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Vranos’s Bond Fund Falls as More Than Half of U.S. IPOs Delayed

Oct. 9 (Bloomberg) -- Ellington Financial LLC, the mortgage-backed bond fund run by Michael Vranos, declined after its $101 million initial public offering as more than half of this week’s U.S. IPOs were postponed or delayed.

The company fell 3.3 percent to $21.75 in U.S. composite trading yesterday after selling shares for $22.50 each. Old Greenwich, Connecticut-based Ellington Financial intends to use the proceeds to buy the types of mortgage bonds that helped cause the biggest housing bust since the Great Depression.

Vranos, the former head of mortgage-securities trading at Kidder Peabody & Co., completed the sale 10 months after failing to raise more than twice the amount in the fund’s first IPO attempt. Of the six other U.S. initial sales planned this week, only two Chinese companies, Daqo New Energy Corp. and Global Education & Technology Group Ltd., attracted enough buyers as the Standard & Poor’s 500 Index climbed to a five-month high.

“It underlines how selective the market is,” said Josef Schuster, the Chicago-based founder of IPOX Capital Management LLC, which oversees $3 billion. “The emerging market ones, China-related, there’s much more initial interest. There’s a lot of demand there.”

Ellington Financial’s offering came after the market for U.S. initial sales began to rebound last month, with eight of 10 IPOs posting gains, data compiled by Bloomberg showed.

Chinese IPOs

At least 47 companies have postponed or withdrawn initial offerings in the U.S. this year amid speculation that the recovery from the longest recession since the Great Depression is deteriorating. Linc Logistics Co., the Warren, Michigan-based logistics company, delayed its $147 million IPO on Oct. 6, according to Bloomberg data.

The initial offering was one of at least four U.S. IPOs scheduled for this week to be postponed or delayed, after seven companies tried to raise $1.3 billion, the data showed.

Global Education, a Beijing-based language test preparation provider, rose 16 percent to $12.20 in its first day of trading yesterday after selling 6.4 million American depositary receipts at $10.50 each. Daqo, the Chongqing, China-based maker of polysilicon materials for solar panels, advanced 7.9 percent in its stock-market debut after raising $76 million on Oct. 6.

Chinese companies have recorded six of the 10 biggest advances among IPOs in the U.S. this year, according to data compiled by Bloomberg.

Relative Value

“It looks like the more interesting IPOs were the foreign ones,” said Joseph Garner, director of research at Lancaster, Pennsylvania-based Emerald Asset Management Inc., which oversees about $2 billion. “There’s still appetite there for quality companies with compelling growth stories at reasonable valuations. You have to fit all three.”

As much as 95 percent of the proceeds from Ellington Financial’s IPO will be used to buy securities tied to subprime, Alt-A, or prime home loans that lack guarantees from government agencies such as Fannie Mae. The purchases would add to the $246 million the fund held in such securities at the end of June.

Ellington Financial had a so-called book value, or its assets minus liabilities, of $25.31 per share as of Aug. 31, according to its filing with the Securities and Exchange Commission. The midpoint offer price of $23 a share would have been a 9.1 percent discount to the fund’s net assets, data compiled by Bloomberg show.

The average U.S. real estate investment trust that buys mortgages is valued at 0.98 times its shareholder equity, data compiled by Bloomberg show.

‘Take a Gamble’

“If you’re going to ask them to buy into asset pools that will be buying more speculative assets, you have to give people enough of a discount where they’re willing to take a gamble,” said Michael Yoshikami, who oversees about $1 billion at YCMNet Advisors in Walnut Creek, California. “Risk appetite has increased, but people are still risk averse.”

Deutsche Bank AG of Frankfurt led the Ellington Financial’s sale. Zurich-based Credit Suisse Group AG, its lead underwriter in December, was dropped from the deal, its filings showed.

Ellington Financial was established in August 2007, the month that the credit crisis began, after raising $239.7 million in a private sale to institutional buyers.

From its inception through the end of 2008, the fund returned 0.52 percent, before a 43 percent gain last year. Ellington Financial has returned 7.3 percent this year through August, compared with the 7.4 percent gain, including dividends, for the BBREIT Mortgage Index, data compiled by Bloomberg show.

Magna Cum Laude

Vranos, 49, came to Wall Street more than two decades ago after winning the 1981 teenage Mr. Connecticut title as a bodybuilder and weightlifter and graduating with a magna cum laude degree in mathematics from Cambridge, Massachusetts-based Harvard University in 1983.

He made Kidder one of the biggest underwriters of mortgage bonds in the early 1990s after being put in charge of the mortgage desk. The unit earned hundreds of millions of dollars under Vranos, in some years bringing in as much as half of the firm’s profit. He left Kidder in 1994 to start Ellington Management Group LLC, named after the Connecticut town where he grew up, helped by $100 million from Ziff Brothers Investments.

Vranos was unavailable for comment, according to Patrick Clifford, a spokesman for Ellington Financial.

At least three companies plan to sell a combined $409 million of shares through U.S. IPOs next week, data compiled by Bloomberg show. All three offerings are scheduled for Oct. 14.

Next Week’s IPOs

NetSpend Holdings Inc., the issuer of reloadable prepaid debit cards based in Austin, Texas, is raising $222 million in what would be the biggest IPO of the three. Goldman Sachs Group Inc., Bank of America Corp. in Charlotte, North Carolina, and Chicago-based William Blair & Co. are leading the sale.

Tower International Inc., the automobile parts supplier owned by New York-based buyout firm Cerberus Capital Management LP, is attempting a $106 million initial offering. Goldman Sachs, Citigroup Inc. and JPMorgan Chase & Co. in New York are managing the Livonia, Michigan-based company’s sale.

Body Central Acquisition Corp., the clothing retailer based in Jacksonville, Florida, will seek to raise $80 million. The IPO is being led by Piper Jaffray Cos. of Minneapolis and New York-based Jefferies Group Inc. The company will change its name to Body Central Corp. before the sale.

To contact the reporters on this story: Lee Spears in New York at; Cecile Vannucci in New York at

To contact the editor responsible for this story: Daniel Hauck at

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