Capital Trust, Inc. Announces Comprehensive Debt Restructuring

NEW YORK, March 31, 2011 /PRNewswire/ -- Capital Trust, Inc. (NYSE: CT) today announced the comprehensive restructuring of all of the Company's outstanding recourse debt obligations (the "Restructuring").  The Restructuring involved: (i) the contribution of certain of the Company's legacy assets to a newly formed subsidiary of the Company ("CT Legacy REIT"), (ii) the assumption of the Company's legacy repurchase obligations by CT Legacy REIT, and (iii) the extinguishment of the Company's senior credit facility (the "SCF") and junior subordinated notes (the "JSNs"). The Restructuring was financed by a new $83.0 million mezzanine loan to CT Legacy REIT (the "Mezzanine Loan") provided by an affiliate of Five Mile Capital Partners LLC (the "Mezzanine Lender") and the issuance of equity interests in CT Legacy REIT to the former JSN and SCF holders, as well as to an affiliate of the Mezzanine Lender.

Stephen D. Plavin, CEO of Capital Trust commented, "We are pleased to announce the successful restructuring of Capital Trust's legacy liabilities after a great effort by our team and Five Mile as well as by all of the other transaction participants.  The restructuring appropriately recapitalizes the legacy portfolio with all stakeholders retaining an interest in its recovery.  In addition to its ownership interest in and management of the legacy assets, Capital Trust maintains the full capabilities of its platform and is well positioned to continue its capital raising, investing and asset management activities."

CT Legacy REIT

In connection with the Restructuring, the Company transferred substantially all of its directly held interest earning assets to CT Legacy REIT.  The transferred assets include: (i) all of the loans and securities which serve as collateral for the legacy repurchase obligations (except for certain subordinate interests in CT CDO I and II), (ii) the Company's subordinate interests in CT CDO III, and (iii) 100% of CT's previously unencumbered loans and securities (collectively, the "Legacy Assets").  

CT Legacy REIT, which will elect to be taxed as a REIT commencing in 2011, is owned 51.6% by the Company, 24.2% by the Mezzanine Lender, and 24.2% by the former lenders under the SCF.  In addition, holders of the JSNs received a subordinate class of common equity in CT Legacy REIT (more fully described below).  Capital Trust will manage CT Legacy REIT and the Legacy Assets as a liquidating portfolio.

In addition to the Company's interest in the common stock of CT Legacy REIT, CT also owns 100% of its class A preferred stock.  The class A preferred stock initially entitles the Company to cumulative preferred dividends of $7.5 million per annum, which dividends will reduce in 2013 as the portfolio of Legacy Assets repays or is sold.

Repurchase Obligations

The Company's $339.6 million of legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated.  In addition, the facilities were amended with the following terms:

• Each of the three repurchase lenders received cash pay downs equal to 10% of their outstanding balances, in the aggregate $33.9 million.
• Except for certain key man provisions, all restrictive covenants governing the operations of Capital Trust, Inc. were eliminated, including covenants restricting employee compensation, dividend payments, and new balance sheet investments.
• Net interest margin sweep and periodic amortization provisions were eliminated.
• All forms of margin call or similar requirements under the facilities were eliminated.
• Maturity dates were extended to March of 2013 and 2014, subject in all three cases to periodic required repayment thresholds.
• Interest rates were increased to LIBOR + 1.50% and LIBOR + 2.50%, subject in all three cases to periodic rate increases over the term of each respective facility.

Senior Credit Facility

The Company's $98.1 million SCF was fully satisfied and all collateral for the SCF was released in exchange for (i) a cash payment of $22.9 million, (ii) a 24.2% equity interest in the common stock of CT Legacy REIT, and (iii) $2.8 million of Secured Notes (as defined below).  

Junior Subordinated Notes

The Company's $143.8 million of JSNs were fully satisfied in exchange for (i) a cash payment of $4.6 million, (ii) subordinate common stock of CT Legacy REIT (as described below) and (iii)  $5.0 million of Secured Notes (as defined below).  The JSN subordinate common stock entitles its holders to receive approximately 25% of the payments otherwise due to the Company on its equity position in CT Legacy REIT, after aggregate cash distributions of $50 million have been paid to all other classes of common equity.  

Mezzanine Loan

CT Legacy REIT entered into an $83.0 million Mezzanine Loan provided by an affiliate of Five Mile Capital Partners LLC that carries a 15% interest rate (8.0% current and 7.0% PIKable) and matures in five years on March 31, 2016.  The loan does not have recourse to CT, except for certain limited non-recourse, "bad boy" carve outs.  Proceeds from the Mezzanine Loan were used to (i) extinguish the SCF, (ii) extinguish the JSNs, (iii) provide for the cash pay downs of the repurchase obligations, (iv) pay transaction expenses, and (v) establish liquidity reserves at CT Legacy REIT.  

