Attached files
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| EX-99.1 - MMA Capital Holdings, LLC | v186340_ex99-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of Earliest Event Reported): May 27, 2010
Municipal
Mortgage & Equity, LLC
(Exact
name of registrant as specified in its charter)
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Delaware
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001-11981
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52-1449733
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(State
or other jurisdiction
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(Commission
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(I.R.S.
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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621
E Pratt Street, Suite 600,
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21202
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Baltimore,
Maryland
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(Zip
Code)
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(Address
of principal executive offices)
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Registrant’s
telephone number, including area code: (443) 263-2900
Not
Applicable
Former
name or former address, if changed since last report
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Page
1
Item
7.01 Regulation FD Disclosure.
The
information in this Current Report on Form 8-K is furnished pursuant to Item
7.01 and shall not be deemed “filed” for any purpose, including for the purposes
of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or
otherwise be subject to the liabilities of that Section. The
information herein shall not be deemed incorporated by reference into any filing
under the Securities Act of 1933 or the Exchange Act, regardless of any general
incorporation language in such filing.
In
this Current Report, except as expressly indicated or unless the context
otherwise requires, the “Company,” “MuniMae,” “we,” “our” or “us” means
Municipal Mortgage & Equity, LLC, a Delaware limited liability company, and
its consolidated subsidiaries.
Cautionary
Statement Regarding Forward-Looking Statements
This
Current Report contains forward-looking statements intended to qualify for the
safe harbor contained in Section 21E of the Exchange
Act. Forward-looking statements often include words such as “may,”
“will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe,” “seek,” “would,” “could” and similar words or are made in
connection with discussions of future operating or financial
performance.
Forward-looking
statements reflect our management’s expectations at the date of this Current
Report regarding future conditions, events or results. They are not
guarantees of future performance. By their nature, forward-looking
statements are subject to risks and uncertainties. Our actual results
and financial condition may differ materially from what is anticipated in the
forward-looking statements. There are many factors that could cause
actual conditions, events or results to differ from those anticipated by the
forward-looking statements contained in this Current
Report. These factors include changes in market conditions that
affect the willingness of potential investors or lenders to provide us with debt
or equity, changes in market conditions that affect the value or marketability
of assets we own, changes in market conditions or other factors that affect our
access to cash that we may need to meet our commitments to other persons,
changes in interest rates or other conditions that affect the value of mortgage
loans we have made, changes in interest rates that affect our cost of funds, tax
laws, environmental laws or other conditions that affect the value of the real
estate underlying mortgage loans we own, and changes in tax laws or other things
beyond our control that affect the tax benefits available to us and our
investors. Readers are cautioned not to place undue reliance on forward-looking
statements. We are not undertaking to update any forward-looking
statements in this Current Report.
EXPLANATORY
NOTE
In
September 2006, we determined that our financial statements for 2004, 2005 and
the first quarter of 2006 required restatement. We completed the
restatement of our 2004 and 2005 financial statements and the audit of our 2006
financial statements last year. The audit reports related to these
financial statements were included in our Annual Report on Form 10-K for the
year ended December
31, 2006 (the “2006 Form 10-K”), which was filed with the Securities and
Exchange Commission (“SEC”) on April 29, 2009 and is available on our website:
www.munimae.com.
Because
of the delay in completing the audited restated 2004 and 2005 financial
statements and the audited 2006 financial statements, we have not been able to
file Reports on Form 10-K or 10-Q covering any period subsequent to December 31,
2006. On
December 17, 2009 we furnished a Current Report on Form 8-K which provided
information about the Company and the effects of market conditions on our
business at that time (the “2009 Form 8-K”). We are furnishing this
Current Report on Form 8-K as part of our ongoing effort to provide current
information about the Company pending the resumption of timely annual and
quarterly reporting on Forms 10-K and 10-Q.
We
believe we will have audited financial statements for 2007 through 2009,
inclusive, by year-end 2010, and we are committed to becoming current in our
financial reporting as soon as practicable thereafter. Until we
become current in our financial reporting we are at risk that the SEC may
de-register or suspend trading in our shares. See "Financial
Reporting Update."
