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Amendment To CapitalSource Senior Secured Notes Approved

CHEVY CHASE, Md., Dec. 9, 2010 /PRNewswire-FirstCall/ -- CapitalSource Inc. (NYSE: CSE) today announced that holders of its 12.75% First Priority Senior Secured Notes due 2014 have approved an amendment (the "Amendment") which creates substantial financial flexibility, including the opportunity to buy back shares.  As a result, the Company announced that its Board authorized the repurchase of up to $150 million of its common stock over a period of up to two years.

There are four principal components to the Amendment as follows:

  • The Company is permitted to use available cash to purchase its convertible debentures redeemable in July 2011 and July 2012;
  • The Company's restricted payments capacity, which can be used for share repurchases among other purposes, was increased to approximately $164 million as of September 30, 2010 as a result of modifications to the formulas for calculating restricted payment capacity. The restricted payments formula was revised such that 75% of pre-tax earnings will be added to restricted payment capacity each quarter going forward.
  • The Company is permitted to contribute the equity in its remaining four securitizations to CapitalSource Bank. Those securitizations included $1.1 billion of loans and net equity of approximately $235 million as of September 30, 2010. Any such contributions may require regulatory or other approvals not related to the Senior Secured Notes; and
  • The Amendment provides added flexibility to leverage assets by allowing the Company to obtain secured debt with a minimum advance rate of 40%, rather than the previous 75% requirement.

"This Amendment accomplishes several important strategic objectives and accelerates our opportunity to return capital to shareholders in the form of the share buyback announced today," said John K. Delaney, CapitalSource Executive Chairman.  "The significant level of excess capital and our strong liquidity position at the parent company permit us to return capital to shareholders, enhance our industry leading capital levels at CapitalSource Bank, and position the Company for more rapid EPS growth."

"The Amendment allows us to redeem our outstanding convertible debt with liquidity from our portfolio rather than through an expensive debt or dilutive equity transaction," commented Donald F. Cole, CapitalSource Chief Financial Officer. "It also provides us with additional flexibility to utilize the significant amount of cash we expect to generate from the continuing liquidation of our parent company loan portfolio to reduce our level of excess capital." 

Any share repurchases made under the plan announced today will be made through open market purchases or privately negotiated transactions from time to time for a period of up to two years.  The amount and exact timing of any repurchases will depend upon market conditions and other factors.  There are no assurances the Company will repurchase any shares during the period and the plan may be suspended or discontinued at any time.

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