1313918--3/14/2007--Deerfield_Triarc_Capital

related topics

{investment, property, distribution}

{tax, income, asset}

{loan, real, estate}

{debt, indebtedness, cash}

{loss, insurance, financial}

{stock, price, share}

{competitive, industry, competition}

{cost, regulation, environmental}

{operation, international, foreign}

{personnel, key, retain}

{system, service, information}

{operation, natural, condition}

{provision, law, control}

{regulation, change, law}

We have a limited operating history and limited experience as a REIT and we may not be able to successfully operate our business or generate sufficient revenue to make or sustain dividends to stockholders. We are dependent on Deerfield Capital and may not find a suitable replacement if it terminates the management agreement. Deerfield Capital has limited prior experience managing a REIT and its past experience may not be sufficient to successfully manage our business as a REIT. We depend upon Deerfield Capital s key personnel for our success. Deerfield Capital manages our portfolio pursuant to very broad investment guidelines and our board does not approve each investment decision made by Deerfield Capital, which may result in our making riskier investments. We may change our investment strategy without stockholder consent, which may result in riskier investments. There are conflicts of interest in our relationship with Deerfield Capital, which could result in decisions that are not in the best interests of our stockholders. We may compete with future investment vehicles for access to Deerfield Capital. Our investment portfolio is heavily concentrated in adjustable-rate MBS and we might not be able to achieve or sustain a more diversified portfolio. We leverage our investments and incur other indebtedness, which may reduce our returns and our dividends. Our failure to maintain an adequate alternative investment portfolio may impair our financial condition and results of operations. We operate in a highly competitive market for investment opportunities. Failure to procure adequate capital and funding would hurt our results and reduce the price of our stock and our ability to pay dividends. If we issue senior securities we will be subject to additional restrictive covenants and limitations on our operating flexibility, which impair our ability to pay dividends. We may be unable to complete securitization transactions. The use of CDO financings with over-collateralization requirements may reduce our cash flow. An increase in our borrowing costs relative to the interest we receive on our assets may impair our profitability, and thus our cash available for distribution to our stockholders. We may not be able to renew our total return swaps, which could impair our leveraging strategy. Declines in the market values of our investments may adversely affect periodic reported results and credit availability, which may reduce earnings and thus cash available for dividends. Our failure to achieve adequate operating cash flow would impair our ability to pay dividends. Loss of our 1940 Act exclusion would adversely affect us and reduce the market price of our shares and our ability to pay dividends. Rapid changes in the values of our MBS and other real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the 1940 Act. We depend on information systems and third parties, and systems failures could disrupt our business, which may reduce the market price of our stock and our ability to pay dividends. Terrorist attacks and other acts of violence or war may affect the market for our stock, the industry in which we conduct our operations and our profitability. Risks Related to Our Investments We may not realize gains or income from our investments. Our real estate investments are subject to risks particular to real property. The mortgage loans underlying our MBS and ABS are subject to delinquency, foreclosure and loss, which could result in losses to us. Our investments in subordinated MBS could subject us to increased risk of losses. Our assets include high yield and subordinated corporate securities that have greater risks of loss than secured senior loans and if those losses are realized, it could adversely affect our earnings, which could adversely affect our cash available for dividends. We may invest in the equity securities of CDOs, such as Market Square and Pinetree, and such investments involve various risks, including that CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses. We may enter into warehouse agreements in connection with our planned investment in the equity securities of CDOs and if the CDO investment is not consummated, the warehoused collateral will be sold and we must bear any loss resulting from the purchase price of the collateral exceeding the sale price. We will lose money on our repurchase transactions if the counterparty to the transaction defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of that term or if we default on our obligations under the repurchase agreement. Investments in mezzanine loans involve greater risks of loss than senior loans secured by income producing properties. Increases in interest rates could reduce the value of our investments, which could result in reduced earnings or losses and reduce the cash available dividends. We remain subject to losses on our mortgage portfolio despite our strategy of investing in highly-rated MBS. Some of our investments are recorded at values based on estimates of fair value made by management, and there is thus uncertainty as to the value of these investments. The lack of liquidity in our investments may impair our results. Negative covenants in our repurchase agreements may reduce our ability to maintain adequate capital and funding and cash available for dividends. A prolonged economic slowdown, a recession or declining real estate values could impair our investments and harm our operating results. We may be exposed to environmental liabilities with respect to properties we own. Our hedging transactions may not completely insulate us from interest rate risk. Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs. Changes in prepayment rates could reduce the value of our MBS, which could reduce our earnings and the cash available for dividends. Our derivative contracts could expose us to unexpected economic losses. We make investments in non-U.S. dollar denominated investments, which subject us to currency rate exposure and the uncertainty of foreign laws and markets. Our dependence on the management of other entities may adversely affect our business. Our due diligence may not reveal all of an issuer s liabilities and may not reveal other weaknesses in its business. Complying with REIT requirements may cause us to forgo otherwise attractive opportunities. Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our stockholders. Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for dividends. Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders. Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. Ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares. Our ownership of and relationship with our TRSs is limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. Our foreign TRSs could be subject to federal income tax at the entity level, which would greatly reduce the amounts those entities would have available to distribute to us. We may lose our REIT status if the IRS successfully challenges our characterization of our income from our foreign TRSs. Complying with REIT requirements may limit our ability to hedge effectively. The tax on prohibited transactions will limit our investment transactions, including certain methods of securitizing mortgage loans that would be treated as sales for federal income tax purposes. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. If we make distributions in excess of our current and accumulated earnings and profits, those distributions will be treated as a return of capital, which will reduce the adjusted basis of your stock, and to the extent such distributions exceed your adjusted basis, you may recognize a capital gain.

Full 10-K form ▸

1313918--3/14/2007--Deerfield_Triarc_Capital_Corp