Page
2
THE
CURRENT STATE OF OUR BUSINESSES
As
previously reported, beginning early in 2008, there was a major deterioration in
the market for tax-exempt bonds and other assets that are or, at the time, were
a major part of our assets. This deterioration combined with the
factors that negatively affected world credit markets and financial
institutions, had a severe effect upon us during 2008 and 2009 and continues
today. These events led us to curtail significant aspects of our
business and to sell assets and businesses at substantial losses in order to
obtain funds we needed to meet our commitments or to satisfy
lenders. In 2009, we sold the majority of the assets associated with
three of our major businesses: substantially all of the renewable energy
business in April; our agency lending business in May; and substantially all of
our low income housing tax credit equity business (“LIHTC”) in October. The
Company retained certain assets from each of these business unit
sales. We have sold many of these retained assets and other assets
unrelated to these three business units often for less than the amounts we had
borrowed against or invested in them, in order to reduce our debt and improve
our liquidity. We will continue to evaluate the possible sale of our
assets as conditions warrant in order to further reduce our outstanding
debt. Our asset sale losses and the cost of preparing and auditing
our 2006 and restated 2004 and 2005 financial statements, when added to our
operating expenses for 2007, 2008 and 2009, resulted in significant
losses. In light of the instability in the credit and capital markets
and weaknesses in commercial real estate markets since 2006, we have reduced the
carrying value of some of our assets and have incurred losses on the sale of
some of our assets. As a result of our asset and business sales and
the use of proceeds to pay operating expenses and reduce debt, we have
significantly fewer assets now than at the end of 2006. In addition,
as more fully discussed under “Common Shareholders' Equity,” as a result of our
reduction in revenue and the increases in our losses since the end of 2006, we
believe our consolidated Common Shareholders' Equity at December 31, 2009 will
be a net deficit. We have not fully completed our review of our
accounting for 2007 to 2009 and, therefore, the exact amount of such deficit
will not be available until we complete the preparation and review of our
financial statements for 2007 to 2009 and our independent registered public
accounting firm completes its audit of these financial
statements.
Most of
the conditions described in our 2006 Form 10-K and 2009 Form 8-K continue to
exist, including our significant shortage of liquid assets. In
addition, the fact that we do not have audited financial statements for periods
after December 31, 2006 is an event of default under many of our borrowing
facilities and our lenders have the right to require us to repay the sums we
have borrowed unless we are able to obtain forbearance agreements or amendments
to our loan agreements. If these loans were accelerated and declared due and
payable, our current liquidity would be insufficient to repay
them. This led our independent registered public accounting firm,
KPMG LLP, to include an explanatory paragraph expressing substantial doubt about
our ability to continue as a going concern in its February 11, 2009 opinion
regarding our financial statements in the 2006 Form 10-K. The
conditions resulting in the 2006 going concern opinion continue to exist and as
such, we expect our independent registered public accounting firm will again
express substantial doubt on our ability to continue as a going concern when we
release our audited 2009 financial statements.
In
addition to our noncompliance with financial reporting and certain related debt
covenants, in some cases, we are not in compliance with the principal payment
terms of some of our agreements; however, in these cases we have short-term
forbearance agreements in place with creditors. The Company is current with
respect to required interest payments to its creditors. Our liquidity
issues have persisted since early 2008 and we have been able to successfully
work with our creditors since then; however, we cannot provide assurance that we
will be able to meet all of our obligations as and when they come
due. It is likely that we will need to continue to negotiate with our
creditors and reduce our outstanding debt.
The
Company’s remaining significant activities consist of owning and managing
portfolios of tax-exempt bonds and commercial real estate loans; however, the
Company plans to primarily operate as the owner and manager of the bond
portfolio. We continue to receive income from these portfolios,
primarily interest income and servicing fees associated with those
portfolios.
As we
have become a substantially smaller business, we have significantly reduced the
number of employees. Our headcount was 333 employees at March 31,
2009, 65 employees at December 1, 2009, and 56 employees at March 31,
2010.
In May
2008, we suspended our practice of paying quarterly dividends. We
have not paid a dividend since this suspension and do not expect to pay a
dividend for the foreseeable future.
I. Financial
Assets and Liabilities
As
discussed above, we have sold businesses and assets and curtailed certain
business services in order to satisfy debts and meet our liquidity
needs. At present, the Company’s bond business, which consists
primarily of tax-exempt bonds secured by affordable multifamily rental
properties, is our only significant remaining business segment. We
have not made any new bond investments since first quarter 2008 and we are not
currently planning to do so for the foreseeable future. We are also
managing a commercial real estate taxable loan portfolio; however, we plan to
liquidate that portfolio over time while retaining the bond
portfolio. Information regarding the bond business and our more
significant assets and liabilities not directly related to the bond business is
provided below.
Page
3
Bond
Business
The
Company primarily invests in bonds issued by state and local governments or
their agencies or authorities to finance affordable multifamily housing, student
housing and assisted living properties. These bonds are secured by an
assignment of the related mortgage loans and a general assignment of rents of
the underlying properties. Interest on the bonds is generally exempt
from federal and state income taxes. Nearly all of our bonds are held
by our wholly owned subsidiary, MuniMae TE Bond Subsidiary, LLC and its
subsidiaries (“TEB”), whose December 31, 2009 and 2008, financial
statements have been audited (see “Financial Reporting Update”). The
table below provides business volume and other key metrics related to this
business for the bonds held by TEB.
