Deerfield proposes issuing new notes in exchange for trust preferreds

By Angela McDaniels

Tacoma, Wash., Feb. 9 - Deerfield Capital Corp. has proposed issuing junior subordinated notes in exchange for the $120 million 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 entered into an agreement with Taberna Capital Management, LLC, the collateral manager for the holders of the trust preferreds, on Feb. 5 to negotiate definitive agreements for the proposed exchange.

The new notes would be issued by the company or an affiliate. The coupon would initially be fixed at 1%. After April 30, 2015, the coupon would float at a rate equal to the existing variable interest rates on the trust preferreds. Interest would be payable quarterly.

The new notes would be subject to terms that include:

• A cross default with any newly issued senior or pari passu debt of the company;

• A covenant to maintain all asset management activities within the company;

• The coupon on the new notes will automatically increase to the existing rate of the term preferreds if the company fails to enter into one or more actions by December 2012 that will result in, among other things, an increase in interest coverage, a reduction in the debt-to-equity ratio and an improvement of pro forma consolidated net worth; and

• Restrictions on the payment of dividends.

The company said it continues to explore 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 company has agreed to pay an amount up to 1% of the par amount of the new notes to cover the advisory costs incurred in drafting and negotiating the exchange and to cover underwriting, placement and other costs.

The terms of the exchange proposal are preliminary and subject to the receipt of various consents and conditions. The company said there is no assurance that it will complete the exchange or any strategic opportunities.

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

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