Gramercy Capital Corp. Reports Second Quarter 2012 Financial Results
NEW BUSINESS STRATEGY
Following a strategic review process which was completed in the second quarter of 2012, the Company’s Board of Directors concluded that the most attractive alternative available to the Company is to remain independent and to focus on building value by deploying the Company's capital into income-producing net leased real estate. The new investment criteria will focus on single tenant net lease investments with durable credits across the United States. The investments initially will be funded from existing financial resources. Subsequently, subject to market conditions, the Company expects to seek to raise additional debt and/or equity capital to support further growth. On July 1, 2012, Gordon F. DuGan became the Company’s Chief Executive Officer and will lead the new business effort. An operational review of the Company's existing assets and operations has begun with the goal of reducing the current cost structure, further strengthening the balance sheet and determining which legacy assets and operations complement the new investment strategy. The Company expects to provide an investor presentation to be posted to the Company’s website no later than September 30, 2012 to provide an update on the operational review and further communicate the new strategy.
As of June 30, 2012, the Company maintained $192.6 million of unrestricted cash as compared to approximately $186.3 million reported as of March 31, 2012. In addition, as of June 30, 2012, the Company held an aggregate of $47.4 million of par value Class A-1, A-2 and B CDO securities previously issued by the Company’s CDOs that were available for re-issuance. The aggregate fair value of the repurchased CDO bonds was $37.9 million as of June 30, 2012.A substantial portion of the Company’s cash flow has been generated by distributions from its CDOs within the Gramercy Finance division. The Company's CDOs contain minimum interest coverage and asset overcollateralization covenants that must be satisfied for the Company to receive cash flow on the interests in its CDOs retained by the Company and to receive the subordinate collateral management fees. During periods when these covenants are not satisfied for a particular CDO, cash flows from that CDO that would otherwise be paid to the Company as a subordinate bondholder, holder of the preferred shares and in respect of the subordinate collateral management fee are diverted from the Company to repay principal and interest on the senior-most outstanding CDO bonds. As of July 2012, the most recent distribution date, the Company’s 2006 CDO was in compliance with interest coverage and asset overcollateralization covenants; however, the compliance margins were narrow and relatively small declines in collateral performance and credit metrics from one or more assets could cause the CDO to fall out of compliance. The Company’s 2005 CDO failed its overcollateralization test in July 2012 and previously failed it overcollateralization tests at the October 2011, April 2011 and January 2011 distribution dates. The Company’s 2007 CDO has failed its overcollateralization test beginning with the November 2009 distribution date and it is unlikely that the 2007 CDO’s overcollateralization test will be satisfied in the foreseeable future. We cannot be certain that the CDO tests will continue to be satisfied and that we will continue to receive cash flows relating to the Company’s CDOs in the future, and believe that we will likely fail the overcollateralization test for the 2005 CDO and/or the 2006 CDO at the October distribution date. The following chart summarizes the CDO compliance tests as of the most recent distribution dates (July 25, 2012 for the Company’s 2005-1 and 2006-1 CDOs and May 19, 2012 for the Company’s 2007-1 CDO):
|Cash Flow Triggers||CDO 2005-1||CDO 2006-1||CDO 2007-1|
|Interest Coverage (2)|
|(1)||The overcollateralization ratio divides the total principal balance of all collateral in the CDO by the total bonds outstanding for the classes senior to those retained by the Company. To the extent an asset is considered a defaulted security, the asset’s principal balance is multiplied by the asset’s recovery rate which is determined by the rating agencies. For a defaulted security with a CUSIP that is actively traded, the lower of market value or the product of the security’s principal balance multiplied by the asset’s recovery rate as determined by the rating agencies is used for the overcollateralization ratio.|
|(2)||The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by the Company.|
|Collateral Manager Fees and CDO Distributions|
|CDO 2005-1||CDO 2006-1||CDO 2007-1|
|(1) Estimated. Distribution date for CDO 2007-1 is August 15, 2012|
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV