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NEW YORK (Dow Jones)--Shares of Newcastle Investment Corp. (NCT) climbed as much as 20% Thursday after the company launched a tender offer to buy back preferred stock.
Newcastle - a real-estate investment trust that owns a portfolio of diversified, credit sensitive real-estate debt - said in a filing with the Securities and Exchange Commission that it plans to purchase its 9.75% Series B, 8.05% Series C and 8.375% Series D cumulative redeemable preferred stock.
It also said that if the offer is successfully completed, it will pay all accumulated and unpaid dividends on the preferred stock through Oct. 31 to all preferred-stockholders that remain outstanding. After that, Newcastle won't be required to pay any dividends on remaining shares of preferred stock.
"While the successful completion of the offer to purchase and consent solicitation will initially reduce the amount of our available unrestricted cash, we believe the significant reduction or elimination of the outstanding preferred stock and the elimination of the related dividend obligations will give us the enhanced balance sheet flexibility necessary to make new investments and grow our business," the company said in an SEC filing. It added that with improved liquidity, it can pursue opportunities to enhance shareholder value.
In recent trading, Newcastle shares jumped 15% to $2.76 after earlier rising as high as $2.89. Shares have more than tripled year-to-date, but are still down about 23% for the past 12 months.
Newcastle said in the SEC filing that it plans to purchase the 9.75% Series B stock for $7.19 a share, 8.05% Series C for $6.76 a share and 8.375% Series D for $6.84 a share. It also will pay accumulated and unpaid dividends of $2.44 a share for Series B, $2.01 a share for Series C and $2.09 a share for Series D.
Fox-Pitt analyst Matthew Howlett said the tender for the preferred stock is a "substantial" discount to the face value. Newcastle said in the filing that the preferred stock, once matured, could be redeemed at $25 a share plus accumulated and unpaid dividends. But Newcastle said that if its assets are insufficient when the stock matures, holders would have to share whatever distribution is available at that time.
"[The preferred tender] clearly enhances the equity valuation, and that's what's driving the stock," Howlett said in an interview.
He added that while the terms are a discount to the face value, they are still an increase from levels the preferreds have currently been trading.
In addition, Newcastle hasn't been paying dividends on its preferred stock during 2009 and its common stock since September 2008, which could lead preferred shareholders to be willing to tender their stock.
-By Shara Tibken, Dow Jones Newswires; 212-416-2189;
shara.tibken@dowjones.com;