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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): August 15, 2008
Municipal Mortgage & Equity, LLC
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction
of incorporation)
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001-11981
(Commission
File Number)
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52-1449733
(I.R.S. Employer
Identification No.) |
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621 E Pratt Street, Suite 300,
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21202 |
Baltimore, Maryland
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (443) 263-2900
Not Applicable
Former name or former address, if changed since last report
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:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
Item 7.01 Regulation FD Disclosure.
The following information is being furnished, not filed. Therefore, it may not be incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.
In this Report, except as expressly indicated or unless the context otherwise requires, the
Company, MuniMae, we, our or us means Municipal Mortgage & Equity, LLC, a Delaware
limited liability company, and its majority-owned subsidiaries.
Cautionary Statement Regarding Forward-Looking Statements
This Report contains forward looking statements intended to qualify for the safe harbor contained
in Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements
often include words such as may, will, should, anticipate, estimate, expect, project,
intend, plan, believe, seek, would, could, and similar words or are made in connection
with discussions of future operating or financial performance.
Forward-looking statements reflect our managements expectations at the date of this Report
regarding future conditions, events or results. They are not guarantees of future performance. By
their nature, forward-looking statements are subject to risks and uncertainties. Our actual
results and financial condition may differ materially from what is anticipated in the
forward-looking statements. There are many factors that could cause actual conditions, events or
results to differ from those anticipated by the forward-looking statements contained in this
Report. They include changes in market conditions that affect the willingness of potential
investors or lenders to acquire equity of, or lend to, funds we form, changes in market conditions
that affect the value or marketability of assets we own, changes in market conditions or other
factors that affect our access to cash we need to meet our commitments to other persons, changes in
interest rates or other conditions that affect the value of mortgage loans we, or funds we manage,
have made, changes in interest rates, tax laws, environmental laws or other conditions that affect
the value of the real estate underlying mortgage loans we, or funds we manage, own, changes in tax
laws or other things beyond our control that affect the tax benefits available to investors in
equity funds we form or would like to form, or changes in technology that affect the value of
renewable energy projects in which we and funds we formed have equity investments. Readers are
cautioned not to place undue reliance on forward-looking statements. We have not undertaken to
update any forward-looking statements in this Report.
EXPLANATORY NOTE
In September 2006, we determined that we had to restate our financial statements for 2005 and 2004
and for the first quarter of 2006. Neither the audited restated 2005 and 2004 financial statements
nor audited 2006 or 2007 financial statements are yet available. We are completing what we believe
are final adjustments to the restated 2005 and 2004 financial statements and to our 2006 financial
statements. The audit related to these financial statements is nearing completion and we expect
audited financial statements for those years to be available shortly.
Because of the delay in our completing the audited restated 2004 and 2005 financial statements and
the audited 2006 financial statements, we have not been able to file Reports on Form 10-K or 10-Q
since early 2006. Therefore, we are filing this Current Report on Form 8-K in order to provide
current information about us and the effects of current market conditions on our businesses.
FINANCIAL INFORMATION
In a Report on Form 8-K dated April 9, 2008, we presented preliminary financial information, based
on management prepared unaudited financial statements that quantified and explained the impact of
the restatement adjustments on our December 31, 2005 shareholders equity and regarding our
December 31, 2006 ending balance of shareholders equity. As disclosed at the time of that filing
we were still addressing several open accounting issues and the audit was on-going. We have
resolved most of the open accounting issues and significant progress has been made on the audit,
both of which have resulted in further adjustments to our previously reported financial
information. These adjustments, which consist of non-cash items, will reduce our December 31, 2006
shareholders equity by approximately $80 million from the preliminary amount described in our
April 9, 2008 Form 8-K. None of these adjustments impacted corporate cash. Once KPMG has
completed its audit, we will file the audited 2006 and audited restated 2005 and 2004 financial
statements with the U.S. Securities and Exchange Commission.
Although we do not have financial statements for 2007 or the first six months of 2008, we do have,
and present below, information comparing the level of activity in various aspects of our business
(which we refer to as production) during the first six months of 2008 compared with the same period
in 2007 and for the full years ended December 31, 2007, 2006 and 2005. The level of activity
affects the fees or other revenues to which we are or may in the future become entitled or the
income we may receive from income producing assets we acquire. However, it does not itself
represent revenues we have received or may receive. For example, one item of production listed
below is investor contributions to tax credit equity funds. That is the amount of equity that
investors contributed during a period to tax credit equity funds we sponsored and manage. We may
be entitled to fees as a result of those contributions and as a result of investment of the
contributed funds. However, the fees to which we may be entitled are only a small percentage of
the amount of equity contributions we treat as production. The production information is not
information prepared in accordance with generally accepted accounting principles, or GAAP, and is
not analogous to any measure of GAAP financial information about us. However, it is important to
our management, because it shows the level of new activity of our businesses. We think investors
will find it useful for the same reason.
