Item 1.01
Entry into a Material Definitive Agreement
On November 13, 2017, Arbor Realty Trust, Inc., a Maryland corporation (the Company), completed the issuance and sale of $125.0 million aggregate principal amount of its 5.375% Convertible Senior Notes due 2020 (the Notes) pursuant to an underwriting agreement (the Underwriting Agreement) by and among the Company, Arbor Realty Limited Partnership, a Delaware limited partnership, and J.P. Morgan Securities LLC, as representative of the several underwriters named therein (the Underwriters), whereby the Company agreed to sell to the Underwriters and the Underwriters agreed to purchase from the Company, subject to and upon the terms and conditions set forth in the Underwriting Agreement, the Notes. In addition, the Company granted the Underwriters the right to purchase, exercisable within a 30-day period, up to an additional $18.75 million aggregate principal amount of the Notes solely to cover over-allotments.
The Notes will be senior unsecured obligations of the Company, bear interest at a rate equal to 5.375% per year, payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2018 and will mature on November 15, 2020 (the Maturity Date), unless earlier converted or repurchased. The Company will not have the right to redeem the Notes prior to maturity and no sinking fund is provided for the Notes. The Notes will be convertible prior to August 15, 2020 upon the satisfaction of certain conditions and at any time on or after August 15, 2020 until the business day preceding the Maturity Date. The Company may settle conversions in cash, shares of the Companys common stock or a combination thereof, at the Companys election.
The conversion rate will initially equal 107.7122 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $9.28 per share of common stock, representing an approximate 10% conversion premium based on the closing price of the Companys common stock of $8.44 per share on November 7, 2017. The conversion rate will be subject to adjustment upon the occurrence of certain specified events. In addition, following certain corporate events that occur prior to the Maturity Date, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances.
If the Company undergoes a fundamental change (as defined in the Supplemental Indenture (as defined below)), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased,
plus
accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The net proceeds to the Company from the sale of the Notes, after deducting the Underwriters discounts and commissions and estimated offering expenses, are expected to be approximately $121.0 million (or approximately $139.2 million if the Underwriters over-allotment option is exercised in full). The Company intends to use the net proceeds of the offering to make investments relating to the Companys business and for general corporate purposes. The Company may also use a portion of the net proceeds from this offering to repay certain of the Companys indebtedness; however, the Company has no current commitments or obligations to do so.
The Notes were issued under the base indenture, dated as of May 12, 2014, between the Company and U.S. Bank National Association, as trustee (the Trustee), as supplemented by a third supplemental indenture (the Supplemental Indenture), dated as of November 13, 2017, between the Company and the Trustee with respect to the Notes.
The offer and sale of the Notes were registered with the Securities and Exchange Commission (the Commission) pursuant to a registration statement on Form S-3 (File No. 333-212554) under the Securities Act of 1933, as amended (the Securities Act). The material terms of the Notes are described in a prospectus supplement filed by the Company with the Commission dated November 7, 2017 pursuant to Rule 424(b)(5) under the Securities Act.
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