(dollars
in thousands)
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TEB
Tax Exempt Bond Portfolio
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As
of
March
31, 2010
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As
of
December
31, 2009
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As
of
December
31, 2008
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|||||||||
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Unpaid
principal balance
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$ | 1,272,071 | $ | 1,299,753 | $ | 1,342,330 | ||||||
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Fair
value
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1,155,640 | 1,188,630 | 1,249,392 | |||||||||
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Total
number of bonds
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153 | 154 | 163 | |||||||||
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Weighted average pay
rate(1)
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6.0 | % | 6.1 | % | 6.2 | % | ||||||
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Non-accrual bonds (UPB)
(2)
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$ | 125,410 | $ | 95,981 | $ | 75,066 | ||||||
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Debt service coverage ratios on
stabilized portfolio: (1) (3)
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||||||||||||
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With
non-accrual bonds
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1.08 |
x
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1.08 |
x
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1.07 |
x
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||||||
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Without
non-accrual bonds
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1.14 |
x
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1.13 |
x
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1.13 |
x
|
||||||
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Senior interests and debt owed to
securitization trusts
(4)
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$ | 718,870 | $ | 731,825 | $ | 785,072 | ||||||
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Weighted
average interest pay rate at period end
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1.94 | % | 2.08 | % | 3.10 | % | ||||||
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Preferred stock (par amount)
(5)
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$ | 337,699 | $ | 339,364 | $ | 341,000 | ||||||
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Weighted
average distribution rate at period end
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6.55 | % | 6.56 | % | 6.21 | % | ||||||
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(1)
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Calculated
on a rolling 12-month period basis.
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(2)
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Non-accrual
bonds represent bonds past due 90 days in the payment of principal or
interest and other bonds based on management’s view of
collectability.
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(3)
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Stabilized
portfolio represents properties that have reached 90% occupancy for 90
days and have sufficient operating information to calculate a rolling
12-month debt service coverage ratio. This operating information is
generally received on a quarter lag basis; accordingly, the debt service
coverage ratio for March 31, 2010 is based on December 31, 2009 operating
information.
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(4)
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This
debt is primarily due to bond securitization transactions that are treated
as financing arrangements in accordance with generally accepted accounting
principles (“GAAP”). This debt balance also includes transactions whereby
the Company purchases subordinate certificates from trusts having never
owned the underlying bonds. Our bond securitizations are
accounted for as secured borrowings and most securitization trusts are
consolidated as we are deemed to be the primary beneficiary.
Creditors of such trusts have limited recourse to our general credit. As of
March 31, 2010, the Company is current with respect to interest and
principal payments that are due.
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|
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(5)
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This
preferred stock was issued by TEB, which is current with respect to
principal redemptions and distributions. At March 31, 2010, December
31, 2009 and December 31, 2008, these amounts included $159.3 million,
$160.9 million and $162.3 million, respectively, of mandatorily redeemable
shares that we classify as debt in accordance with GAAP. Effective
June 30, 2009, the Series Exhibits for Series A and A-1 mandatorily
redeemable shares, for which there was a combined original share balance
of $100 million, was amended and restated to provide for distributions and
redemptions at a combined annual rate of 12.68% and 20% up from 6.875% and
6.30%, respectively. Furthermore, effective September 30, 2009, the
Series C perpetual preferred shares, with a share balance of $13 million,
was amended and restated for distributions at an annual rate of 9.75%, up
from 4.7%.
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Page
4
Due to
the lack of liquidity within the securitization market, the Company has sold,
called or permitted the early redemption of a number of bonds within its bond
portfolio since mid-2008 in order to: generate liquidity for future funding
commitments and general corporate needs; eliminate future funding commitments;
reduce leverage; and improve overall credit quality. These efforts,
which included the sales of non-accrual bonds, mitigated some of the
negative impacts of the worsening multifamily market conditions on our bond
portfolio over the past two years and resulted in stable or improved performance
and credit quality metrics towards the end of 2008 and into the first half of
2009. However, in the second half of 2009 and through first quarter
of 2010, the deterioration in market conditions has continued and has negatively
impacted our bond portfolio, particularly in the number of bonds on
non-accrual. The most significant factor impacting the quality of the
Company’s bond portfolio has been the weak economy and the continued high
national unemployment rate, which stood at 9.9 % at the end of April
2010. This has contributed to the softening of the national apartment
market and the slowing of household formation, resulting in vacancy levels not
seen in over 30 years. Another factor that is affecting the bond
portfolio’s credit quality is the decline in property level financial support
historically provided by both property developers and tax credit equity
syndicators. As a result of these factors, our non-accrual bonds increased
during 2009 and now represent 9.9% of the total bond portfolio at March 31, 2010
and we expect this negative trend to continue into the second quarter and
possibly the third quarter of 2010.
