United States Securities and Exchange Commission
Washington, D.C. 20549
Notice of Exempt Solicitation
Pursuant to Rule 14a-103
Name of the Registrant:
Arlington Asset Investment Corp.
Name of Person Relying on Exemption:
VA Property 1 LLC (1,350,000 Shares of AAIC Common Stock)
Address of Persons Relying on Exemption:
240 W Main St, Suite 100
Charlottesville, VA 22902
Letter to Shareholders Advocating for Liquidation Proposal
Voluntary Submission; No Proxy Solicitation; All Statements Opinions:
Written materials are
submitted pursuant to Rule 14a-6(g)(1)
promulgated under the
Securities Exchange Act of 1934. Submission is not required of this
filer under the terms
of the Rule, but is made voluntarily in
the interest of public
disclosure and consideration of these important issues.
This is not a
solicitation of authority to vote any shareholder?s proxy, and
proxy cards will not be
accepted if sent. Shareholders should read the company?s
proxy statement (available for free
on the SEC EDGAR website), as it contains important
information. The contents
of this letter should be viewed exclusively as the
subjective opinions of the proponent,
and not as any citation of objective fact.
Vote FOR Proposal 5 on Arlington Asset?s Proxy Statement
Fellow Owners of Arlington Asset,
This letter relates to a proposal included on the
company?s 2022 proxy statement,
which asks shareholders to join
us in recommending the orderly
liquidation of the company.
As unhedged owners of over 4.4% of
AAIC stock, and as fully outlined below,
we believe this proposal offers
substantial benefits to our fellow
and we encourage you to vote in its favor.
Arlington Asset has performed disastrously
over the last decade,
destroying over half its book value
in the last five years alone, and failing to
declare a common dividend since
2019. As shareholders know well,
the stock?s performance
has been similarly unimpressive ? a
trend that regrettably shows few signs of reversal.
Adding insult to injury, while the
directors have restricted
distributions to common shareholders
for the last two years, they have
CEO Rock Tonkel over $3.5 million
in personal compensation, and have
each received fees of
over $320,000 themselves. To put it
delicately, this imbalance in
distributions raises serious
questions as to who is serving whom.
In light of this atrocious performance
disordered governance, the time has
come for shareholders to weigh in
on Arlington Asset?s future, if any.
In considering that future, we see
little cause for optimism. The
managers have proven incapable stewards of capital for
nearly a decade straight, and now
ask shareholders to join them for a hodgepodge of
new investment strategies in which
they have neither competitive scale, nor any discernable advantage.
Finally, while deleveraging has
previously constant bleeding of
book value, we believe it has
virtually any opportunity for
meaningful BV appreciation or
Stated simply, it appears Arlington
Asset has gone dead in the water,
enough assets to pay its executives,
but stranding shareholders in a zero-dividend,
low-growth, and deeply discounted
security. The question now is an existential one ?
whether these assets exist to pay
Rock Tonkel, or to actually offer value to their owners.
In apparent recognition of the company?s
failures, AAIC stock has traded at
anomalously large discounts to book
value for the last two years. And while an
ultra-low-yield environment has
offered an extremely attractive opportunity to
sell either the company or its assets,
the Board has refused to pursue any
while continuing to personally extract
fees from the portfolio?s meager returns.
While we would gladly invite the
Board to sell AAIC outright, after two
whole years of inaction on this matter,
we believe they are unlikely to entertain
any buyout offer, and have thus
recommended liquidation as a last resort.
Perhaps most offensively, and despite
the market?s obvious rejection of the
company?s strategic pivoti, the
Board?s opposition letter parrots management?s
implausible optimism with both
precision and salesmanship.
consistent failure to create value,
the Board appears mindlessly loyal to them,
and thus unwilling to take
action for the shareholders.
In light of these many inexcusable
decisions, we believe that the Board can no
longer be trusted to advance the best interest
of shareholders, and that it is now
incumbent on shareholders to act for ourselves.
Rationale for Liquidation
As of this writing on April 14th, 2022,
Arlington Asset?s most recently reported
book value per share exceeds the
current stock price by 84%.ii Given that the
company comprises little more than a
low-risk asset portfolio and its managers,
such a persistent and staggering
discount would appear to reflect the market?s
dim view of the company?s executives ?
an assessment amply supported by their track record.
And while these chronic underperformers have
enjoyed years of rich rewards at our expense,
we shareholders bear no obligation to
continue subsidizing either their opulent compensation,
or the severe costs of their mismanagement.
Stated simply, we believe management?s
long history of value destruction has
imposed a durable reputational discount
on the common stock, which seems unlikely
to correct itself under their continued control.
Regrettably, and no thanks to the company?s
appalling expense ratio, AAIC looks
similarly unattractive on an earnings basis.
With G&A alone consuming over
two-thirds of net operating income,iii this
subscale hovel is little more than an
ATM machine for its insiders. Coupled with
its inept management, Arlington Asset?s
untenable scale and egregious cost structure
leave very little to like about the company.
In light of these structural defects, AAIC
appears very unlikely to be valued
favorably as an ongoing business. However,
given the significant value of its
underlying asset portfolio, we believe
shareholders could nonetheless be richly
rewarded through an orderly liquidation.
With the company most recently
reporting a book value of $6.16,iv primarily
in highly liquid agency securities,
v monetizing the investment portfolio might
offer a substantial premium over any
recent stock price, and valuable liquidity on
otherwise stagnant shareholder capital.
While we find this opportunity extremely attractive
on an absolute basis, it appears
even more compelling given the Company?s
prospects under current leadership. By way
of an unfortunate hypothetical, if a liquidation
could achieve shareholder proceeds
equal to at least 80% of book value, sticking a
fork in AAIC would trigger its best
calendar-year performance since 2013.
Coincidentally, Mr. Tonkel took over as CEO the
following year, and book value has declined
by nearly 80% since.vi
If history is any guide, we believe Arlington Asset
could best serve its shareholders
by simply monetizing its assets, and
delivering proceeds to shareholders.
In contrast to management?s strategic folliesvii
and hopes for improvement, we view
liquidation as a reliable, risk-reducing,
and likely lucrative measure which, for once,
would rightly prioritize the interests of shareholders.
In our view, Arlington Asset?s investors have
suffered under bumbling managers and an
impotent Board for long enough. As the lawful
owners of the company, it is time that
we reclaim the fair value of our assets.
To that end, we urge our fellow shareholders to
vote FOR Proposal Number 5, and
thank them for their support.
i See, e.g, AAIC?s 23rd out of 24 price-to-book ratio
in the FTSE NAREIT Mortgage Home Financing Index.
vii (See, e.g., aggressively buying single
family homes at all-time highs (and in the
beginning of a monetary tightening cycle),
while simultaneously expressing a ?cautious
view on agencies? at spreads that have only
been comparably wide a handful of times in
the last two decades). https://seekingalpha.com/
; contra https://twitter.com/ConvexityMaven/status/1504782365645811740/photo/1
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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