CRIIMI MAE Closes Recapitalization That Increases Financial Flexibility to Fuel Renewed GrowthBrascan Unit to Purchase $13.9 Million of Common Equity At $11.50 Per Share And $30 Million of Subordinated Debt; Bear Stearns to Provide $300 Million in Secured Financing Company Will Retire Remaining Restrictive Debt From 2001 Reorganization Barry Blattman Elected Chairman and CEO, Two New Outside Directors Named Special Committee Recommends Brascan Transaction as Superior
PR NEWSWIRE - January 15, 2003 08:15
ROCKVILLE, MD., Jan 15, 2003 /PRNewswire-FirstCall via COMTEX/ -- CRIIMI MAE Inc. (NYSE: CMM) today announced that on January 14, 2003 it closed in escrow a comprehensive recapitalization that will increase the Company's financial flexibility and provide the foundation for renewed growth. The recapitalization includes the investment of a total of approximately $44 million in common equity and subordinated debt by Brascan Real Estate Finance Fund (BREF), a private asset management vehicle established by Brascan Corporation (NYSE: BNN)(TSX: BNN.A) and Mr. Barry S. Blattman, and a $300 million secured financing by a unit of Bear, Stearns & Co., Inc. (Bear Stearns) (NYSE: BSC). The transaction closed in escrow reflects improved terms over the previously announced recapitalization transaction with BREF and Bear Stearns.
The proceeds of approximately $344 million, together with available cash and liquid assets, will be used to retire CRIIMI MAE's remaining $373 million in recourse debt incurred in connection with its emergence from Chapter 11 in April, 2001.
Terms of the Recapitalization
Under the terms of the recapitalization, BREF will purchase 1,212,617 newly issued CRIIMI MAE common shares at $11.50 per share, an investment of $13.9 million, representing 8% of the Company's outstanding common stock. This represents improved terms relative to the original agreement announced on November 14, 2002 and a 15% premium over yesterday's closing per share price. BREF will also receive seven-year warrants to purchase up to 336,835 additional common shares at $11.50 per share.
In addition, BREF will purchase $30 million of newly issued subordinated debt and, at CRIIMI MAE's option, has committed to purchase up to an additional $10 million of subordinated debt over the next three years. This $30 million of subordinated debt matures in three years, bears interest at the rate of 15% per year and is secured by a lien on the equity of two of CRIIMI MAE's subsidiaries. The Company will have the option to defer a portion of the interest on the subordinated debt during its term. The Company will pay BREF a quarterly maintenance fee of $434,000 in connection with arranging the transaction.
Bear Stearns will provide CRIIMI MAE with $300 million in secured financing in the form of a repurchase transaction, providing the Company with more favorable financing terms with a lower interest rate and an extended amortization schedule compared to the Company's existing current recourse debt. This secured financing matures in three years, bears an interest rate equal to one-month LIBOR plus 3%, requires quarterly principal payments of $1.25 million and is secured by a first lien, directly or indirectly, on substantially all of the Company's Subordinated CMBS collateral. The interest rate and principal payments related to the secured financing will increase if a collateralized debt obligation transaction is not successfully completed within a specified period of time. Both the interest rate and the amortization schedule have been improved over the terms previously presented by Bear Stearns.
The Company closed the transaction in escrow to give the five-business day notice required under the terms of CRIIMI MAE's existing secured recourse debt. Escrow proceeds will be released and the transaction will become final next week upon the repayment of that debt and the release of the collateral securing that debt.
Management Appointments and Changes
Barry S. Blattman, Managing Partner of BREF, will be named Chairman of the Board and Chief Executive Officer of CRIIMI MAE, effective when the transaction comes out of escrow. He brings with him an impressive track record of more than a decade in senior positions at Merrill Lynch, Salomon Brothers, and Daiwa Securities within commercial real estate finance.
William B. Dockser, presently Chairman and CEO, will resign these positions upon escrow termination, but will remain a Director. H. William Willoughby, President and a Director, will resign both positions. Donald C. Wood, an outside Director, will resign to focus on his duties as President and CEO of Federal Realty Investment Trust.
In addition to Mr. Blattman, CRIIMI MAE will name Mark R. Jarrell and Joshua B. Gillon to the Board, bringing the total number of directors to nine, with one open position. Mr. Jarrell is Senior Vice President and head of the Debt Group at The Community Development Trust, Inc., a New York real estate investment trust focused on financing affordable housing and community development. Mr. Gillon is Executive Vice President and General Counsel of Traffix, Inc. (Nasdaq: TRFX), a leading on-line direct marketing and database management company. CRIIMI MAE has agreed to nominate two directors mutually acceptable to BREF and the Company for election at the 2003 Annual Meeting.
William Dockser said, "Brascan's enhanced offer underscores the confidence they have in the future of CRIIMI MAE. With this recapitalization, CRIIMI MAE will once again be positioned for growth in the commercial mortgage-backed securities (CMBS) market. The Company's new debt structure will enable it to retire restrictive, high-cost financing and free up its net cash flow, and provide the flexibility needed to increase shareholder value. At the same time, CRIIMI MAE will continue to have use of approximately $351 million in tax-loss carryforwards."
"In addition, the affiliation with Brascan, institutionally recognized as a leader in the real estate market, provides CRIIMI MAE with significant competitive advantages, including the ability to enter into joint venture partnerships to pursue opportunities which otherwise might be out of reach, the ability to reduce costs significantly through economies of scale and access to the capital markets and financing. The Company will also benefit from the leadership of Barry Blattman and the addition of new Board members."
Support of the Board of Directors
Today's announcement represents the culmination of a thorough six-month process of evaluation by a Special Committee of the Board of Directors of the strategic alternatives to create value for the Company's shareholders. It included soliciting and reviewing multiple financial proposals with the assistance of CRIIMI MAE's financial and legal advisors and negotiations with ORIX Capital Markets, LLC (ORIX), the holder of substantially all of the Company's existing secured recourse debt.
Robert E. Woods, Chairman of the Special Committee of the Board of Directors, said: "Based on the advice and recommendations of our investment advisor, the Special Committee unanimously recommended to the Board of Directors acceptance of BREF's improved offer of recapitalization as economically superior to ORIX's acquisition proposal. The BREF transactions allow CRIIMI MAE to eliminate restrictive financing, inject new equity into the Company at a premium to the current market price, gain strong leadership, and position the Company to unlock shareholder value." Mr. Woods observed that, "completion of the recapitalization does not preclude third party proposals being made in the future, which the Board would of course carefully consider."
Barry Blattman concluded, "BREF is proud to have helped CRIIMI MAE re- enter the CMBS market today. CRIIMI MAE looks forward to maximizing the value of the existing asset base, developing a new CMBS acquisition strategy, utilizing its approximately $351 million NOL, and assuring that the Company has the best possible team to succeed and grow. CRIIMI MAE is more than an investment portfolio -- it's a platform for growth. BREF looks forward to a relationship that is rewarding to all shareholders." |
