Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
As previously disclosed, on August 30, 2019, RAIT Financial Trust ("RAIT") and
its affiliates RAIT Funding LLC, RAIT General, Inc., RAIT Limited, Inc., Taberna
Realty Finance Trust, RAIT JV TRS, LLC, and RAIT JV TRS Sub, LLC (together, the
"Debtors") filed voluntary bankruptcy cases (the "Chapter 11 Cases")
under chapter 11, Title 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The Chapter 11 Cases are jointly administered under the
caption In re: RAIT Funding, LLC, a Delaware limited liability company, et. al.
On October 14, 2019, the Debtors filed the Disclosure Statement for the Debtors'
Joint Chapter 11 Plan (as amended, supplemented or modified from time to time,
the "Disclosure Statement"). On December 17, 2019, the Bankruptcy Court entered
the Order Granting Debtors' Motion for Entry of an Order (I) Approving the
Disclosure Statement, (II) Establishing Procedures for the Solicitation and
Tabulation of Votes to Accept or Reject the Plan, (III) Approving Forms of
Notices and Ballots, (IV) Establishing Notice and Objection Procedures in
Respect Thereof, (V) Setting Confirmation Hearing and Related Deadlines, and
(VI) Granting Related Relief (the "Disclosure Statement Order") approving the
Disclosure Statement as containing adequate information with respect to the
Debtors' Joint Chapter 11 Plan in accordance with section 1125 of the Bankruptcy
Code.
The Disclosure Statement Order established December 13, 2019 as the record date
for determining the holders of claims in the voting classes who would be
entitled to vote to accept or reject the Debtors' Joint Chapter 11 Plan, and
January 17, 2020, at 4:00 p.m. (prevailing Eastern Time) as the deadline by
which ballots accepting or rejecting the Debtors' Joint Chapter 11 Plan must be
received, unless otherwise agreed by the Debtors in the exercise of their
discretion under the Bankruptcy Court-approved solicitation procedures.
On January 10, 2020, the Debtors filed the Notice of Filing Plan Supplement (the
"Plan Supplement"). The Plan Supplement includes the schedules of contracts to
be assumed and rejected as well as a list of the causes of action (the "Retained
Causes of Action List") retained pursuant to the Debtors' Joint Chapter 11
Plan.
On January 30, 2020 (the "Confirmation Date"), the Bankruptcy Court entered an
order (the "Confirmation Order") confirming the Debtors' Joint Chapter 11 Plan
filed with the Bankruptcy Court on December 17, 2019, as supplemented by the
Plan Supplement and as modified as set forth in the Confirmation Order
(together, the "Plan"). The Plan provides that the effective date of the Plan
(the "Effective Date") will be the first business day after the Confirmation
Date on which all conditions precedent to the effectiveness of the Plan have
been satisfied or waived, including the Confirmation Order becoming a final,
non-appealable order.
Summary of the Plan
Under the Plan:
• the holders of RAIT's senior notes, which are publicly traded, comprised of
RAIT's 7.125% Senior Notes due 2019 and 7.625% Senior Notes due 2024, will
be paid all outstanding principal and all accrued and unpaid interest up to
(but excluding) the petition date in accordance with the Bankruptcy Code;
• the holders of RAIT's junior subordinated notes will receive less than the
total unpaid amounts due under each note in accordance with the RSAs (as
defined below);
• RAIT's outstanding preferred shares and common shares will be cancelled upon
the Effective Date; and
• the holders of RAIT's outstanding preferred shares and common shares will be
entitled to no recovery.
