MuniMae buys back $20 million of junior notes, gets consents to extend reduced interest period

By Marisa Wong

Madison, Wis., Jan. 5 - Municipal Mortgage & Equity, LLC's subsidiary MuniMae TEI Holdings, LLC entered into a purchase agreement on Dec. 30 with holders of junior subordinated securities due May 3, 2034 issued by MMA Financial Holdings, Inc., another subsidiary of Municipal Mortgage, according to an 8-K filed Wednesday with the Securities and Exchange Commission.

MuniMae has agreed to purchase from the holders $20 million of the $58.42 million of outstanding securities for a cash purchase price of $5 million.

Also on Dec. 30, MMA Financial obtained consents from holders to a proposed supplemental indenture amending the junior subordinated securities. The amendment will extend the period during which interest is payable on the securities at the reduced rate of ¾% per year to February 2014 from February 2012.

After the interest payment date in February 2014, the interest rate on the securities will reset to 9½% per year until May 5, 2014. After May 5, 2014, interest will be equal to the greater of 9½% and the Treasury rate plus 600 basis points.

The extension significantly reduces Municipal Mortgage's cash outflows over the next two years, the filing said. An amount equal to the interest foregone as a result of the extension will be added to the outstanding principal amount of the notes.

Following the purchase and with the extension, the company will reduce the carrying value of its debt by the amount of cash paid to the noteholders, or $5 million. The remaining $15 million reduction in principal resulting from the discounted purchase, as well as the $6,723,500 increase in principal resulting from the foregone interest, will be recognized over the remaining life of the notes. This will result in an $8,276,500 increase in common shareholder equity. Because the reduction in principal from the purchase exceeds the increase from the foregone interest, the company will accrue and pay significantly less interest expense over the remaining life of the notes.

The purchase agreement and the supplemental indenture are expected to settle by Jan. 31.

Wilmington Trust Co. is the trustee for the securities.

Baltimore-based Municipal Mortgage and its subsidiaries arrange debt and equity financing for developers and owners of real estate and clean energy projects.

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