Summary
Digital Realty Trust, Inc. (DLR) filed an 8-K on August 30, 2010, reporting an unregistered sale of equity securities. The company exchanged $2 million in aggregate principal amount of its operating partnership's 4.125% Exchangeable Senior Debentures due 2026, held by Merrill Lynch, Pierce, Fenner & Smith Incorporated (BAML), for 63,052 restricted shares of DLR common stock. This initial transaction is part of a larger agreement allowing DLR to exchange up to $13.85 million of these debentures for up to 436,539 shares, along with incentive fees and accrued interest, in multiple settlements.
Key Highlights
- 1DLR executed an exchange agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (BAML) to settle $2 million of its 4.125% Exchangeable Senior Debentures due 2026.
- 2In exchange for the debentures, DLR issued 63,052 restricted shares of its common stock.
- 3The issuance of these shares was conducted under an exemption from registration, specifically Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D, indicating a private placement to a qualified institutional buyer (BAML).
- 4The exchange agreement allows for multiple future settlements, with DLR potentially exchanging up to an additional $11.85 million in debentures for more shares.
- 5DLR has agreed to register the resale of the issued shares by BAML, indicating an intent for these shares to eventually be publicly traded.
- 6The company also filed a prospectus supplement and related prospectus under its shelf registration statement to register the resale of these shares.
Frequently Asked Questions
The primary purpose of this 8-K filing was to report an unregistered sale of equity securities. Digital Realty Trust (DLR) exchanged a portion of its outstanding senior debentures for shares of its common stock with Merrill Lynch, Pierce, Fenner & Smith Incorporated (BAML).
The shares were issued in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. This indicates a private placement made to BAML, which was deemed a 'qualified institutional buyer' with the capacity to evaluate investment risks, and was afforded full access to company information.
The exchange agreement allows DLR to reduce its outstanding debt by exchanging its senior debentures for equity. This also provides a pathway for BAML to hold DLR common stock, with DLR agreeing to register these shares for resale, potentially increasing the public float of DLR's stock over time.
The filing of a prospectus supplement indicates that DLR is taking steps to allow BAML to legally sell the newly issued shares into the public market. This means that the shares previously held privately by BAML are expected to become available for trading by other investors in the near future, subject to the terms of the prospectus.