On and after the Effective Date, the Debtors, or any successor thereto, by
merger, consolidation, or otherwise (the "Reorganized Debtors"), shall continue
in existence for purposes of (a) winding down the Debtors' business and affairs,
(b) resolving disputed claims, (c) making distributions on account of allowed
claims as provided under the Plan, (d) establishing and funding appropriate
distribution reserve accounts, (e) enforcing and prosecuting claims, interests,
rights, and privileges under the causes of action on the Retained Causes of
Action List in an efficacious manner and only to the extent the benefits of such
enforcement or prosecution are reasonably believed to outweigh the costs
associated therewith, (f) filing appropriate tax returns, (g) complying with
their continuing obligations under the Purchase Agreement (as defined in the
Plan), if any, and (h) administering the Plan in an efficacious manner.
The Confirmation Order appoints Lyle Bauck of M-III Advisory Partners LP as the
Plan Administrator and provides that, among other things, from and after the
Effective Date, the Plan Administrator has the same authority as RAIT's Board of
Trustees (the "Board") and officers and that the authority and incumbency of the
current members of the Board and officers of RAIT will terminate. From and after
the Effective Date, the Plan Administrator shall be the sole representative of,
and shall act for, the Reorganized Debtors. All certificates of formation,
membership agreements, and related documents are deemed amended by the Plan to
permit and authorize the same.
The foregoing descriptions of the Plan and the Confirmation Order do not purport
to be complete and are qualified in their entity by Exhibits 2.1, 2.2 and 2.3.
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Equity Interest Distribution Information
As of the Confirmation Date, RAIT has issued 1,849,015 common shares, 5,727,500
7.75% Series A cumulative redeemable preferred shares, 2,508,797 8.375% Series B
cumulative redeemable preferred shares and 1,758,030 8.875% Series C cumulative
redeemable preferred shares. RAIT has no common shares or preferred shares
reserved for future issuance in respect of claims and interests filed and
allowed under the Plan. All of these equity interests will be cancelled upon the
Effective Date and the holders thereof will be entitled to no recovery.
Assets and Liabilities of RAIT
Information regarding the assets and liabilities of the Debtors as of the most
recent practicable date is set forth in the Monthly Operating Report (as defined
below). In the Monthly Operating Report, RAIT reported Debtors' consolidated
total assets of $177.5 million and Debtors' consolidated total liabilities of
$178.6 million as of December 31, 2019.
Item 8.01. Other Events.
Monthly Operating Report
As previously disclosed in a Current Report on Form 8-K filed by RAIT on
November 19, 2019 (the "11/19/19 8K"), during the pendency of the Chapter 11
Cases, in lieu of filing Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K under Section 13(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), RAIT intends to follow the modified reporting procedures
(the "Modified Reporting Procedures") outlined in Exchange Act Release No. 9660
(June 30, 1972), the Securities and Exchange Commission's (the "Commission")
Staff Legal Bulletin No. 2 (April 15, 1997) and the Commission's related
no-action correspondence, as described in the 11/19/19 8K.
On January 30, 2020, the Debtors jointly filed a monthly operating report for
the period from December 1, 2019 to December 31, 2019 (the "Monthly Operating
Report") with the Bankruptcy Court. In accordance with the Modified Reporting
Procedures, a copy of the Monthly Operating Report is attached as Exhibit 99.1
to this Current Report on Form 8-K and is incorporated herein by reference.
