SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 23, 2011
FRANKLIN CREDIT HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code: (201) 604-1800
(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:
Item 1.01 Entry into a Material Definitive Agreement.
As was previously disclosed by Franklin Credit Holding Corporation (the Registrant) in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 as filed with the Securities and Exchange Commission on May 12, 2011, on May 11, 2011, the Registrant and certain of its subsidiaries (together, the Company) entered into a term sheet (the Term Sheet) with The Huntington National Bank (the Bank) to amicably resolve the Banks allegation that a default had occurred under the Companys legacy credit agreement with the Bank and its participating banks, dated as of March 31, 2009, as amended (the Legacy Credit Agreement), due to a failure to make certain payments under certain interest rate hedge agreements (the Interest Rate Swaps) with the Bank (the Specified Default). On May 23, 2011, the Company entered into various agreements implementing the transactions contemplated by the Term Sheet. These agreements are described below.
On May 23, 2011, the Company entered into a settlement agreement with the Bank (in various capacities), a subsidiary of the Banks parent, and the Banks lending participants covering the surrender and transfer of the Companys investment in preferred stock and common stock of the Banks REIT subsidiary (the REIT Securities) held by the Company (and pledged as collateral under the Legacy Credit Agreement) in exchange for:
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Contemporaneously with the execution of the Settlement Agreement, the Company surrendered the REIT Securities to the Bank and entered into the agreements described below. As result of the Company voluntarily surrendering and transferring to the Bank the REIT Securities, the Companys principal source of cash flow to meet its obligations with respect to its approximately $778 million of outstanding indebtedness under the Legacy Credit Agreement remaining after the surrender of the REIT Securities will be eliminated, resulting in accrued and unpaid interest being added to the outstanding principal balance of the legacy debt that the Company will be unable to pay at the maturity of the Legacy Credit Agreement on March 31, 2012 (or upon earlier termination under the provisions of the Legacy Credit Agreement).
The Companys operating losses will increase commencing with the quarter ended September 30, 2011 and in the years 2012 and beyond due to the absence of dividend income on the preferred REIT Securities.
Legacy Credit Agreement
The Legacy Credit Agreement was amended to (1) delete the Registrant as a guarantor, (2) waive the Specified Default, and (3) permit the transfer to the Registrant of assets, amounting principally to approximately $370,000 in cash, of Franklin Credit Loan Servicing LLC (FCLS), an inactive limited purpose entity, and the subsequent dissolution or merger of FCLS into the Registrant.
The pledge agreement between the Registrant and the Bank dated March 31, 2009, as amended, which was entered into in connection with the Legacy Credit Agreement (the Pledge Agreement), was further amended to release the equity interest in FCLS that had been pledged by the Registrant to the Bank. However, the Registrant shall remain a pledgor, other than with respect to the interests of FCLS, under the Pledge Agreement (which includes a pledge of 100% of the equity interests in all direct and indirect subsidiaries of Registrant other than FCMC).
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Limited Recourse Guaranty
The Limited Recourse Guarantee between the Registrant and the Bank dated March 31, 2009, which was entered into in connection with the Legacy Credit Agreement, was released, cancelled and discharged.
Licensing Credit Agreement
The term of the Licensing Credit Agreement between the Registrant and FCMC, on the one hand, and the Bank and its participating lenders, on the other hand, dated March 31, 2009, as amended, was extended to September 30, 2012, and the financial covenant that the Registrant and FCMC maintain a minimum amount of net income before taxes was deleted.
The foregoing summaries are qualified in their entirety by reference to the complete copies of the agreements filed as Exhibits 10.1 through 10.5 to this Form 8-K.
Item 9.01 Financial Statements and Exhibits.
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Pursuant to the requirements of the Securities Exchange Act of 1934, Franklin Credit Holding Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 27, 2011
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