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Updated: Mar 15

Arlington Asset Investment Corp (NYSE: AI) is a publicly-traded real estate investment trust (REIT) that specializes in acquiring and holding residential mortgage-backed securities (RMBS). As a REIT, Arlington Asset is required to distribute at least 90% of its taxable income to shareholders in the form of dividends.

One way that Arlington Asset raises capital is by issuing debt securities, such as bonds or notes, to institutional and individual investors. In June 2018, Arlington Asset issued $50 million of 6.000% Senior Notes due 01/08/2026 (CUSIP: 041356AF7). In this article, we will take a closer look at this security and what it means for investors.

The AI 6.000% Senior Notes are unsecured debt securities that mature on January 8, 2026. The notes were issued at par, meaning that investors paid $1,000 per note. The notes pay a fixed annual interest rate of 6.000% of the par value, or $60 per note per year. Interest on the notes is paid semi-annually on January 8 and July 8 of each year.

The AI 6.000% Senior Notes are rated BB- by Standard & Poor's and B1 by Moody's, which are both considered speculative or "junk" ratings. This indicates that the notes have a higher risk of default than investment-grade securities, such as U.S. Treasury bonds or highly-rated corporate bonds.

Investors who purchase the AI 6.000% Senior Notes are essentially lending money to Arlington Asset, and the notes are backed only by the company's ability to make interest and principal payments. If Arlington Asset were to experience financial difficulties, it may be unable to make payments on the notes, which would result in a default.

Additionally, the notes are subject to interest rate risk, which means that if interest rates rise, the market value of the notes may decline. This is because investors may demand a higher yield to compensate them for the increased risk of owning the notes in a rising interest rate environment.

Investors who are considering purchasing the AI 6.000% Senior Notes should carefully evaluate their investment goals and risk tolerance. While the notes offer a relatively high fixed interest rate, they also carry a higher risk of default than investment-grade securities. Additionally, investors should consider their exposure to interest rate risk and whether the notes are an appropriate investment given their investment objectives.

The AI 6.000% Senior Notes due 01/08/2026 are an interesting investment opportunity for investors who are looking for a higher yield than what is offered by investment-grade securities. However, investors should be aware of the risks involved, including the higher risk of default and exposure to interest rate risk. Investors should carefully evaluate whether the notes are an appropriate investment given their investment goals and risk tolerance.

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