Business Context and Reporting Period
This Form 8-K, dated June 30, 2022, reports a material definitive agreement entered into by Fortress Transportation and Infrastructure Investors LLC (the "Company") and its subsidiary, FTAI Infrastructure LLC ("FTAI Infrastructure"). The filing details a capital raise transaction with entities affiliated with Ares Management LLC ("Subscriber") contingent upon the consummation of a spin-off of FTAI Infrastructure into a new entity, FTAI Infrastructure Inc.
Key Financial Metrics and Transaction Terms
- Aggregate Purchase Price: $300,000,000 for the issuance of Series A Senior Preferred Stock, Series I Warrants, and Series II Warrants.
- Net Proceeds: $291,000,000 (after a $9,000,000 fee representing 3.0% of the purchase price).
- Preferred Stock Dividend Rate: 14.0% per annum, with potential increases to 16.0% if dividends are not paid in cash during the first two years, and up to 18.0% upon an Event of Noncompliance.
- Warrant Details:
- Series I Warrants: Right to purchase 3,342,566 shares of Common Stock at $10.00 per share.
- Series II Warrants: Right to purchase 3,342,566 shares of Common Stock at $0.01 per share.
- Debt Financing Condition: The transaction is conditioned on FTAI Infrastructure issuing between $450,000,000 and $500,000,000 of senior secured notes due 2027.
- Commitment Fee: $9,000,000 payable to the Subscriber if the transaction fails to close by the Outside Date (August 30, 2022) due to reasons other than a material breach by the Subscriber.
- Expense Reimbursement: Up to $2,250,000 for out-of-pocket expenses incurred by the Subscriber.
Material Changes and Transaction Structure
The filing outlines a significant restructuring of the Company's infrastructure assets. FTAI Infrastructure will be converted into a Delaware corporation and spun off to existing Company shareholders on a one-for-one basis. The capital raise is designed to occur contemporaneously with this Spin-Off. The Series A Preferred Stock ranks senior to Common Stock but junior to all indebtedness. The agreement includes negative covenants restricting FTAI Infrastructure's ability to incur additional indebtedness, issue senior equity, or pay dividends without Subscriber consent.
Guidance, Risks, and Contingencies
- Closing Conditions: The transaction is not guaranteed and depends on the successful Spin-Off and the issuance of the specified senior secured notes.
- Termination Rights: The Subscriber may terminate the agreement if closing does not occur by August 30, 2022.
- Control Provisions: In the event of an "Event of Noncompliance" (e.g., failure to pay cash dividends after the second anniversary), holders of the Series A Preferred Stock gain the right to elect a majority of the board of directors.
- Manager Compensation: Upon successful completion, the Manager (FIG LLC) will receive options equal to 10% of the gross capital raised.
- Risk Factors: The filing references risk factors detailed in the Company's 2021 Form 10-K and FTAI Infrastructure's Form 10, including risks related to liquidity, operations, and the success of the Spin-Off.
Investor Verification Checklist
- Verify the status of the Spin-Off transaction and the issuance of the $450M-$500M senior secured notes.
- Confirm the final closing date relative to the August 30, 2022 Outside Date.
- Review the specific terms of the negative covenants limiting FTAI Infrastructure's future operational flexibility.
- Assess the impact of the 14.0% dividend obligation on FTAI Infrastructure's future cash flow and liquidity.
- Monitor the potential dilution from the exercise of Series I and Series II Warrants.