Centerline Capital Group has sold its real estate debt fund management and commercial mortgage loan special servicing business.
The firm retains and will continue to operate its core businesses of low-income housing tax credit (LIHTC) origination, asset management, and affordable and conventional multifamily lending, principally as a government-sponsored enterprise lender, said Centerline in an announcement March 8.
The company reported completing a series of transactions with Island Capital Group, LLC, and its creditors, which eliminates about $1.6 billion in aggregate liabilities and contingent exposure.
The moves provide more than $100 million of new equity to restore Centerline to financial stability by restructuring substantially of all of its outstanding debt, said officials.
Centerline has entered into an advisory agreement with an affiliate of Anubis Advisors, a wholly owned subsidiary of Island Capital Group, LLC. Anubis will provide strategic, restructuring, and general advisory services to Centerline.
Island Capital was founded and is controlled by Andrew L. Farkas, who also founded Insignia Financial Group, Inc.
Centerline remains a public company (OTC: CLNH). However, the nature and composition of the equity interests in the company have changed. C-III, an Island Capital affiliate, is now the largest holder of common share equivalents, with approximately 40 percent of the outstanding common equivalents. Common shareholders prior to the transactions retain approximately 20 percent of the outstanding common share equivalents. Essentially all Centerline Community Reinvestment Act and other preferred shares have been exchanged for common share equivalents and represent about 35 percent of the outstanding common share equivalents. The company issued shares representing approximately 5 percent of the outstanding common equivalents to Natixis Financial Products. In total, $341.2 million of liquidation and redemption value preferred shares were exchanged for common share equivalents in Centerline Holding Co., explained officials in a statement.
As a result of the transactions, the company amended and restated its corporate credit agreement, reducing its debt from approximately $208 million to $137.5 million and extending the term seven years. The amended credit agreement contains financial and other covenants that are typical for a financially sound borrower.
Centerline sold its debt fund management and servicing business for consideration of $110 million, consisting of $50 million in cash and $60 million in assumed senior debt. The Related Cos., a former affiliate of Centerline controlled by Stephen M. Ross, former chairman of Centerline's board of trustees, assumed $5 million of the pre-transaction debt. Centerline also used a portion of sale proceeds to fund discounted payoffs of approximately $116.3 million in face amount of unsecured liabilities and claims. Finally, Centerline entered into transactions with affiliates of Merrill Lynch and Natixis Financial Products that eliminated Centerline's contingent liabilities in connection with more than $800 million of credit default swaps associated with certain guaranteed LIHTC funds. “The recapitalization and restructuring now positions Centerline among the most financially stable companies in the real estate finance and asset management industries,” said the company.
The transactions were structured to preserve Centerline's existing net operating loss carryover, which may be considered a potentially valuable asset since it allows current losses to be deducted against future earnings to reduce tax liabilities.
According to Marc D. Schnitzer, president and CEO, "We have worked closely with Andrew Farkas and the Island Capital team for many months to make this transaction happen. We believe Island Capital—with its historical track record of vision and growth—is the ideal financial and leadership partner to allow Centerline to refocus on our traditional core businesses. We are now ready to recapture our position as an industry leader and increase our market share. This is a positive transaction for both Island Capital and Centerline and demonstrates belief in the strength of our platform by one of the industry's most savvy players."
Centerline has been one of the largest syndicators of LIHTCs, with $9.3 billion of investor equity under management. It provides asset management services to approximately 1,500 affordable multifamily properties. Centerline's agency lending platform has originated and services in excess of $9 billion of mortgage loans. Centerline anticipates that Anubis, the Island-controlled external adviser, will assist in the acquisition of other companies in ancillary or complementary businesses. Such activities may include the acquisition and/or creation of additional asset management companies, controlling interests in real estate limited partnerships and similar investment vehicles, other agency lenders, and an affordable housing property management business.
