Institutional Investors. The transition to a self-managed structure may make an investment in Two Harbors more appealing to a subset of investors who disfavor external management structures.
“The transition to a self-managed structure is the right move for the Company at this time given the maturity of our business and our well-established infrastructure. As the Chairman of the Board, I want to assure our stockholders that the Board of Directors and senior management team remain deeply committed to our goal of generating long-term stockholder value,” said Stephen G. Kasnet, Chairman of Two Harbors’ Board of Directors. “The decision to not renew the Management Agreement was the result of a diligent, thorough and extensive months-long process led by the independent directors of Two Harbors, during which we undertook a detailed review of the Manager’s compensation under the terms of the Management Agreement and determined that it was no longer fair. We believe our stockholders will benefit from the significant cost savings resulting from eliminating that unfair compensation, and believe that the self-managed structure best positions Two Harbors with an optimized platform from which to execute its business and financial objectives.”
Under the terms of the Management Agreement, Two Harbors will pay a one-time cash termination fee to the Manager on September 19, 2020, calculated in accordance with the Management Agreement, equal to three times the sum of the average annual management fee earned by the Manager during the twenty-four month period ending June 30, 2020 (the most recent completed fiscal quarter prior to the termination date). The amount of the cash termination fee is estimated to be approximately $144 million.
An independent committee comprised entirely of Independent Directors (the “Independent Committee”) has been reviewing and evaluating the performance of, and the fees and expenses payable to, the Manager, as well as certain potential transactions that the Independent Committee may deem to be in the best interests of the Company and its stockholders. In addition, a special committee (the “Special Committee”), comprised entirely of independent and disinterested directors, was formed to address and make recommendations regarding certain aspects of the Company’s relationship with the Manager. During the course of this review, the Special Committee analyzed the compensation payable to the Manager under the Management Agreement and, based upon the unanimous recommendation of the Special Committee, the Independent Directors unanimously determined that the compensation payable to the Manager is unfair and approved the non-renewal of the Management Agreement.
As part of this process, the Special Committee was advised by Lazard, as its financial advisor, and Goodwin Procter, as its legal counsel.
Two Harbors Investment Corp.
Two Harbors Investment Corp., a Maryland corporation, is a real estate investment trust that invests in residential mortgage-backed securities, mortgage servicing rights and other financial assets. Two Harbors is headquartered in New York, New York, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P. Additional information is available at www.twoharborsinvestment.com.