At March
31, 2010, approximately $1.1 billion, or 97.5% of the fair value of our TEB
bonds were either deposited in securitization trusts or pledged as collateral
for securitization programs, and our remaining unfunded bond lending commitments
were $6 million. During 2009 and into the first quarter of 2010, the Company has
experienced an increase in net interest income from the bond portfolio due to
substantially all of our investments in bonds paying a fixed rate of interest,
while substantially all of our debt is variable rate
debt. Approximately 95%, or $684 million of the March 31, 2010 TEB
securitized debt is variable rate debt based on the Securities Industry and
Financial Markets Association (“SIFMA”) index. The SIFMA index (spot
rate) decreased from 0.54% at March 31, 2009, to 0.29% at March 31,
2010. Our total weighted average pay rate on variable rate debt
(which includes interest plus on-going fees such as credit enhancement,
liquidity, trustee, custodial and remarking fees) as of December 31, 2008 and
2009 was 3.01% and 1.95%, respectively. The total weighted average
pay rate on variable rate debt was 1.81% as of March 31, 2010. A rise
in the SIFMA index will increase our borrowing costs without a corresponding
increase in our bond interest income. Depending on the magnitude of
the rise in short-term interest rates, there could be a significant reduction in
our net interest income. Conversely, a decline in the SIFMA index
will lower our borrowing costs.
Additional
risks arising from the nature of our bond business that could have a material
adverse affect on our future business, financial condition and results of
operations include:
|
o
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If
the fair value of our investments in bonds deposited in securitization
trusts or pledged as additional collateral decreases significantly, as a
result of higher interest rates, credit deterioration, or for other
reasons, we may be required to post cash, to reduce leverage, or to pledge
additional investments as collateral for such
programs.
|
Substantially
all of our assets are pledged or are in some manner restricted from being
pledged. In the event that we have insufficient liquidity or
unencumbered investments to satisfy these collateral requirements, certain bonds
deposited in securitization trusts may be liquidated by the third-party creditor
to reduce the collateral requirement. Such a forced sale would likely
result in a lower sales price as compared to a price received from an orderly
sale. In addition, we would lose the cash flow from the bonds and our
ownership interest in them, and, if a significant number of bonds were
liquidated, our financial condition and results of operations would be
materially adversely affected.
|
o
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Economic
conditions adversely affecting the real estate market could continue to
have a material adverse effect on the
Company.
|
Most of
our investments continue to be directly or indirectly secured by multifamily
residential properties, and therefore the value of our investments and, in
certain instances, the interest income we collect could be materially adversely
affected by macroeconomic conditions or other factors that adversely affect the
real estate market generally or the market for multifamily real estate and bonds
secured by these properties in particular. Conditions that may
negatively affect the value of our investments include, among others: (i) high
levels of unemployment and other adverse economic conditions (such as
foreclosures, inflation and higher interest rates), regionally or nationally;
(ii) decreased occupancy and rent levels due to supply and demand imbalances;
(iii) changes in interest rates that affect the value of our bonds or the value
of the real estate securing the bonds; and (iv) lack of or reduced availability
of mortgage financing.
|
o
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Substantially
all of our bond investments are illiquid, which could prevent us from
consummating sales on favorable terms and makes it difficult for us to
value our investment portfolio.
|
Our bond
investments are almost all private placements not eligible for public
trading. As a result, there is only a limited trading market for our
bond investments. This lack of liquidity results in more complexity
in how we determine the fair value of our bonds as there is limited information
on trades of comparable bonds. Therefore, there is a greater risk if
we need to sell bonds that the price we are able to realize will be lower than
our carrying value (i.e., fair value) of such
bonds and such differences could be material to our results of operation and
financial condition. The prices at which we are able to sell our
bonds may differ significantly from the values that we would derive if a ready
market existed for the investments.
Page
5
|
o
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Restrictions
in TEB’s operating agreement may limit our ability to receive
distributions from TEB or to otherwise obtain value from our 100%
ownership of TEB’s common stock.
|
TEB’s
operating agreement has requirements related to the type of assets in which TEB
may invest, as well as leverage restrictions, limitations on issuance of
additional preferred equity interests, limitations on distributions of
distributable cash flow and restricted payments (as defined by the operating
agreement of TEB) to us, and certain requirements in the event of merger, sale
or consolidation. At March 31, 2010:
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§
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TEB’s
leverage ratio was at an amount that would not allow TEB to incur
additional obligations until the leverage ratio is within the required
limits. As a result, TEB will not be able to raise capital
through new securitizations or make any restricted payments (i.e., return of capital)
to the Company until asset values increase and/or obligations
decrease;
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||
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§
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TEB’s
liquidation preference ratios were at amounts that would restrict TEB from
making any restricted payments to us, or raising additional preferred
equity on parity with the existing preferred shares
outstanding;
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||
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§
|
TEB
has the right to make payments to us from distributable cash flow even
when restricted payments are prohibited by the leverage and liquidation
preference ratios; however, effective October 1, 2009, TEB’s right to make
payments related to distributable cash flow is subject to an
agreement that TEB will retain 67% of its distributable cash flow until
TEB has retained a total of $25 million (“Retained
Distributions”). Since we own 100% of the common stock of TEB,
this restriction does not materially affect our consolidated Common
Shareholders’ Equity, but until TEB has met its Retained Distribution
requirement, it does materially affect our liquidity at the parent
level. Once TEB has met the Retained Distribution requirement,
it will again be able to distribute all of its distributable cash
flow. Under the current interest rate and economic environment,
we believe this should occur by the end of the year. Since
October 1, 2009, the cumulative balance of Retained Distributions was
$12.0 million at March 31, 2010.
|
As
previously disclosed, on March 6, 2008 the Company and certain of its
subsidiaries entered into a series of agreements pursuant to which the Company
granted a security interest in the common shares of TEB in order to avoid the
need of the Company and other MuniMae subsidiaries to post additional cash
collateral to meet future margin calls on various swap obligations. Under the
agreements, the Company and its affiliates receive credit against margin
requirements without the need to post additional cash.