The table below relates only to new production activity, and does not address recurring sources of
revenues, such as fees from ongoing asset management and servicing activities (or, as noted above,
the revenues we receive from new production activity):
Municipal Mortgage & Equity LLC and Subsidiaries Production (in millions)
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Six months |
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Six months |
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Year |
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Year |
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Year |
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ended |
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ended |
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ended |
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ended |
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ended |
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6/30/2008 |
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6/30/2007 |
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12/31/2007 |
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12/31/2006 |
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12/31/2005 |
Investor contributions to tax
credit equity funds |
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$ |
41 |
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$ |
317 |
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$ |
813 |
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$ |
1,162 |
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$ |
1,266 |
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Tax exempt bonds privately placed |
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6 |
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31 |
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296 |
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267 |
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237 |
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Tax exempt construction loans made |
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2 |
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14 |
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115 |
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53 |
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88 |
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Bonds and loans originated for
sale to government sponsored
entities |
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605 |
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443 |
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904 |
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901 |
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798 |
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Leveraged purchases of investment
grade tax exempt bonds |
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224 |
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224 |
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303 |
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Taxable mortgage loans placed or
originated |
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320 |
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670 |
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1,618 |
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983 |
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1,283 |
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Renewable energy projects started
(based on total project cost) |
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94 |
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162 |
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234 |
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48 |
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$ |
1,068 |
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$ |
1,861 |
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$ |
4,204 |
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$ |
3,717 |
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$ |
3,672 |
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THE CURRENT STATE OF OUR BUSINESS
Beginning early
in 2008, there was a major deterioration in the market for tax-exempt bonds and
other assets that are a major part of our assets. This, combined with the factors that have
affected credit markets and financial institutions throughout the nation, had a severe effect upon
us during the first six months of 2008, causing us to have to curtail significant aspects of our
business and to sell assets at substantial losses to obtain funds we needed to meet our commitments
or to satisfy lenders. In addition, the costs of preparing our 2006 and restated 2005 and 2004
financial statements, when added to our 2007 and 2008 operating expenses, resulted in significant
operating losses. Further, in light of the instability in the credit and capital markets, as well
as the performances of certain segments of our portfolio, when we prepare 2007 and 2008 financial
statements, we will need to reduce the carrying value of some of our
assets and reflect losses on
sales. In the aggregate these reductions and losses will be substantial.
We continue to receive income from our recurring sources of revenue including fees from ongoing
asset management and servicing activities.
On April 9, 2008, we filed a report on Form 8-K in which we reported the way that many aspects of
our businesses had been affected by the disruptions in the credit markets. We described the
principal effects that the credit market disruption had on us to the date of that report, which
included:
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There was a major reduction in the willingness of the institutions that in the past had
been investors in the funds we manage or lenders to those funds to invest in new investment
funds or to provide financing to new investment funds. |
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We, like many companies, were encountering increasing efforts by banks and other lenders
to reduce their outstanding loans and loan commitments, and we were required to replace a
portion of several short-term warehouse lines we used to accumulate certain types of assets
until we could securitize or otherwise sell them, with the result that overall there had
been a net contraction in our warehouse borrowing capacity with respect to some types of
assets. |
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Since the summer of 2007, there had been very few buyers of newly securitized bonds, and
what buyers there were had been requiring yields that made it unprofitable for us to
securitize the bonds we originate. Therefore, we had stopped using securitization as a
source of financing. |
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Due to a market anomaly that had led to a significant decline in the value both of our
portfolio of state housing agency tax-exempt bonds and of the securities we had bought to
hedge against such a decline, we were required to post $39 million of cash margin
collateral between January 1, 2008 and early March 2008 (in addition to $16 million we had
previously posted), and we had entered into an agreement under which we gave the principal
margin lender a security interest in the common shares of MuniMae TE Bond Subsidiary (a
subsidiary which holds a portfolio of tax-exempt bonds we originated) in order to receive
credit against future margin requirements. |
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In an effort to reduce our exposure to future margin calls and our exposure under the
new margin credit arrangement, and in an effort to obtain return of some of the cash margin
collateral we had posted before we entered into that arrangement, we had been selling our
state housing agency tax-exempt bonds. |
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The combination of reduced investor interest and reduced liquidity led us to
significantly curtail our activities, so that, by the end of March 2008, the only
activities we had not significantly reduced were origination of loans for sales to Fannie
Mae and Freddie Mac (which we had increased) and activities related to renewable energy
generation and to an international housing fund. |
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We had significant need for cash, both to fund construction loan commitments we had made
and to bear the cost of finalizing our financial statements for 2006 and our restated
financial statements for 2005 and prior years. |
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We were being affected by financial problems that were encountered by major financial
institutions that had provided credit for support for some of our borrowings. |
Most of the conditions described in our April 9, 2008 Form 8-K continue. As noted, by the end of
March, we had substantially reduced all our new business activities other than origination of bonds
and loans for sale to Fannie Mae and Freddie Mac and activities related to renewable energy
generation and to an international housing fund. Subsequently, we reduced the rate at which we are
investing in renewable energy projects, partly because of the conditions described above and partly
because of the failure of Congress to finalize legislation extending various energy related tax
credits that are currently scheduled to reduce at the end of 2008. However, Congress recently
passed the Housing Bill and we expect that to provide positive effects on the multi-family
business. Nevertheless, as a result of the reduction in our activities, we reduced the number of
persons we employ from 560 at January 1, 2008 to 516 at June 30, 2008.
