CIT » Topics » Item 2.03 Creation of a Direct Financial Obligation.

This excerpt taken from the CIT 8-K filed Dec 31, 2008.

Item 2.03 Creation of a Direct Financial Obligation.

     On December 24, 2008, the Company consummated its private exchange offers for certain of its outstanding debt securities and issued New Notes in an aggregate principal amount

equal to $1,149,007,000. The New Notes bear interest at 12.00% per annum and mature on December 18, 2018. The New Notes are not redeemable prior to maturity.

             The New Notes constitute subordinated unsecured indebtedness of the Company. The New Notes:

  • are subordinated in right of payment to all of the Company’s existing and future senior indebtedness as defined in the Indenture (as defined below), including the Company’s senior bank facilities;
  • rank equally in right of payment with all of the Company’s existing and future subordinated debt (other than the subordinated debt described in the next bullet);
  • rank senior in right of payment to all of the Company’s current and future debt that is by its terms subordinated to the New Notes; and
  • are structurally subordinated to all of the existing and future liabilities and obligations (including trade payables) of each of the Company’s subsidiaries.

     Due to differing subordination provisions in other series of subordinated debt securities that the Company may issue in the future, the holders of the New Notes may receive less, ratably, than holders of such other series of subordinated debt securities.

     The New Notes were issued under the subordinated indenture, dated as of January 20, 2006, between the Company and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A.), as trustee, as amended and supplemented by a first supplemental indenture, dated as of January 31, 2007, and a second supplemental indenture, dated as of December 24, 2008 (the “Second Supplemental Indenture”) (together, the “Indenture”).

The Indenture contains covenants that, among other things,

  • limit the Company’s ability to consolidate or merge, or to sell or otherwise dispose of its assets as, or substantially as, an entirety unless the Company is the continuing corporation or the surviving or acquiring entity (if other than the Company) expressly assumes by a supplemental indenture all of the Company’s obligations under the New Notes; and
  • require the Company to continue to make its financial statements publicly available if it ceases to be a reporting company under the Securities Exchange Act of 1934, as amended.

     The Indenture includes events of default arising from default in any principal or payment of any note or other security of the same series at maturity; default for 30 days in interest payment of any interest payment of any note or other security of the same series; failure by the Company for 30 days in performing any other covenant in the Indenture (other than a covenant solely for the benefit of another series of subordinated debt securities) after the Company is given written notice by the trustee or the holders of at least 25% in aggregate principal amount of the outstanding securities of that series give written notice to the Company and the trustee; or the occurrence of the Company’s bankruptcy, insolvency or reorganization (each, a “Bankruptcy Event of Default”) (but not the bankruptcy, insolvency, reorganization, receivership or conservatorship of any of the Company’s subsidiaries).

     Under the Indenture, if a Bankruptcy Event of Default occurs and continues, the principal amount of the New Notes will automatically become due and payable immediately. The Indenture does not allow the holders to accelerate the New Notes upon the occurrence of any event of default other than a Bankruptcy Event of Default. If an event of default (other than a Bankruptcy Event of Default) occurs under the Indenture, the trustee may demand payment of amounts then due and payable on the affected New Notes and, in its discretion, proceed to enforce any covenant. However, the trustee may not act to accelerate the outstanding principal amount of the affected New Notes upon the occurrence of an event of default (other than a Bankruptcy Event of Default).

     A copy of the Second Supplemental Indenture is included as an exhibit to this Current Report on Form 8-K and is incorporated by reference into this Item 2.03. The foregoing summary of certain provisions of this document is qualified in its entirety by reference thereto.

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IStar Financial (SFI)
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