The Monthly Operating Report, court filings and other information related to the
Chapter 11 Cases are available at a website administered by the Debtors'
noticing and claims agent, Epiq Corporate Restructuring, LLC, at
https://dm.epiq11.com/rait, or www.deb.uscourts.gov, the official Bankruptcy
Court website. The information set forth in these websites is not incorporated
into this report.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. These statements are often, but not always,
made through the use of words or phrases such as "anticipates," "believes,"
"can," "could," "may," "potential," "should," "will," "plans," "continuing,"
"ongoing," "expects," "intends to," and similar words or phrases. Although RAIT
believes that the expectations reflected in these forward-looking statements are
reasonable, these statements are not guarantees of future performance and
involve risks and uncertainties that are subject to change based on various
important factors, some of which are beyond our control. Such forward-looking
statements include, but are not limited to, statements related to (a) the
transactions contemplated by (i) the Plan, (ii) the Restructuring and Plan
Support Agreement, dated August 29, 2019, by and among RAIT, Taberna Realty
Finance Trust, and TP Management LLC, in its capacity as delegate collateral
manager (the "Taberna RSA"), and (iii) the Restructuring and Plan Support
Agreement, dated August 31, 2019, by and among RAIT, RAIT Funding, LLC, and
Kodiak CDO I, Ltd., as holder of certain preferred securities (the "Kodiak RSA",
and together with the Taberna RSA, the "RSAs"), including the Chapter 11 Cases,
and (b) the ability of the Debtors to operate as a "debtor in possession" under
the jurisdiction of the Bankruptcy Court. These risks, uncertainties and
contingencies include, but are not limited to, (i) whether there will be any
appeals of the Confirmation Order and the nature and consequences of any such
appeal, (ii) the length of time the Debtors will operate under the Chapter 11
Cases; (iii) risks associated with third-party motions in the Chapter 11 Cases;
(iv) the potential adverse effects of the Chapter 11 Cases on the Debtors'
liquidity, results of operations or business prospects; (v) increased legal,
advisor and other costs related to the Chapter 11 Cases and other litigation and
the inherent risks involved in a bankruptcy process; and (vi) the effect of the
Chapter 11 Cases on the trading price and value of RAIT securities. For
additional discussion of these risks, refer to the section entitled "Risk
Factors" and elsewhere in the RAIT's Annual Report on Form 10-K for the year
ended December 31, 2018, filed with the Commission on March 26, 2019, Amendment
No. 1 to RAIT's Annual Report on Form 10-K/A for the year ended December 31,
2018, filed with the Commission on April 30, 2019, RAIT's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2019, filed with the
Commission on November 7, 2019 and RAIT's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2019, filed with the Commission on November 7,
2019. In light of the significant uncertainties inherent in any forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by RAIT or any other person that RAIT's
expectations, objectives or plans will be achieved in the timeframe anticipated
or at all. RAIT undertakes no obligation to update these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, except as may be required by
law. All forward-looking statements attributable to RAIT are expressly qualified
by these cautionary statements.
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Cautionary Statement Regarding Financial Operating Data
The Debtors caution investors and potential investors not to place undue
reliance upon the information contained in the Monthly Operating Report, which
was not prepared for the purpose of providing the basis for an investment
decision relating to any securities of the Debtors. The Debtors prepared the
Monthly Operating Report solely for purposes of complying with the monthly
operating reporting requirements applicable in the Chapter 11 Cases. The
financial information contained in the Monthly Operating Report is unaudited,
limited in scope, and as such, has not been subject to procedures that would
typically be applied to financial statements in accordance with accounting
principles generally accepted in the United States of America. These unaudited
financial statements were prepared using certain assumptions and estimates.
These assumptions and estimates are subject to revision. Further, the amounts
shown in this statement may differ materially due to adjustments in accruals,
changes in facts and circumstances, changes in estimates, further analysis, and
other factors. Accordingly, there can be no assurances that, from the
perspective of an investor or potential investor in RAIT's or its subsidiaries'
securities, the financial information contained in the Monthly Operating Report
is complete.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are included as part of this report:
Exhibit
No. Description
2.1 The Debtors' Joint Chapter 11 Plan filed with the United States
Bankruptcy Court for the District of Delaware on December 17, 2019.
2.2 Notice of Filing Plan Supplement filed with the United States Bankruptcy
Court for the District of Delaware on January 10, 2020.
2.3 Finding of Fact, Conclusions of Law, and Order Confirming the Debtors'
Joint Chapter 11 Plan entered by the United States Bankruptcy Court for
the District of Delaware on January 30, 2020.
Debtors' Monthly Operating Report for the period December 1, 2019 to
99.1 December 30, 2019, filed with the United States Bankruptcy Court for the
District of Delaware.
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