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) June 20, 2005 (June 14, 2005)
---------------------------
NorthStar Realty Finance Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 001-32330 11-3707493
--------------- ----------- -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
527 Madison Avenue, 16th Floor, New York 10022
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 319-8801
----------------------------------------------------
(Registrant's telephone number, including area code)
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:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
NORTHSTAR REALTY FINANCE CORP.
CURRENT REPORT ON FORM 8-K
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
On June 14, 2005, NorthStar Realty Finance Corp.(the "Company") issued
$400 million face amount of collateralized debt obligations in its fourth
collateralized debt obligation financing ("CDO IV") through two of its
subsidiaries, N-Star REL CDO IV Ltd. (the "Issuer") and N-Star REL CDO IV Corp.
(the "Co-Issuer"). Pusuant to an Indenture, dated as of June 14, 2005 (the
"Indenture"), by and among the Issuer, the Co-Issuer and Wells Fargo Bank,
National Association, as trustee, the Issuer issued the following classes of
rated notes: Class A Notes, Class B Notes, Class C Notes, Class D Notes, Class E
Notes, Class F Notes and Class G Notes (collectively, the "Rated Notes"). The
Rated Notes other than the Class F Notes and Class G Notes (the "Offered Notes")
constitute secured limited recourse debt obligations of the Issuer and
Co-Issuer. $300 million face amount of the Offered Notes were issued and sold in
a private placement. The Class F Notes constitute secured limited recourse debt
obligations of the Issuer only. The Class G Notes and Income Notes constitute
unsecured limited recourse debt obligations of the Issuer only. The Company
retained the Class F Notes and Class G Notes. The Issuer also issued and
another subsidiary of the Company purchased the unrated Income Notes.
The table below sets forth further information with respect to the structure of
CDO IV (dollars in thousands):
MOODY'S EXPECTED
CLASS S&P RATINGS FACE AMOUNT COUPON MATURITY(1)
- ----- ----------- ----------- ------ -----------
A Aaa/AAA $185,000 LIBOR + 0.35% 2013
B Aa2/AA 32,600 LIBOR + 0.45% 2013
C A2/A 31,800 LIBOR + 0.75% 2013
D Baa2/BBB 38,600 LIBOR + 1.60% 2013
E Baa3/BBB- 12,000 LIBOR + 1.75% 2013
--------
Subtotal $300,000
========
F Ba2/BB $ 20,000 7.00% 2013
G B2/B 20,000 7.00% 2013
Income
Notes Not Rated 60,000 N/A 2013
--------
Total $400,000
========
- ------------------------------------------------------------------------
(1) Reflects expected maturities. Contractual maturities are July 2040.
The total value of the underlying collateral portfolio is expected to
be approximately $400 million and consist of approximately 57.32 % subordinate
commercial mortgage loan interests, approximately 23.22 % mezzanine loans,
approximately 14.73 % commercial mortgage backed securities ("CMBS") and
approximately 4.73 % real estate CDO securities. Once fully
invested, the portfolio is expected to have a weighted average credit rating of
CCC+. Through June 14, 2005, the Company had acquired, or entered into
agreements to acquire approximately 82.9 % of the assets that will comprise the
fully-invested portfolio. Pursuant to an Asset Transfer Agreement, dated as of
June 14, 2005, an indirect subsidiary of the Company sold such assets to the
Issuer (the "Transferred Assets") and such subsidiary agreed to repurchase the
Transferred Assets from the Issuer (or provide a qualifying substitute asset) in
the event of a breach of the representations and warranties made by such
subsidiary with respect to the Transferred Assets. The Company has agreed to so
repurchase any Transferred Asset, or provide such a qualifying substitute asset,
in the event such subsidiary fails to do so. Prior to June 14, 2005, the Company
had financed the Transferred Assets through borrowings under its Amended and
Restated Master Repurchase Agreement, dated as of March 21, 2005 with Deutsche
Bank AG, Cayman Islands Branch (the "DB Facility"). The Company used a portion
of the proceeds from the sale of the Transferred Assets to repay approximately
$234 million of the amount outstanding under the DB Facility.
The Issuer entered into a Collateral Management Agreement with NS
Advisors, LLC (the "Collateral Manager"), an indirect subsidiary of the Company,
pursuant to which the Collateral Manager has agreed to advise the Issuer on
certain matters regarding the collateral interests and other eligible
investments securing the Class A through Class F Notes (the "Secured Notes") and
supporting the Class G Notes and Income Notes in exchange for a fee which is
payable on a monthly basis in accordance with the priority of payments set forth
in the Indenture. The Collateral Manager's aggregate fee is equal to 0.34875%
per annum of the net outstanding portfolio balance (the sum of (i) the aggregate
principal balance of the collateral interests, excluding any impaired interests
or written down interests and (ii) cash and eligible investments held in certain
accounts pledged as security for payment the Secured Notes).
The Rated Notes represent limited recourse debt obligations of the
Issuers payable solely from the collateral interests and other assets pledged
under the Indenture and owned by the Issuer. To the extent the collateral
interests and other pledged assets are insufficient to make payments in respect
of the Rated Notes, neither of the Issuers will have any obligation to pay any
further amounts in respect of the Rated Notes.
