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 MCLEAN, Va., Sept. 16 /PRNewswire/ -- JHM Mortgage Securities L.P. (NYSE: JHM) announced today that its board of directors has authorized management to prepare a formal plan under which JHM, which is currently organized as a limited partnership, would be reorganized into a publicly traded corporation. Under the general terms of the reorganization, JHM's assets would be transferred to a new corporation, which would seek listing on the New York Stock Exchange. JHM's unitholders will become shareholders in the new corporation on the date of conversion.
 Concurrently, the new company will acquire JHM Mortgage Services Corporation (JMSC), an affiliated mortgage origination company with wholesale and retail operations from Pennsylvania through South Carolina. The restructuring would result in converting JHM into a publicly traded mortgage banking company, combining the capital and asset base of the partnership with the mortgage origination operations of JMSC. Subject to approval by the independent directors of the general partner and JHM's unitholders, the target date for the conversion is April 1994.
 The company also announced that its board of directors has declared a third quarter distribution of 10 cents per unit, payable on Oct. 8, 1993, to unitholders of record on Sept. 30, 1993. In response to the continuing downward movement in interest rates and the resulting strong refinancing activity in home mortgages, the company indicated that it excepts to take a non-cash write down against its mortgage servicing portfolio during the third quarter. The company anticipates that the write down, which will include an estimate of future mortgage prepayments based on current prepayment levels and expectations, will result in a net loss for the third quarter of between $4 million and $6 million.
 The reorganization proposal announced today represents the culmination of JHM's strategic plan over the past two years to diversify into a full service mortgage banking enterprise. JHM initiated its plan in 1991 with the acquisition of two mortgage servicing portfolios. JHM currently owns $2 billion of mortgage servicing rights. In 1992, JHM further expanded its business to include the purchase and securitization of residential mortgage loans.
 JMSC was formed in 1992 with the primary aim of providing JHM with an exclusive source of residential mortgage loan production. Through the first eight months of 1993, JMSC originated $222 million of mortgage loans. Mortgage originations and new mortgage applications during August 1993 were $40 million and $72 million respectively. All mortgage loans originated by JMSC have been sold to JHM on terms beneficial to the partnership under a production arrangement agreed to by the independent directors.
 Commenting on the reorganization proposal, Stephen P. Gavula, chairman and chief executive officer of JHM, said: "Under the Tax Reform Act of 1987, publicly traded partnerships such as JHM will become taxable as corporations beginning in 1998. In anticipation of that event, management evaluated various business options. In considering these options, we sought to address two major issues affecting JHM's current business and its prospects for future growth. First, JHM's organization as a limited partnership has hurt its trading volume and market valuation. For example, institutions generally avoid investing in publicly traded limited partnerships because of certain adverse tax consequences. JHM's appeal to retail investors is further limited by complex tax reporting requirements. These factors have resulted in a thinly traded market in JHM's units. In addition, as a limited partnership JHM distributes most of its income rather than retaining earnings for future growth and expansion. This yield orientation together with the lack of institutional investment eliminates JHM from being generally followed by mortgage industry experts. In our view, these factors have caused JHM's units historically to be undervalued by the market.
 "Second, under the provisions of the 1987 Tax Act JHM's ability to expand its business beyond the ownership of and investment in mortgage- related assets is limited. This restriction unduly hampers our ability to benefit from the full spectrum of mortgage revenues available to diversified mortgage banking companies, from mortgage origination to securitization and servicing revenues. In addition to balancing earnings, these different sources of revenues are needed to effectively manage and protect our assets in different interest rate climates.
 "To address these concerns, management has pursued a program over the past two years to expand into the mortgage banking arena. With the demise of the thrift sector, residential mortgage originations and securitizations are now concentrated in the commercial banking and mortgage banking industries. Because of the institutional demand for high quality mortgage related securities, the mortgage banking industry in particular is expected to play a significant role over the next decade in the generation and packaging of residential loans. As a consequence, mortgage banking currently commands wide coverage by industry analysts and broad appeal to both retail and institutional investors. We believe that the proposed reorganization of JHM into a fully diversified mortgage banking company represents the best alternative for enhancing unitholder value and resolving the issues posed by the 1987 Tax Act."
 The board of directors has constituted the independent directors as a committee to evaluate the plan of reorganization to be prepared by management and select an investment banking firm and other experts to advise it in connection with its evaluation.
 -0- 9/16/93
 /CONTACT: Stephen P. Gavula or C. Thomas Williamson III of JHM Mortgage Securities L.P., 703-883-2900/

CO: JHM Mortgage Securities L.P. ST: Virginia IN: FIN SU:

KD-MH -- DC019 -- 2820 09/16/93 16:31 EDT
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Publication:PR Newswire
Date:Sep 16, 1993

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