In
addition to the risks described herein, we refer you to the section entitled
“Risk Factors” in Item 1A of the 2006 Form 10-K.
Page
6
Assets Outside of the Bond
Business
Taxable
Loans
The
Company’s taxable lending business historically consisted primarily of loans
related to the affordable multifamily housing market, origination and sales of
multifamily loans through the Fannie Mae, Freddie Mac and certain HUD insured
multifamily lending programs (“agency lending”) and commercial real estate
lending on a variety of asset types. We have sold the agency lending
business and therefore we no longer originate and sell these types of
loans. The commercial real estate lending business has been shut down
due to the severe market conditions that we experienced in the past two
years. Therefore, we currently have no employees engaged in
taxable loan originations; however, as of March 31, 2010 we are managing and
servicing approximately 47 loans that we own. Relevant information
related to the taxable loan portfolio is as follows:
(dollars
in thousands)
|
As
of or for the
three
months ended March 31, 2010
|
As
of or for
the
year ended
December
31, 2009
|
|||||||||||
|
Loan
Portfolio
|
Unpaid
Principal
Balance
(1)
|
Unpaid
Principal
Balance
(1)
|
Carrying
Value
(2)
|
|||||||||
|
Loans
held for sale:
|
||||||||||||
|
Land
and land development loans
|
$ | 25,004 | $ | 25,004 | $ | 6,450 | ||||||
|
Affordable
multifamily loans
|
61,340 | 66,991 | 51,010 | |||||||||
|
Market
rate multifamily loans
|
14,499 | 14,653 | 4,727 | |||||||||
|
Other
miscellaneous loans
|
11,723 | 9,511 | 1,538 | |||||||||
|
Total
loans held for sale
|
$ | 112,566 | $ | 116,159 | $ | 63,725 | ||||||
|
Loans
held for investment:
|
||||||||||||
|
Land
and land development loans
|
$ | 18,635 | $ | 18,627 | $ | 1,261 | ||||||
|
Affordable
multifamily loans
|
14,386 | 14,389 | 11,153 | |||||||||
|
Market
rate multifamily loans
|
53,634 | 53,678 | 53,544 | |||||||||
|
Other
miscellaneous loans
|
10,452 | 10,452 | - | |||||||||
|
Total
loans held for investment
|
$ | 97,107 | $ | 97,146 | $ | 65,958 | ||||||
|
Total
loans
|
$ | 209,673 | $ | 213,305 | $ | 129,683 | ||||||
|
Loans
past due 90 days
|
$ | 74,445 | $ | 74,445 | $ | 24,627 | ||||||
|
Weighted
average rate at period end:
|
||||||||||||
|
Total
loan portfolio - contractual rate
|
8.28 | % | 8.27 | % | ||||||||
|
Loans
past due 90 days - pay rate
|
0.42 | % | 0.96 | % | ||||||||
|
Total
loan count
|
47 | 49 | ||||||||||
|
(1)
|
These
amounts are contractual unpaid principal balances and do not reflect any
impairment or loss reserves. Although we have not updated our
December 31, 2009 carrying values to March 31, 2010, we believe the March
31, 2010 carrying values will not be materially different from the
December 31, 2009 carrying values.
|
|
|
(2)
|
These
unaudited amounts represent the Company’s carrying basis under GAAP (and
are subject to change as we complete our 2007 to 2009 financial
statements). Loans held for sale are carried at the lower of cost or
market, including market adjustments for credit
deterioration. Loans held for investment primarily represent
loans sold to third parties that did not meet the requirements for sales
treatment under GAAP due to our continuing involvement, such as guarantees
or other forms of support. These loans are net of specific
impairment reserves or charge-offs.
|
|
As shown
in the table above, we have disaggregated our taxable loan portfolio into four
categories, loans related to land and land development, affordable multifamily
loans, market rate multifamily loans and other miscellaneous
loans. Other miscellaneous loans consist of loans not secured by
mortgage liens on real estate. The performance of the affordable multifamily
loans is strong with the default rate (which includes all loans over 30 days
past due) being 2% of the total affordable multifamily loan
portfolio. The default rate on market rate multifamily loans is
approximately 27% of the total market rate multifamily loan
portfolio. Performance is weakest within the Company’s land and other
miscellaneous loan portfolios. The default rate on the land and other
miscellaneous loans is 83%. Management believes the carrying values
above are collectable based on current market and borrower
conditions.
