Deerfield issues notes in exchange for $95 million of trust preferreds

By Angela McDaniels

Tacoma, Wash., March 10 - Deerfield Capital Corp. issued $95 million principal amount of new junior subordinated notes on March 4 in exchange for an equal amount of trust preferred securities issued by Deerfield Capital Trust I, Deerfield Capital Trust II and Deerfield Capital Trust III, according to an 8-K filing with the Securities and Exchange Commission.

The company proposed the exchange in February, and an exchange agreement was reached on March 4 with Taberna Preferred Funding V, Ltd., Taberna Preferred Funding VII, Ltd., Taberna Preferred Funding VIII, Ltd. and Taberna Preferred Funding IX Ltd.

The company has proposed exchanging all of the trust preferreds; however, $25 million of trust preferreds issued by Deerfield Capital Trust I were not exchanged and remain outstanding.

The new notes are due Oct. 30, 2035 and bear interest at 1% for the first five years. After April 30, 2015, the coupon will float at Libor plus 258 basis points. Interest is payable quarterly.

If the company fails to enter into a credit-enhancing transaction within specified time periods, the interest rate will move from the fixed rate to the floating rate early and some exceptions to the restricted payments covenant will no longer be available to the company.

The company previously said it was exploring strategic opportunities that could include asset acquisitions, mergers, the repurchase or redemption of some or all of its outstanding debt and the sale of debt or equity.

The new notes are callable at par beginning Oct. 30, 2010. The company can pay cash for the redemption or replace the notes with securities that are acceptable to the holders.

The new notes are subject to terms that include:

• A covenant to maintain all asset management activities within the company. This covenant allows the company to sell equity and material assets of Deerfield Capital Management LLC, subject to some limits on the asset management fees and proceeds;

• A debt covenant that allows the company and Deerfield Capital Management to incur debt, subject to some limits on the proceeds; and

• Restrictions on the payment of dividends.

Unlike the indentures for the trust preferreds, the indenture for the new notes does not contain a covenant requiring the company to maintain a minimum net worth.

In connection with the exchange, the company paid a $950,000 transaction fee and approximately $40,000 of third-party fees and costs.

As a result of the exchange, the company's obligation to pay approximately $200,000 in fees associated with a prior amendment was extinguished.

Deerfield Capital is a Rosemont, Ill.-based corporation with a portfolio composed primarily of fixed-income investments.

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