The Rated Notes have an initial weighted average interest rate of
approximately 0.62% plus one-month LIBOR. Interest payments on the Rated Notes
are payable monthly, beginning on July 27, 2005, to and including July 27, 2040,
the stated maturity date of the Rated Notes. As advancing agent under the
Indenture, the Collateral Manager may be required to advance interest payments
due on the Class A Notes and Class B Notes on the terms and subject to the
conditions set forth in the Indenture. As consideration for its obligation to
advance interest payments, the Collateral Manager is entitled to receive a fee,
payable on a monthly basis in accordance with the priority of payments set forth
in the Indenture, equal to 0.00125% per annum on the aggregate outstanding
principal amount of the Class A Notes and Class B Notes. If the Collateral
Manager does not make a required interest advance, Wells Fargo Bank, National
Association as back up advancing agent will be required to make such interest
advance. Interest advances will not be made with respect to any interest
shortfall unless the Collateral Manager or Wells Fargo Bank, National
Association, as applicable, has determined in its sole discretion, exercised in
good faith and, in respect of the Collateral Manager, in accordance with a
standard of care consistent with that exercised by a servicer of CMBS, that the
amount so advanced, plus interest expected to
accrue thereon, will be recoverable from subsequent payments or collections with
respect to the collateral interests.
Each Class of Notes will mature at par on July 27, 2040, unless
redeemed or repaid prior thereto. Principal payments on each Class of Notes will
be paid at the stated maturity in accordance with the priority of payments set
forth in the Indenture. However, it is anticipated that the Rated Notes will be
paid well in advance of the stated maturity date in accordance with the priority
of payments in the Indenture. The weighted average lives of the Rated Notes are
currently expected to be approximately 8 years. The calculation of the weighted
average lives of the Rated Notes assumes certain collateral characteristics and
that there are no prepayments, defaults or delinquencies on the collateral
interests. There is no assurance that such assumptions will be met.
From July 27, 2007 until the date on which a clean-up call redemption
may be exercised (as described below), the Rated Notes and the Income Notes may
be redeemed (in whole but not in part) if a successful auction of the collateral
interests is completed in accordance with the terms of the Indenture (which
requires, among other things, that the cash purchase price for such collateral
interests, together with the balance of eligible investments and cash in certain
accounts pledged to secure payment of the Secured Notes, is at least equal to
the amount necessary to redeem the Rated Notes and pay certain other required
amounts under the priority of payments set forth in the Indenture).
Subject to certain conditions described in the Indenture, on July 27,
2007 and on any interest payment date thereafter, the Issuer may redeem the
Rated Notes and the Income Notes at the direction of holders of not less than
66 2/3% of the aggregate outstanding principal amount of the Income Notes.
The Rated Notes are also subject to a mandatory redemption on any
interest payment date on which certain coverage tests set forth in the Indenture
are not satisfied. Any mandatory redemption of the Rated Notes is to be paid for
from interest and principal proceeds of the collateral interests in accordance
with the priority of payments set forth in the Indenture, until the applicable
coverage tests are satisfied.
No later than the date (the "Effective Date") which is the earlier of
180 days after the issuance of the Rated Notes or the date on which the Issuer
has invested $100 million of the proceeds available for reinvestment from the
proceeds of the sale of the Rated Notes and the Income Notes which are not
earmarked to fund additional advances with respect to existing collateral
interests, the Issuer will request that each rating agency that rated a Class of
Notes confirm the rating it initially assigned to such Class of Notes at the
time of issuance. If any such initial rating of any Class of Notes has not been
confirmed, or is reduced or withdrawn, within 30 business days after the
Effective Date by any such rating agency, then any uninvested portion of the
$100 million plus certain interest proceeds remaining after payment of various
fees and expenses and interest then payable on the Rated Notes, will be used to
pay principal of the Rated Notes, in accordance with the priority of payments,
until each such rating is confirmed or reinstated or such Class has been paid in
full.
If certain events occur which would make the Issuer subject to paying
U.S. income taxes or would make certain payments to or from the Issuer subject
to withholding tax, then the
holders of not less than 66 2/3% of the aggregate outstanding principal amount
of the Income Notes may require that the Issuer prepay all of the Rated Notes.
The redemption price for each Class of Notes is generally the aggregate
outstanding principal amount of such Class, plus accrued and unpaid interest
(including any defaulted interest amounts and, with respect to the Class C
through Class G Notes, any capitalized interest amounts).
The Rated Notes may be amortized by the Issuer (subject to the
conditions set forth in the Indenture) if, during the reinvestment period, the
Collateral Manager is unable to identify appropriate collateral interests that
satisfy the eligibility criteria required under the Indenture in sufficient
amounts to permit reinvestment and the Collateral Manager notifies the trustee
and the Issuer of such election and the amount to be amortized.
SIGNATURE
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.
Dated: June 20, 2005 NORTHSTAR REALTY FINANCE CORP.
By: /s/ Mark E. Chertok
------------------------------
Name: Mark E. Chertok
Title: Chief Financial Officer
