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Gramercy Capital Corp. Reports Third Quarter 2012 Financial Results


The Company entered into a letter of intent to buy a portfolio of industrial buildings totaling approximately 1,000,000 square feet. The initial cap rate is expected to be in excess of 8.5%. However, there is no assurance that the transaction will be consummated on the terms described or at all.


As of September 30, 2012, the Company maintained $175.2 million of unrestricted cash as compared to approximately $192.6 million reported as of June 30, 2012. In addition, as of September 30, 2012, the Company held an aggregate of $41.4 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 $32.9 million as of September 30, 2012.

A substantial portion of the Company’s cash flow has been historically generated by distributions from its CDOs within the Gramercy Finance segment. 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. The Company’s 2005 CDO failed its overcollateralization test in October 2012, the most recent distribution date, and previously failed it overcollateralization tests at the July 2012, October 2011, April 2011 and January 2011 distribution dates. The Company’s 2006 CDO failed its overcollateralization test at the October 2012 distribution date. The Company’s 2007 CDO failed its overcollateralization test beginning with the November 2009 distribution date. It is unlikely that the Company’s 2005, 2006 and 2007 CDO’s overcollateralization tests will be satisfied in the foreseeable future. During periods when the overcollateralization tests for the Company’s CDOs are not met, cash flows that the Company would otherwise receive are significantly curtailed. The following chart summarizes the CDO compliance tests as of the most recent distribution dates (October 25, 2012 for the Company’s 2005 and 2006 CDOs and August 15, 2012 for the Company’s 2007 CDO):
  Cash Flow Triggers   CDO 2005-1   CDO 2006-1   CDO 2007-1

Overcollateralization (1)
Current 104.44% 95.17% 81.55%
Limit 117.85% 105.15% 102.05%
Compliance margin -13.41% -9.98% -20.50%
Pass/Fail Fail Fail Fail
Interest Coverage (2)      
Current 369.49% 479.91% N/A
Limit 132.85% 105.15% N/A
Compliance margin 236.64% 374.76% N/A
Pass/Fail Pass Pass N/A


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.


The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by the Company.

Cash flows generated from the Company’s CDOs with respect to its ownership of non-investment grade bonds, preferred equity and collateral management agreements for the 2011 and year to date 2012 are summarized as follows:

Collateral Manager Fees and CDO Distributions
CDO 2005-1 CDO 2006-1 CDO 2007-1  
Fees Distributions Fees Distributions Fees Distributions Total
Total 2011 $ 1,676 $ 5,477 $ 4,452 $ 29,528 $ 711 $ - $ 41,844
1Q 2012 $ 2,399 $ 3,495 $ 1,027 $ 9,160 $ 172 $ - $ 16,253
2Q 2012 3,134 1,907 965 6,311 169 - 12,486
3Q 2012 332 - 933 8,238 169 - 9,672
4Q 2012   300   -   380   -   165 (1)     845
Total 2012 $ 6,165 $ 5,402 $ 3,305 $ 23,709 $ 675 $ - $ 39,256
(1) Estimated. Distribution date for CDO 2007-1 is November 15, 2012

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