Page
7
Other
Assets
At
December 31, 2009 we held a collection of residual assets that were either
created from the business unit sales or were not part of the sales
agreements. Currently, we have interests in the following
areas:
Preferred Stock
from Agency Lending Business
Sale — We
received three series of preferred stock from Oak Grove Commercial Mortgage LLC
(“Oak Grove”) (the purchaser of the agency lending business) having an original
principal amount of $47.0 million: Series A units of $15.0 million, Series B
units of $15.0 million and Series C units of $17.0 million, which entitles the
Company to receive cumulative quarterly cash distributions at annualized rates
of 17.5%, 14.5% and 11.5% per year, respectively. As part of the
purchase and sale agreements we have agreed to reimburse the purchaser up to a
maximum of $30.0 million over the first four years after the sale date (i.e., May 15, 2013), for
payments the purchaser may be required to make under loss sharing arrangements
with Fannie Mae and other government-sponsored enterprises or agencies with
regard to loans they purchased from us. This reimbursement obligation
will be satisfied by cancellation of Series C Preferred units and then Series B
Preferred units, rather than by cash. In addition, the Company is
obligated to fund losses on specific loans identified at the sale date that are
not part of the $30.0 million loss reimbursement. The Company
deposited $2.3 million in an escrow account with the purchaser as support for
this potential obligation. Under GAAP, we are accounting for these
loss sharing reimbursement arrangements as derivatives. As such, they
will be accounted for at fair value each reporting period. At
December 31, 2009, the estimated fair value of these derivatives was an
estimated liability of $10.8 million. From the purchase date to March 31, 2010,
we have incurred $656,000 in realized losses under these loss sharing
arrangements. Pursuant to the Series C agreement, $2.0 million of
Series C Preferred units were redeemed as a result of the Company’s release from
certain letters of credit. The three series of preferred stock are
performing according to their terms as of March 31, 2010.
Tax Credit Equity
Business — We
retained the general partner interests in 14 LIHTC funds that invest in
affordable housing projects. In addition, the Company has retained
various contingent obligations related to these funds and other funds that were
sold. The Company’s employees that performed the asset management, accounting
and other services related to these funds were acquired by the buyer of the
business, and we have contracted with the buyer to provide the on-going services
necessary to manage the funds that we did not sell. Although the
Company’s economic interest in these 14 funds is limited to its .01% general
partner interest, it will consolidate these 14 funds along with two sold funds
where we have on-going contingent obligations. This will result in a
substantial amount of assets and non-controlling interests being included on our
consolidated balance sheet as of December 31, 2009; however, our economic
benefit related to these assets is nominal. Also, as of December 31,
2009, our exposure related to all of these contingent obligations is estimated
to be zero.
Real Estate Owned
— At
December 31, 2009, we have three properties where we have either foreclosed or
taken a deed-in-lieu of foreclosure. Two of these properties are
undeveloped land that was to be developed into mixed use
developments. Before foreclosure or taking a deed-in-lieu of
foreclosure, we provided financing to these properties of approximately $81
million. Subsequent to funding these loans, we recorded losses of
approximately $68 million due to concerns surrounding collectability as it
relates to the land financings. At December 31, 2009, we have an
asset value of approximately $13 million for these three properties.
Renewable Energy
Business — The
Company sold substantially all of its interests in the Renewable Energy
Business, except for its interest in two solar funds and two solar
projects. We also retained a biomass facility, which we have sold at
an amount that approximates our invested capital in the project. Our
economic interest in the two solar funds is nominal and the carrying value of
the two remaining projects at December 31, 2009 was zero, which is net of an
$8.75 million impairment charge due to recoverability concerns.
Other Assets
— We
continue to own equity investments in several partnerships in our real estate
investment business, including GP Take Backs (property partnerships where we
replaced the general partner due to performance or other issues) and we have a
majority position in International Housing Solutions, a partnership that was
formed to promote and invest in affordable housing in overseas
markets. We actively manage International Housing Solutions, in which
we have invested $3.6 million after exercising an option to take management
control. Except for International Housing Solutions, we believe the
other real estate partnership investments have nominal economic value to us at
this point.
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8
Debt and Liabilities Outside
the Bond Business
The table
below lists our debt outside of the bond business at December 31, 2009 and March
31, 2010. Certain of our debt agreements are subject to financial
reporting and other related covenants that we are not in compliance with due to
our inability to provide timely audited financial statements. Also, in some
cases, we are not in compliance with the principal payment terms of the
agreements; however, in these cases we have short-term forbearance agreements in
place with creditors. The Company is current with respect to required
interest payments to its creditors. Our liquidity issues have
persisted since early 2008 and we have been able to successfully work with our
creditors since then; however, we cannot provide assurance that we will be able
to meet all of our obligations as and when they come due. It is
likely that we will need to continue to negotiate with our creditors and reduce
our outstanding debt.
