We are a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), formed in December 2015, specifically for the purpose of the public offering of the Notes (described below). On April 25, 2016, we sold $6,000,000 aggregate principal amount of our 6% Senior Secured Notes, due April 22, 2026 (the “Notes”), in our initial public offering (“IPO”).
The Notes are 6% senior secured notes, due April 22, 2026, and have a principal amount of $1,000 each. On April 25, 2016, we issued the Notes in the IPO in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among ourselves, as the issuer, MBC, as guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016. The Notes are listed on the NYSE MKT and trade under the symbol “LOAN/26”.
Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by us, together with our cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by us plus our cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, we are required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by us plus, our cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.
We may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to any party holding a Note (each referred to as a “Noteholder”). The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium; provided that (i) if the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the Notes redeemed up to, but not including, the date of redemption.
Each Noteholder has the right to cause us to redeem his, her, or its Notes on April 22, 2021. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including, the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify us, in writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a proper and timely notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date.
We are obligated to offer to redeem the Notes if there occurs a “change of control” with respect to us or MBC or if we or MBC sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.
Prior to the consummation of the IPO on April 25, 2016, we did not have any material operations. As of April 2016, we collect payments of interest on the mortgages we hold and use those funds to make the required interest payments to the holders of the Notes and certain operating expenses. Any excess cash will be distributed to MBC or held by us, in either case, to be used for working capital and general corporate purposes. We currently maintain minimal operations and have no plans to commence any material business operations in the near or long term.
Our principal executive officers consist of Assaf Ran, who serves as our Chief Executive Officer and President, and Vanessa Kao, who serves as our Chief Financial Officer. Each of Mr. Ran and Ms. Kao serve in similar functions with our parent, MBC.
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The following risk factors, among others, could affect our actual results of operations and could cause our actual results to differ materially from those expressed in forward-looking statements made by us. These forward-looking statements are based on current expectations and except as required by law we assume no obligation to update this information. You should carefully consider the risks described below and elsewhere in this Report before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Our Notes are considered speculative and the trading price of our Notes could decline due to any of these risks, and you may lose all or part of your investment. The following risk factors are not the only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.
We are controlled by our parent, MBC, which in turn is controlled by our Chief Executive Officer, Assaf Ran, whose interest may not always be aligned with the interests of the Noteholders.
Noteholders will not have any voting rights with respect to us or the right to influence management or day-to-day operations of our business. The interests of MBC’s shareholders who vote may be different or even in opposition of those of creditors such as the Noteholders. As of the date of this Report, 100% of our issued and outstanding shares are owned by our parent, MBC. In addition, Assaf Ran is the majority owner of the outstanding shares of common stock of MBC. Mr. Ran is also our Chief Executive Officer and our sole director. Thus, Mr. Ran currently has and will continue to exercise effective control over all of our corporate actions.
An active public trading market for the Notes may not develop.
The Notes are currently listed on the NYSE MKT and trade under the symbol “LOAN/26”. However, we cannot assure you that a more active trading market for the Notes will develop. If a more active trading market does not develop you may not be able to sell your Notes for the price you want at the time you want. The liquidity of any such market will depend upon various factors, including:
We cannot assure you that you will be able to sell the Notes if you wish do so or, even if you can sell your Notes that you will recover your entire investment.
The Indenture contains restrictive covenants that may limit our operating flexibility and could adversely affect our financial condition.
The Indenture contains restrictive covenants that could adversely affect our operating flexibility as well as our financial condition. For example, the Indenture requires us to maintain a specific debt coverage ratio at all times, specifically providing that the aggregate outstanding principal balance of the mortgage loans held by us, together with our cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times, as well as limits or prohibits our ability to:
Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the indebtedness evidenced by the Notes. For example, defaults under the mortgage loans held by us could result in a violation of the debt coverage ratio covenant. In that case, we are required to make monthly payments of principal on the Notes until such debt coverage ratio covenant is in compliance. We cannot assure you that in that event we will be able to repay all the Notes in full, or at all.
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The limited covenants in the Indenture and the terms of the Notes will not provide protection against significant events that could adversely impact our obligations under the Notes.
Neither the Indenture nor the Notes require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flow or liquidity and, accordingly, do not protect the Noteholders in the event that we experience significant adverse changes in our financial condition or results of operations or protect the interest of Noteholders. For example, during the term of the Notes, the true value of the mortgage loans held by us may fluctuate based on a number of factors including interest rates on the loans relative to prevailing market rates, as well as the solvency and credit-worthiness of the borrower. However, as long as the borrowers are not in default of their obligations, we will not be deemed to be in default of the debt coverage ratio covenant in the Indenture.
We may not be able to make the required payments of interest and principal on the Notes.
Our ability to make payments of principal and interest on the Notes is subject to general economic conditions and financial, business and other factors affecting our mortgage loan portfolio, many of which are beyond our control. We cannot assure you that we will have sufficient funds available when necessary to make any required payments of interest or principal under the Notes, including payments in connection with a redemption of Notes, whether upon a change of control or upon the exercise by Noteholders of their redemption rights. Our failure to make payments of interest or principal when due could result in an event of default and would give the Indenture Trustee and the Noteholders certain rights against us. Our sole source of revenue and cash flow will be payments of interest and principal we receive with respect to our mortgage loan portfolio. To the extent the interest payments received by us exceed the payments required to be made to the Noteholders, and both prior to and after giving effect to the distribution of funds to MBC, we are in compliance with the debt coverage ratio and no default or event of default exists or would occur as a result of such distribution, we plan to distribute those excess funds to MBC. If we are unable to generate sufficient cash flow to service the debt evidenced by the Notes, we will be in default of its obligations under the Notes.
We are not obligated to contribute to a sinking fund to retire the Notes and the Notes are not guaranteed by any governmental agency.
We are not obligated to contribute funds to a sinking fund to repay principal or interest on the Notes upon maturity or default. The Notes are not certificates of deposit or similar obligations of, or guaranteed by, any depositary institution. Further, no governmental entity insures or guarantees payment on the Notes if we do not have enough funds to make principal or interest payments.
The collateral granted as security for our obligations under the Notes may be insufficient to repay the indebtedness upon an event of default.
The Notes are secured by all of our assets, which will consist primarily of mortgage loans and cash. Under the Indenture, the aggregate principal amount of the mortgage loans held by us plus our cash on hand must equal at least 120% of the outstanding principal amount of the Notes at all times. We cannot assure you that the value of the collateral will be sufficient to redeem the Notes in full should we be in default of our payment obligations under the Notes. Specifically, if the mortgage loans are in default, we cannot assure you that we will be able to sell those loans for an amount equal to or even approximately equal to the outstanding principal balance of the Notes or that the properties securing the loans in default can be sold for an amount sufficient to fully repay the mortgage loans. Finally, any foreclosure action is likely to take a considerable amount of time and involve significant costs, further eroding our ability to stay current on our obligations under the Notes. Because of the foregoing, Noteholders risk the possibility that the collateral securing our obligations under the Notes may be insufficient to repay those securities upon an event of default.
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We have no obligation to redeem the Notes prior to their maturity date except in limited circumstances.