Item
2.04.
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Triggering Events
That Accelerate or Increase a
Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement.
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Clst Holdings - Recent Material EventAs
previously disclosed in its Form 8-K/A filed on March 5, 2009, on November 10,
2008, CLST Holdings, Inc. (the “Company”),
through CLST Asset I, LLC, a wholly owned subsidiary of CLST Financo, Inc.
(“Financo”),
which is one of our direct, wholly owned subsidiaries, entered into a purchase
agreement to acquire all of the outstanding equity interests of FCC
Investment Trust I (the “Trust I”)
from Drawbridge Special Opportunities Fund LP (“Drawbridge”)
for approximately $41.0 million (the “Trust Purchase
Agreement”). Our acquisition of Trust I was financed by
approximately $6.1 million of cash on hand and by a non-recourse, term loan of
approximately $34.9 million from Fortress Credit CO LLC (“Fortress”),
an affiliate of Drawbridge, pursuant to the terms and conditions set forth in
the credit agreement, dated November 10, 2008, by and among Trust I, Fortress,
as the lender and administrative agent, FCC Finance, LLC, as the initial
servicer, Lyon Financial Services, Inc., as the backup servicer, and U.S. Bank
National Association, as the collateral custodian (the “Trust I Credit
Agreement ”).
On
October 16, 2009, we received a notice of default from Fortress stating that an
event of default has occurred and is continuing under the Trust I Credit
Agreement. The Fortress notice alleges, without support, that the three-month
rolling average annualized default rate of the Trust I portfolio has exceeded
7.0%, thus breaching one of the covenants under the Trust I Credit Agreement.
The Fortress notice also alleges, again without support, that certain
“irregularities” in payments received by Trust I exist, and that properly
accounting for those “irregularities,” the three-month rolling average
annualized default rate is 8.47%. We have not yet received the servicer reports
that will allow us to make our own calculations of the three-month rolling
average annualized default rate, nor have we had the opportunity to discuss with
Fortress its allegations that “irregularities” exist and why those circumstances
should result in a higher calculated three-month rolling average annualized
default rate. We expect to receive the relevant information from Fortress and
then explore the matters described in the Fortress notice in the near future. If
a default in the covenants has occurred under the Trust I Credit Agreement, the
interest rate payable by Trust I will increase by an additional 2% per annum,
and all collections by Trust I above amounts retained to pay interest, fees,
principal amortizations, and other charges that are normally remitted to the
Company, will instead be applied to outstanding principal under the Trust I
Credit Agreement until the amount due has been reduced to zero. In addition, if
a default under the Trust I Credit Agreement exists and is continuing, Fortress
is entitled to foreclose on the assets of Trust I and sell them to satisfy
amounts due it under the Trust I Credit Agreement. Only Trust I is liable for
amounts due Fortress under the Trust I Credit Agreement. Thus, although the
Company could lose some or all of its investment in Trust I, we will not be
obligated to pay any amounts due Fortress under the Trust I Credit
Agreement.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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