Deerfield Capital Corp. Announces
CHICAGO, March 23 /PRNewswire-FirstCall/ -- Deerfield Capital Corp. (Nasdaq: DFR) ("DFR" or the "Company") today announced a definitive agreement to acquire Columbus Nova Credit Investment Management, LLC ("CNCIM"), a Charlotte-based investment manager specializing in leveraged loan credit products with $1.8 billion of assets under management ("AUM") from Bounty Investments, LLC ("Bounty") an investment vehicle managed by Renova U.S. Management LLC (" Columbus Nova"), a New York-based investment management firm, for $25.0 million of stock (at an implied price per share of $5.50) (the "Stock Consideration") and deferred payments totaling $7.5 million of cash payable over five years. Additionally, Bounty has agreed to purchase $25.0 million in principal amount of senior subordinated convertible notes ("Convertible Notes") issued by the Company. The proceeds from the Convertible Notes, along with DFR cash, will be used to repurchase and retire all of the $73.9 million in principal amount of the outstanding Series A and Series B Senior Secured Notes ("Senior Notes") for a total purchase price of $55.0 million plus accrued interest. The transactions, which are subject to closing conditions including stockholders approval, are expected to close during the second quarter of 2010.
Top Line Growth and Strengthened Balance Sheet
"These transactions are transformative for DFR. In addition to achieving our goals of increasing AUM and growing top line revenue, these transactions strengthen our balance sheet, which will now be structured to facilitate our future growth and provides us with a valuable partner in Columbus Nova," said Jonathan Trutter, Chief Executive Officer of DFR. Trutter added, "These transactions follow solid 2009 financial performance which included four consecutive profitable quarters and continued improvements in our overall financial performance."
Commenting on the transaction with DFR, Andrew Intrater, Chief Executive Officer of Columbus Nova stated, "The agreement to invest in DFR demonstrates confidence in the ability to grow the business and deliver strong financial results. We expect management to accelerate the Company's growth through new operating initiatives and acquisitions. We are very confident that DFR is well positioned to benefit from this acquisition to become a premier asset manager."The following highlights some of the significant benefits of the transactions to DFR:
- An increase in collateralized loan obligation ("CLO") AUM by $1.8 billion, or 45.0 percent, which brings DFR's CLO AUM to $5.8 billion and total AUM to $11.0 billion, based on the Company's AUM information as of January 1, 2010.
- Improved cash flows resulting from both top line revenue growth attributable to the CNCIM CLO management contracts and expected net interest expense savings from long-term debt.
- Significantly strengthened DFR's capital structure:
- $73.9 million in Senior Notes with a variable interest rate and increasing interest rate spread that mature in December 2012 are extinguished for $55.0 million, or an $18.9 million discount.
- $25.0 million of Convertible Notes will be issued with a seven and one-half year maturity. The Convertible Notes will be convertible at $6.05 per share, carry an initial interest rate of 8 percent and will be noncallable for 2 years.
- $95.0 million of the $120.0 million of Trust Preferred Debt ("Trups") was exchanged for new Junior Subordinated Notes with less restrictive covenants and a fixed 1 percent per annum interest rate through at least 2012. However, the closing of the Convertible Notes transaction is expected to result in the 1 percent per annum interest rate being extended through April 30, 2015, before returning to the original variable interest rate. The original interest rates on the Trups was LIBOR plus 3.50 percent per annum on $25.8 million of Trups and LIBOR plus 2.25 percent per annum on $72.1 million of additional Trups, which have been exchanged for Junior Subordinated Notes. Additionally, $25.8 million of Trups with an interest rate of LIBOR plus 3.50 percent per annum have not been exchanged at this time.
- Interest Rate:
- Years 1-2: Fixed interest rate of 8 percent per annum
- Year 3: Fixed interest rate of 9 percent per annum
- Year 4: Fixed interest rate of 10 percent per annum
- Thereafter: Fixed interest rate of 11 percent per annum
- The Company may elect, in its sole discretion, to pay 50 percent of the interest in payments in-kind, which will result in the fixed interest rate increasing by 2 percent per annum for years 1 – 4 and 1 percent per annum thereafter
- Maturity: 7.5 years
- Conversion Features: Convertible into common stock of the Company at the option of the holder at a conversion price of $6.05 per share, subject to adjustment.
- Redemptions: Two year no redemption period, after which the Company can redeem at 100 percent of the principal amount plus a specified premium. The Company is not required to make a mandatory redemption of the Convertible Notes.
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