Wachovia Opens Spigot for $374M to Arbor Realty Trust
(UNIONDALE, NY) -- Arbor Realty Trust Inc., one of the nation's most active lenders to multifamily and commercial developers, has won a three-year breather on its balance sheet.
The six-year-old Uniondale, NY lender has closed a deal with Wachovia to receive $374 million over three years. The loan will restructure Arbor's financing facilities.
"We are very pleased with our success in restructuring our debt with Wachovia as well as all of our other short term debt facilities," says Arbor CEO Ivan Kaufman.
"This, combined with our ability to restructure our Trust Preferred Securities, has put us in a position where all of our non CDO debt has been modified and/or extended for the long-term."
A stipulation in the deal was that Kaufman remain an officer or director of the company for the term of the facilities.
Industry analysts tell Real Estate Channel the transaction could mark the beginning of a thaw in the financing freezes many major banks have had with the commercial real estate sector over the past 20 months.
Kaufman says the $374 million of restructured indebtedness with Wachovia was comprised of two term loan facilities with an aggregate outstanding balance of $332 million and a working capital facility with an outstanding balance of $42 million.
This debt restructuring resulted in the consolidation of the three facilities into one term debt facility with an outstanding balance of $317 million and one working capital facility with an outstanding balance of $57 million.
The major components of the restructuring include:
- The maturity dates of the facilities were extended for three years.
- The term loan facility requires a $48 million reduction over the three year term, with approximately $8 million in reductions due every six months beginning in December 2009.
- Margin call provisions relating to collateral value of the underlying assets have been eliminated, as long as the term loan reductions are met, with the exception of limited margin call capability related to foreclosed or real estate-owned assets.
- The working capital facility requires quarterly amortization of up to $3 million per quarter, $1 million per CDO, only if both (a) the CDO is cash flowing to the company and (b) the company has a minimum quarterly liquidity level of $27.5 million.
- Interest rate of LIBOR plus 350 basis points for the term loan facility, compared to LIBOR plus approximately 200 basis points previously and LIBOR plus 800 basis points for the working capital facility, compared to LIBOR plus 500 basis points previously.
- The company has also agreed to pay a commitment fee of 1.00% payable over 3 years.
- The company issued Wachovia 1.0 million warrants at an average strike price of $4.00. 500,000 warrants are exercisable immediately at a price of $3.50, 250,000 warrants are exercisable after July 23, 2010 at a price of $4.00 and 250,000 warrants are exercisable after July 23, 2011 at a price of $5.00. All warrants expire on July 23, 2015.
- Annual dividends are limited to 100% of taxable income to common shareholders and are required to be paid in the form of the company's stock to the maximum extent permissible (currently 90%), with the balance payable in cash.
- The company will be permitted to pay 100% of taxable income in cash if the term loan facility balance is reduced to $210 million, the working capital facility is reduced to $30 million and the company maintains $35 million of minimum liquidity.
In addition, the financial covenants have been reduced to the following:
- Minimum quarterly liquidity of $7.5 million in cash and cash equivalents.
- Minimum quarterly GAAP net worth of $150 million.
- Ratio of total liabilities to tangible net worth shall not exceed 4.5 to 1 quarterly.
Other than the Wachovia facilities, in the second quarter of 2009, Arbor also extended two of its financing facilities with an outstanding balance of approximately $15 million for one year, with one year extension options, and also retired its only other remaining short-term financing facility which had a balance of approximately $37 million.