Dynex says holders tender for $823,000 notes

New York, May 11 - Dynex Capital Corp. said holders of its series A, B and C preferred stock tendered for $823,000 of senior notes in its recapitalization.

The remaining 1.867 million shares of series A, B and C preferred stock will convert into a maximum 5.620 million shares of series D preferred stock and 1.289 million shares of common stock.

The tender offer for the notes expired at 9 a.m. ET on May 10.

Dynex said on April 30 it extended its exchange offer for up to 70% of its three series of preferred stock.

The offer will now expire at 9 a.m. ET on May 10, pushed back from 12:01 a.m. ET on April 30.

As of the old expiry date, holders had tendered for $3 million of new senior notes.

Dynex also said it is waiving the minimum tender provision of $10 million.

Finally, the company said holders of its common stock and preferreds have given the necessary approvals for the recapitalization.

Dynex announced the exchange on March 29 as part of a recapitalization disclosed on Dec. 8.

The company is offering new notes for its existing preferred stock. Any preferreds not exchanged will be converted into a new series of preferred stock.

Dynex said the recapitalization should improve shareholder value by simplifying its capital structure and eliminating dividends in arrears on the existing preferred stock.

Making these changes will allow Dynex to actively pursue new strategic alternatives, the Glen Allen, Va., financial services company said in a filing with the Securities and Exchange Commission.

Holders of the existing preferred stock will receive securities with a principal amount or issue price at a premium to the existing preferreds.

In addition, they will be able to obtain a new series of preferred stock with potentially improved liquidity, a guaranty of future representation on the board of directors and stronger covenants if the company fails to pay future dividends or otherwise falls below certain financial thresholds.

Under the exchange, holders of Dynex's existing preferreds will be able to exchange the securities for new senior unsecured notes at the rate of $27.84 principal amount of notes per share of series A preferred stock up to a total of 345,579 shares; $28.42 principal amount of notes per share of series B preferred stock up to a total of 481,819 shares; and $34.80 principal amount of notes per share of series C preferred stock up to a total of 479,512 shares.

In each case, the amount of notes to be issued is set at 116% of the original issue price of the preferreds and is a premium of 5.1% to the closing price of the series A preferreds on Jan. 7, 5.7% for the series B preferreds and 1.5% for the series C preferreds.

The maximum number of shares being tendered for is about 70% of the amount outstanding.

The new senior notes will pay interest at 9.5% and mature after three years.

Dynex also is proposing - and now has authorization - to amend its articles of incorporation to eliminate the series A, B and C preferreds. Each share of series A preferred stock will convert into 2.784 shares of new series D preferred stock; each share of series B preferred stock will convert into 2.842 shares of new series D preferred stock; and each share of series C preferred stock will convert into 3.480 shares of new series D preferred stock.

Holders will also receive 0.6373 shares of common stock per share of series A preferred stock; 0.6506 shares of common stock per share of series B preferred stock; and 0.7967 shares of common stock per share of series C preferred stock.

The new series D preferred stock will convert into senior unsecured notes if the dividends are in arrears for more than two quarters or Dynex fails a shareholders' equity test.

It will have an issue price and conversion price of $10.00 per share and pay dividends at 9.5%. It will convert on a one-for-one basis into common stock at the holder's option. If certain conditions are met it will also be convertible at Dynex's option.

Series D preferred shareholders will also have representation on the board of directors.

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