(dollars
in thousands)
|
Type
of Debt
|
Contractual
Amount Outstanding at
March
31, 2010
|
Weighted
Average
Contractual
Interest Rate at
March
31, 2010
|
||||||
|
Notes
payable and other debt
|
$ | 151,392 | 6.46 | % | ||||
|
Lines
of credit
|
31,048 | 5.14 | ||||||
|
Subordinated
debt
|
196,695 | 2.08 | ||||||
|
Total
debt outside the bond business
|
$ | 379,135 | 4.08 | % | ||||
|
Type
of Debt
|
Contractual
Amount Outstanding at
December
31, 2009
|
Weighted
Average
Contractual
Interest Rate at
December
31, 2009
|
||||||
|
Notes
payable and other debt
|
$ | 154,045 | 6.42 | % | ||||
|
Lines
of credit
|
36,555 | 5.05 | ||||||
|
Subordinated
debt
|
199,516 | 2.07 | ||||||
|
Total
debt outside the bond business
|
$ | 390,116 | 4.06 | % | ||||
Notes Payable and
Lines of Credit
— This
debt is primarily related to secured borrowings collateralized by various
assets, primarily real estate notes held by us and secured by commercial real
estate projects. In most cases the Company has guaranteed the debt or
is the direct borrower.
Subordinated Debt
— This
debt was originally issued in 2004 and 2005 at a par amount of $172.8 million by
trusts owned by our indirect wholly-owned subsidiary, MMA Financial Holdings,
Inc. (“MFH”). MFH and MuniMae guaranteed this debt, which therefore
represents a general obligation of the Company, but it is not secured by any
specific assets of the Company. This debt is owned by various
investors and certain portions of this debt were modified as
follows:
|
o
|
On
November 3, 2009, the Company exchanged $30.0 million of subordinated debt
for subordinate debt issued by one of our wholly-owned subsidiaries, MMA
Mortgage Investment Corporation (“MMIC”). Other than the
issuer, the terms and conditions of this debt are the same as that issued
by MFH.
|
||
|
o
|
Approximately
$8.0 million has been repurchased and retired by the
Company. The total purchase price was $0.96
million.
|
||
|
o
|
Approximately
$134.8 million of the original par amount has been renegotiated with the
holders to increase the outstanding principal amount from $134.8 million
to $166.7 million, while reducing the interest rate from a weighted
average of 8.42% to 0.75% for three years. At the end of the
three years, the interest rate reverts back to the original
rate. These debt modifications have been previously described
in Current Reports on Form 8-K filed July 2, 2009 and August 5,
2009.
|
Page
9
Other Liabilities and
Contingencies
The most
significant other liabilities are exposures related to interest rate swaps and
accounts payable to vendors. We have interest rate swaps totaling
approximately $349.9 million (notional) that were entered into primarily to
hedge the interest rate risk on the bond portfolio. Based on fair
values at March 31, 2010 and December 31, 2009, the Company had a liability of
$11.7 million and $11.2 million, respectively.
Our total
accounts payable and accrued expenses at December 31, 2009 were approximately
$35.5 million. This amount included the following: approximately $12
million of accrued (but not due) interest expense on our debt as well as
distributions on TEB’s preferred shares and approximately $9 million of accrued
facilities expenses, salaries and benefits and general operating expenses.
The $35.5 million also included $14.5 million of accrued consulting and legal
expenses of which $7.8 million is related to disputed billings from Navigant
Consulting, Inc. (“Navigant”) for consulting fees in connection with the
restatement, development of accounting policies and business unit services. In
October 2008, Navigant filed suit against the Company for these billings.
In January 2010, the Company and Navigant agreed to settle the
dispute for a mutually agreeable amount.
II. Common
Shareholders’ Equity
The
Company’s consolidated Common Shareholders’ Equity was $668 million at December
31, 2006 (the date of our last available audited financial
statements). Since December 31, 2006 we have experienced substantial
losses due to business unit sales, liquidations and sales of assets and write
downs on loans and investments, including write-offs of goodwill and other
intangible assets. These losses were the result of the changes
in the capital markets and the economy in general, which significantly impacted
us. Due to our lack of liquidity, we were forced to sell assets and
businesses at a time of unfavorable market conditions when there were very few
buyers. We estimate that our audited consolidated balance sheet at
December 31, 2009 will show a consolidated net deficit balance for Common
Shareholders' Equity.
III. Tax
Refund Information
The
Company filed amended federal income tax returns for the years ended December
31, 2005 and 2006. The amended returns claimed a refund for taxes
previously paid totaling $7.7 million. The Company received $8.5
million, which includes interest on the refund, in the first quarter of
2010. In addition, the Company plans to file amended 2007 and 2008
federal income tax returns in 2010 that will result in a loss carryback claim
for an additional $1.5 million in federal tax refunds. The timing of
the receipt of this refund is uncertain. Upon the conclusion of the
net operating loss carryback and refund claim process we estimate our cumulative
net operating loss carryforward as of December 31, 2008 will be in excess of
$150 million. The ultimate amount of the net operating loss carryforward
is uncertain until we complete our 2007 to 2009 financial statements and the
filing of the amended returns. For GAAP accounting purposes it is
anticipated that we will fully reserve any potential deferred tax asset created
by the net operating loss carryforward for the years ended December 31, 2007,
2008 and 2009.