Recently, some of our lenders have been reluctant to waive covenants that require us to deliver
audited financial statements on a timely basis, and several of our lenders have sought to reduce or
terminate their lending commitments to us. We are working with our lenders, and particularly with
the lenders who provide the largest portions of our borrowings and credit support, to create stable
long term relationships. However, it is likely that we will seek to reduce, and that some of our
lenders will ask us to reduce, our credit availability during the second half
of 2008. We have sold and will likely have to continue to sell assets under very adverse market
conditions because of pressure from lenders whose loans are secured by those assets.
We have continued to sell state housing agency tax-exempt bonds when we are able to find
purchasers, and by August 15, 2008, our portfolio of these bonds had been reduced to $47 million.
However, in most instances the sales were at amounts significantly below our cost. Further, in
many instances, the proceeds we received from sales of bonds were less than the amounts we had
borrowed against them, and therefore the sales we have made, instead of entitling us to a return of
cash collateral we had posted, have consumed that cash collateral. Any further sales of bonds may
require us to supplement the previously posted cash collateral in order to repay the borrowings
secured by the bonds. Nonetheless, we may try to sell our remaining state agency tax-exempt bonds
in order to eliminate the market risk related to those bonds. In addition, we expect to sell some
of the tax-exempt and other bonds we acquired directly from developers of affordable housing and
other types of real estate.
The total assets we were managing at June 30, 2008, $20.5 billion, were 7% more than the $19.1
billion of assets we were managing at June 30, 2007 and 2% more than the $20.1 billion of assets we
were managing at December 31, 2007. However, the portion of the assets we were managing for our
own account (rather than assets we were managing for other persons) were only $2.8 billion at June
30 2008, compared with $3.6 billion at June 30, 2007 and $3.1 billion at December 31, 2007.
The credit quality of the assets underlying the $2.8 billion portfolio of tax exempt bonds, loans
and equity which we own remains solid with weakness evident in only a few segments. The
performance of the commercial multifamily rental segments, which constitute the majority of the
$2.8 billion portfolio, is showing improved results despite current economic and credit market
conditions. This is most evident in the commercial multifamily tax exempt bond portfolio which
constitutes 59% of the $2.8 billion portfolio of tax exempt bonds, loans and equity which we own.
The commercial multifamily tax exempt bond portfolios debt service coverage has traveled in a
narrow band for the previous 18 months and has shown an upward bias the last six months. At June
30, 2008, 10.3% of the tax exempt bonds and related taxable loans we
own were in monetary default, down
from 14.1% in late 2005 (measured as a percent of the unpaid principal balance). The weakness we
are seeing in the credit quality of the assets underlying the portfolio of tax exempt bonds, loans
and equity which we own is in the condominium, bridge and land/land development lending segments of
our non-multifamily commercial loan portfolio. In these segments, which constitute 6% of the
assets we own, we are seeing an increase in loan delinquencies or extensions as projects are
underperforming, are not realized on their original timetables or are not able to find take out
financing in the current, constrained credit environment.
We have previously announced that we are considering strategic alternatives. We are engaged in
active discussions with potential purchasers of all or significant interests in several of our
businesses. We are also discussing the possibility of borrowing against our ownership interest in
at least one of our significant businesses until we can sell that business or another of our
businesses. We anticipate using proceeds of any sale of a business or businesses to finance the
businesses that we do not sell. However, we are not certain which, if any, of these transactions
will take place, and therefore do not know what, if any, sale proceeds will be available to
supplement our other sources of funds. Also, which, if any, businesses are sold will affect our
future sources of, and needs for, funds.
On August
15, 2008 we issued a press release announcing that we will not be
paying a dividend with regard to the second quarter of 2008. The
press release is furnished as Exhibit 99.1 to this report and
incorporated herein by reference.
The information in this Item 7.01,
including Exhibit 99.1 attached hereto, is furnished pursuant to
Item 7.01 and shall not be deemed filed for any purpose, including for the purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to
the liabilities of that Section. The information in this Item 7.01 of this Current Report on Form
8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933,
as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The exhibit to this report is listed in Item 7.01 above and in the Exhibit Index that follows the
signature line.
SIGNATURES
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.
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Municipal Mortgage & Equity, LLC
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August 15, 2008 |
By: |
/s/ Michael L. Falcone
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Name: |
Michael L. Falcone |
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Title: |
Chief Executive Officer and President |
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Exhibit |
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Description of Exhibit |
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99.1 |
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Copy of the press release labeled MuniMae Announces Continued
Suspension of Quarterly Dividend and filing of 8-K |