The Mezzanine Loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of the unencumbered Legacy Assets and 100% of the equity in its subsidiaries that own the remainder of the Legacy Assets that are collateral for the repurchase obligations.  The Mezzanine Lender has consent rights with respect to material actions on the Legacy Assets such as material modifications, sales and/or the pursuit of certain remedies with regard to the Legacy Assets.  The Mezzanine Loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the Mezzanine Loan has been repaid, (ii) prohibit Capital Trust, Inc. from selling or otherwise transferring its equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

In addition, an affiliate of Five Mile Capital LLC acquired a 24.2% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the Mezzanine Loan.

Capital Trust, Inc.

Post Restructuring, Capital Trust, Inc. is free of recourse debt and retains unencumbered ownership of its investment management business (CT Investment Management Co., LLC), its co-investment in CT Opportunity Partners I, LP, its residual ownership interests in CT CDOs I, II and IV, and its net operating losses.  Furthermore, as described above, CT retains a 51.6% equity interest in CT Legacy REIT.  CT's net economic interest in CT Legacy REIT is, however, subject to (i) the Secured Notes (as defined below), (ii) a management incentive plan (the "Management Plan"), and (iii) the JSN subordinate common stock (described above).

Secured Notes

In conjunction with the satisfaction of the SCF and the JSNs, a wholly-owned subsidiary of the Company issued Secured Notes to the former creditors, which are not recourse to the Company (recourse only runs to the collateral and the issuing subsidiary).  The Secured Notes have an aggregate initial face balance of $7.8 million ($2.8 million to the former SCF lenders and $5.0 million to the former JSN holders) and are secured by a 48.3% equity interest in the common stock of CT Legacy REIT (93.5% of CT's ownership in CT Legacy REIT).  The notes mature on March 31, 2016 and bear interest at a rate of 8.2%, which interest may be deferred until maturity, and require prepayment premiums.  The Secured Notes will receive, inclusive of prepayment premiums, the first $11.7 million of dividends paid on the collateral.

Management Plan

The Management Plan includes incentive awards issued under the Company's long term incentive plan.  The awards provide payments to certain senior level employees equal to 6.75% of the total recovery (subject to certain caps) of the Legacy Assets, net of CT Legacy REIT's obligations.

Company Advisors

The Company was advised by Houlihan Lokey Howard & Zukin, Inc. and represented by Paul, Hastings, Janofsky & Walker LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Matt Niemann, head of Houlihan Lokey's Real Estate Restructuring practice said "This is a highly structured transaction where every party involved worked with the Company to achieve a balanced solution that fully aligns the interest of every stakeholder, and allows Capital Trust to continue its best in class asset management."

Michael L. Zuppone, who led the Paul Hastings team, remarked that, "It was gratifying that our longstanding client turned to us for assistance in negotiating a complex resolution of its legacy liabilities that achieves important strategic goals."

Five Mile Capital Partners LLC

Five Mile Capital Partners LLC is a privately-held alternative investment and asset management company established in 2003 and based in Stamford, Connecticut. The firm specializes in investment opportunities in real estate, debt products, structured finance, asset-based lending and financial services private equity. Five Mile Capital Partners has executed numerous transactions involving distressed and non performing first mortgage, mezzanine loans, equity and high yield structured products. Five Mile Capital Partners' principals have significant experience, knowledge and skills relevant to the financial services industry and believe the cyclical and dynamic nature of the sector continually provides a broad opportunity for investments across the capital structure. Five Mile Capital Partners currently manages approximately $2 billion of capital.  For more information, visit www.fivemilecapital.com.

Forward-Looking Statements

This news release contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to future financial results and business prospects.  The forward-looking statements contained in this news release are subject to certain risks and uncertainties including, but not limited to, the continued credit performance of the Company's loan and CMBS investments, its asset/liability mix, the effectiveness of the Company's hedging strategy, the rate of repayment of the Company's portfolio assets and the impact of these events on the Company's cash flow, as well as other risks indicated from time to time in the Company's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.  The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events or circumstances.  

About Capital Trust

Capital Trust, Inc.  is a real estate finance and investment management company that specializes in credit sensitive structured financial products.  To date, the Company's investment programs have focused primarily on loans and securities backed by commercial real estate assets, and the Company has executed its business both as a balance sheet investor and as an investment manager.  Capital Trust is a real estate investment trust traded on the New York Stock Exchange under the symbol "CT."  The Company is headquartered in New York City.

SOURCE Capital Trust, Inc.