IV. 2010
Investor Tax Information
The
Company is a publicly traded partnership and as such, all of the taxable income
and loss we receive or generate at the parent company is allocated to our common
shareholders. Allocations of income and capital gain potentially
create a tax liability for our shareholders regardless of whether the Company
has made any cash distributions. With respect to capital transactions
in particular (e.g.,
the purchase, sale or payoff of bonds), the income or loss allocated to our
common shareholders does not necessarily relate to whether the Company had a
gain or loss, but rather to each investor's specific basis in their
shares. Depending on when and at what price investors acquired our
shares, certain investors may have capital gains allocated to them due to their
low basis in our stock, while other investors with a higher basis receive an
allocation of capital losses for the same transactions regardless of whether we,
as a Company, had a gain or loss for those transactions. Those
investors who bought our stock at a low price (generally speaking, shares
purchased after January 2008) will typically have capital gains allocated to
them while those who bought our stock at a higher price (generally speaking,
shares purchased prior to January 2008) will typically have capital losses
allocated to them. These allocations, in turn, can affect an
investor's basis going forward, which can result in a reversal of the tax
consequences upon a sale by the investor of his or her shares. We
have not yet analyzed our 2010 activity to determine the potential magnitude of
these allocations, but we will endeavor to provide such information in the
fourth quarter of 2010. Investors should consult their personal tax
advisors for the appropriate treatment of the income or loss on their individual
tax return and the effect of such allocations on the tax basis of their
shares.
Page
10
V. Financial
Reporting Update
The
Company is working to become current in its SEC periodic filings; at this point,
we believe that we will have audited financial statements for the years 2007
through 2009, inclusive, completed by year end 2010. As part of our
efforts, the financial statements of TEB for the years ended December 31, 2009,
2008 and 2007 have been audited, as have the financial statement audits for
TEB’s parent, MuniMae TEI Holdings, LLC for 2008 and 2009. The
financial statements of MMIC for 2008 and 2007 (this business was sold in April
2009) have also been audited. These financial statements provide a
helpful foundation for the completion of our financial statements for 2007
through 2009. We have made substantial progress toward the
finalization of our general ledger for these periods and the audit process has
started with our independent registered public accounting firm. We
intend to move as quickly as practicable to catch-up our financial reporting for
prior periods and to address the material weaknesses disclosed in our 2006 Form
10-K.
We are
committed to becoming current in all of our financial reporting, including
reporting our 2010 results, as soon as practicable after the completion of the
2007 through 2009 audit. Although the Company has devoted considerable time and
resources to this plan to regain compliance with its reporting obligations,
there can be no assurance that we will achieve compliance by the dates and for
the periods referenced herein. Until we become current in our
financial reporting we are at risk that the SEC may seek to de-register or
suspend trading in our shares. We have received correspondence from
the SEC noting the Company’s status as a non-current filer and advising the
Company that it could, in the future, be subject to an administrative proceeding
to revoke the Exchange Act registration of our common shares and/or order,
without further notice, the suspension of trading of our common
shares. If the registration of our common shares is revoked or if
trading is suspended, our common shares would no longer be quoted on the Pink
Sheets and the public trading market for common shares effectively would be
terminated. If there is no longer a public trading market for our
common shares, investors would find it difficult, if not impossible, to buy or
sell common shares publicly or to obtain accurate quotations for prices at which
common shares may be purchased or sold. As a result of the absence of
a public market for our common shares, the price of such shares would likely
decline. In response to the SEC’s correspondence, we have advised the
SEC of the extraordinary events of the last several years and of our diligent
efforts to become a current filer. We are not aware of whether or
when the SEC might take these or any other actions that would adversely affect
the Company and our shareholders. We will do our best to work with
the SEC, but cannot provide assurance that the SEC will not take action with
respect to us or our common shares.
VI. Other
Matters
We will
be unable to initiate any new business, including the origination of new
tax-exempt bonds, until we have access to additional reasonably priced debt or
equity capital. We do not have access to this capital at this time
and cannot predict when we will.
Page
11
Item
9.01 Financial Statements and Exhibits.
(d)
Exhibits.
The
exhibit to this report is listed in Item 7.01 above and in the Exhibit Index
that follows the signature line.
Page
12
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| Municipal Mortgage & Equity, LLC | |||
|
May
27, 2010
|
By:
|
/s/ Michael L. Falcone | |
| Name: Michael L. Falcone | |||
| Title: Chief Executive Officer and President | |||
Page
13
|
Exhibit
|
||
|
Number
|
Description
of Exhibit
|
|
|
99.1
|
Copy
of the press release labeled “MuniMae Announces Filing of Form 8-K and
Schedules Conference Call”
|
Page
14