RAIT Fails to Shed Light on Debt Deals

RAIT Financial Trust's(RAS Quote) latest earnings release seems to be written by attorneys who have mastered the art of selective disclosure.

That's because in reading between the lines, numerous questions remain about the company's exposure to collateralized debt obligations tied to the plummeting housing market.

RAIT's stock has slid 45% over the past three days after the company disclosed it has $95 million of equity exposure to the trust preferred securities -- a hybrid of debt and preferred stock -- issued by American Home Mortgage(AHM Quote), a lending company that could be facing bankruptcy.

The issue has left investors wondering whether RAIT, through its Taberna Capital Management financing division, has exposure to debt from other distressed housing companies. TheStreet.com reported Wednesday that RAIT has purchased debt instruments from several troubled housing players, including Beazer Homes(BZH Quote), WCI Communities(WCI Quote) and Tarragon(TARR Quote).

In its earnings release and on its conference call Thursday, RAIT said it could not provide information on individual companies it has purchased debt from.

Trouble in RAIT's holdings could create a meaningful dividend cut at the company, which is structured as a real estate investment trust. Stifel Nicolaus analyst David Fick said in a research note this week that RAIT may cut its dividend anywhere from 8% to 50%.

At the end of June, RAIT owned $5.1 billion in trust preferred securities and subordinated debt. The company has said that its other trust borrowers, besides American Home, remain current in its portfolio.