Mr. Cauley continued, "As we entered the first quarter of 2013 prepayment speeds have moderated somewhat, consistent with seasonal patterns, but remain at elevated levels. The economic data has been improving, and the yield curve has steepened, enhancing our investment opportunities and raising market rates available to borrowers looking to refinance. Also, we were able to complete the initial public offering of Orchid Island Capital. Acting as Orchid's manager, Bimini will be able to generate additional revenues through our management agreement with Orchid while also increasing our operational efficiency by having more assets under management. In addition, we will receive dividends from our investment in Orchid. While the costs associated with the IPO were high for Bimini since we acted as the sponsor of the transaction, we are confident the long-term benefits to Bimini of the transaction will outweigh the up-front costs."
Orchid Island Capital
On February 20, 2013, Orchid completed an initial public offering ("IPO"), selling 2,360,000 shares of its common stock for aggregate proceeds of approximately $35.4 million. The Company acted as sponsor to Orchid by agreeing to fund all underwriting, legal and other costs of the offering. Through December 31, 2012, the Company incurred costs of approximately $0.2 million related to this offering. Subsequent to year end, and through March 11, 2013, the Company incurred additional costs of approximately $3.0 million. Upon closing of the offering, Bimini owned approximately 29.38% of Orchid's outstanding common stock.
At the closing of the offering, Orchid entered into a management agreement with Bimini Advisors, LLC, a wholly-owned subsidiary of Bimini, which provides for an initial term through February 20, 2016 with automatic one-year extension options and is subject to certain termination rights. Under the terms of the management agreement, Bimini Advisors will be responsible for administering the business activities and day-to-day operations of Orchid. Bimini Advisors will receive a monthly management fee in the amount of:
- 1.5% of the first $250,000,000 of Orchid's equity, as defined in the management agreement;
- 1.25% of Orchid's equity that is greater than $250,000,000 and less than or equal to $500,000,000; and
- 1.00% of Orchid's equity that is greater than $500,000,000.
Orchid is obligated to reimburse the Company for any direct expenses incurred on its behalf. In addition, once Orchid's equity equals $100,000,000, its pro rata portion of certain overhead costs, as defined in the management agreement, will also be reimbursed to the Company.