Note 18—Subsequent events

Sale of the Company’s common shares in TEB

On July 3, 2013, the Company sold the common shares of TEB to Merrill Lynch Portfolio Management, Inc. (together with its affiliates, the “Purchaser”), an affiliate of Bank of America Merrill Lynch, pursuant to a Share Purchase Agreement, dated as of July 1, 2013 (“Share Purchase Agreement”), by and among the Purchaser, MuniMae TEI Holdings, LLC, the Company and TEB. Immediately prior to the closing, TEB distributed to the Company, and the Company retained approximately $146.7 million of bonds and bond related investments on an unleveraged basis comprised of TEB’s bonds that were not fully performing (i.e., bonds that are 30 days or greater past due in either principal or interest), its participating multifamily bonds and all but one of its CDD bonds.

Following TEB’s distribution of the foregoing bonds, the Purchaser paid the Company $78.5 million for the TEB common shares, reflecting (a) the value of the bonds and non-bond related investments remaining in TEB, consisting of fixed rate performing multifamily bonds and interests in such bonds and one CDD bond (aggregate fair value of $848.6 million) as well as cash, restricted cash and accrued interest of approximately $51.2 million, net of (b) TEB’s contractual debt and preferred share obligations of $821.3 million including interest and distributions due and payable of $4.6 million, which will remain the obligation of TEB. As a result of the transaction, the Company eliminated $816.7 million of debt and preferred equity financing (liquidation preference).

On July 3, 2013, the Company also entered into two TRS agreements with the Purchaser using the July 3, 2013 fair value of two bond assets of $30.6 million (included in the $848.6 million sale above) to set the notional amount for the TRS. Under the terms of the TRS, the Purchaser will pay the Company an amount equal to the interest payments on the two assets, currently a weighted average rate of 6.9%, and the Company will pay the Purchaser a rate of SIFMA (Securities Industry and Financial Markets Association) plus a spread of 150 bps on the notional amount of the TRS. Because the Company retains the economic risk and rewards associated with these bonds, they do not receive sale accounting. On July 3, 2013, the Company also agreed with the Purchaser to pledge $16.3 million of cash as additional collateral against the Company’s new and existing TRS borrowings with the Purchaser.

As a result of the transactions outlined above, the Company accelerated an expense recognition of $7.8 million during the second quarter of 2013 related to the unamortized debt issuance costs and issuance discounts associated with the debt (senior interests in debt owed to securitization trusts and mandatorily redeemable preferred shares) that was assumed at contractual amounts by the Purchaser. See Note 6, “Debt.”

Because the Purchaser is assuming the perpetual preferred shares at par, the Company will also recognize, at the time of sale and therefore during the third quarter of 2013, a $3.0 million reduction to common shareholders’ equity in order to write-off original issuance discounts related to these shares. See Note 12, “Equity.”

On July 3, 2013, the transactions as described above will have the following impact to our GAAP assets, liabilities and common shareholders’ equity.

(in millions)
Increase in MuniMae’s cash ($16.3 million of which will be reported as restricted)	$	78.5
Reduction in bonds on our consolidated balance sheet		(679.0)	A
Reduction in bond interest receivable (recorded through “Other assets”)		(4.4)	B
Reduction in TEB’s cash ($1.6 million of which was reported as restricted at June 30, 2013)		(44.8)	B
Net reduction in assets	$	(649.7)

Reduction in senior interests and debt owed to securitization trusts	$	574.7
Reduction in mandatorily redeemable preferred shares		121.0
Reduction in perpetual preferred shares ($121.0 million liquidation preference)		118.0
Reduction in interest and distributions payable (recorded through “Accounts payable and accrued expenses” and “Other liabilities”)		4.6
Increase in debt due to failed sales of bonds and interests in bonds		(94.4)	A
Increase in debt due from CFVs		(75.2)	A
Increase in interest payable due to failed sales (recorded through “Accounts payable and accrued expenses”)		(0.6)	B
Increase in interest payable due from CFVs (recorded through “Accounts payable and accrued expenses”)		(1.4)	B
Net reduction in liabilities	$	646.7
Net reduction in common shareholders’ equity	$	(3.0)	C

The sum of these amounts total $848.6 million and represents the fair value of the bonds sold on July 3, 2013.

Represents the total cash, restricted cash and interest receivable of $51.2 million transferred to the Purchaser as part of the sale of TEB.

Represents the difference between the Company’s carrying value of the perpetual preferred shares on June 30, 2013 of $118.0 million as compared to the liquidation preference amount assumed in the sale on July 3, 2013 of $121.0 million.

Conversion to Corporation for Tax Purposes

Subsequent to the sale of TEB’s common shares as discussed above and effective July 3, 2013, Municipal Mortgage & Equity, LLC contributed all of its remaining assets and obligations to its subsidiaries that are taxed as corporations. On July 10, 2013, the Company converted from a partnership to a corporation for federal and state income tax purposes by making a “check-the-box” election. As a result of the conversion, the Company will (i) be a direct corporate tax payer, (ii) no longer pass through its income and loss to its shareholders for tax purposes, and (iii) no longer issue each shareholder an annual tax statement on Schedule K-1 (although there will be investor K-1s for the partial year January 1, 2013 through July 9, 2013).

This change will eliminate the ongoing costs of operating as a partnership and the pass-through of tax items to shareholders, and is consistent with changes in the nature of the Company’s activities. During March of 2014 shareholders will receive a final Schedule K-1 for the partial year January 1, 2013 through July 9, 2013, including potential capital gains from the sale of the Company’s common shares in TEB. As a result of the transaction, the final Schedule K-1s will likely report similar capital gains to certain low-basis shareholders as have been reported in prior tax years and will represent the final pass-through activity from the Company. After the conversion date all activity of the Company, including any gains from capital transactions, will be included on the Company’s corporate tax return, rather than subject to pass-through to shareholders.

Amendment to the Company’s Stock Repurchase Program

On August 8, 2013, our Board of Directors authorized management to enter into an amended and restated stock repurchase program effective subsequent to the Company’s filing of this quarterly report on Form 10-Q, and in any event not earlier than August 15, 2013. The authorization permits the plan to be amended and restated to provide for the Company to purchase up to four million shares total, and up to 800,000 shares in any one calendar month at a price up to 100% of its common shareholders’ equity per share as shown on its most recently filed periodic report. No shares will be purchased pursuant to the amended and restated plan before August 26, 2013.