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NEW YORK CITY-Centerline Holding Co., the parent company of Centerline Capital Group Inc., has completed a securitization of the company’s $2.8-billion tax-exempt affordable housing bond portfolio with Freddie Mac. The bond portfolio is secured by mortgages on approximately 59,000 units of affordable multifamily properties in 31 states.

For accounting purposes, most of the securitization will be treated as a sale, according to Centerline, who explained on a conference call Friday morning, that the transaction represents a major step in the company’s plan to transform itself into an alternative asset management company. Centerline also secured a $131-million equity investment commitment from an affiliate of Related Cos., its largest shareholder, through a newly issued convertible preferred stock. The preferred stock will pay dividends at an 11% annual distribution rate and will be convertible at a $10.75 per share conversion rate for an aggregate of approximately 12.2 million common shares of Centerline Holding. The transaction is expected to close in January, Marc Schnitzer, CEO and president of Centerline, noted during the call. Centerline will use the net proceeds to reduce corporate debt and fund the company’s growth plans. Morgan Stanley & Co. Inc. and Bear, Stearns & Co. Inc. acted as financial advisors to Centerline.

Schnitzer said that this “transformational transaction” has been in the works for almost a year. “The transaction has materially improved our risk profile by reducing the funding and interest rate risk inherent in our liability structure. Centerline now has a leaner balance sheet, improved credit metrics and an increased percentage of revenues derived from asset management services.”

According to Schnitzer, “Centerline’s goals are to increase assets under management and to create greater earnings power. With Related’s investment, we have the resources to achieve our goals. Greater liquidity will enable us to capitalize on opportunities arising from the volatility in the capital markets. Our growth plans adhere to our core investment strategy of buy-watch-fix: invest prudently, monitor performance diligently and manage investments aggressively.”

Centerline retained a high-yielding first-loss position–the B-Piece–in the portfolio and will remain the primary and special servicer, Schnitzer said during the call. “Retaining the B-Piece and our ongoing servicing arrangement creates a fund management structure for the bond portfolio similar to our other funds,” he said. “Through our partnership with Freddie Mac, as their first targeted affordable housing lender, we will improve the competitiveness of our affordable housing business and assist in the expansion of assets under management.”

Centerline will use the proceeds from the Freddie Mac bond securitization to redeem its existing financing arrangements, retire corporate debt and pay the costs and expenses associated with the transaction, Schnitzer explained. Repositioning as an alternative asset manager, will allow Centerline to implement several strategic initiatives to further align the company with other publicly-traded alternative asset managers, Schnitzer said, including: increasing assets under management; changing revenue composition; reducing leverage; changing dividend policy; and utilizing new earnings metrics.

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