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Fly Leasing: Unaudited Pro Forma Financial Statements Introduction

The following excerpt is from the company's SEC filing.

On June 19, 2015, Fly Leasing Limited (“Fly”) entered into an agreement to sell 33 aircraft (the “Portfolio”) to ECAF I Ltd. (the “Purchaser”) for $985.2 million, subject to certain adjustments (the “Transaction”). The sale agreement provides for delivery of the aircraft to the Purchaser over a period of up to 270 days from the date of the agreement, subject to customary closing conditions.

The Portfolio consists of:

Aircraft Type

Airbus A319

Airbus A321

Airbus A320

Airbus A330-300

Boeing 737-800

Boeing 777-300ER

Fly has transferred 12 aircraft to the Purchaser as of September 30, 2015.

In connection with the Transaction, Fly and Fly Leasing Management Co. Limited (the “Manager”), a subsidiary of BBAM Limited Partnership, entered into an amendment (the “Amendment) dated as of June 19, 2015, to the Amended and Restated Fly Leasing Limited Management Agreement (the “Management Agreement”) dated as of December 28, 2012, by and among Fly and the Manager. Pursuant to the Amendment, the annual management fee payable by Fly to the Manager was reduced from $10.7 million to $5.7 million, effective as of July 1, 2015. In addition, Fly and the Manager also agreed to reduce the disposition fee to be paid to the Manager in connection with the Transaction. Whereas Fly generally pays a disposition fee of 1.5% of the aggregate gross proceeds in respect of dispositions, the Amendment provides that in respect of the Transaction, the aggregate disposition fee will be 1.2% of the aggregate gross proceeds in respect of such aircraft. The Amendment also provides for certain other changes to the Management Agreement that have no impact on these unaudited pro forma financial statements.

Pro forma information

The unaudited pro forma financial statements have been adjusted to give effect to the Transaction and the Amendment as if they had occurred as of June 30, 2015, in the case of the unaudited pro forma condensed balance sheet, and as of January 1, 2014, in the case of the unaudited pro forma condensed statements of income for the year ended December 31, 2014 and for the six months ended June 30, 2015.

Assumptions underlying the pro forma adjustments necessary to reasonably present the unaudited pro forma financial statements are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma financial statements. The unaudited pro forma financial statements reflect the adjustments that are (1) directly attributable to the Transaction and the Amendment, (2) factually supportable and (3) with respect to the pro forma statements of income, expected to have a continuing impact on our results of operations. The unaudited pro forma financial statements have been prepared based upon available information and estimates and assumptions that we believe are reasonable.

The closing and timing of aircraft deliveries to the Purchaser are subject to closing conditions including, among other things, novation of leases to the Purchaser and compliance with applicable loan covenants. The timing of each aircraft delivery will also result in certain economic adjustments to such aircraft’s base selling price.

The resulting gain on sale of aircraft to the Purchaser is not reflected in the unaudited pro forma condensed statements of income for the year ended December 31, 2014 and for the six months ended June 30, 2015 because such gain will not have a continuing impact on our results of operations.

Fly will repay certain underlying debt secured by aircraft in the Portfolio using proceeds received from the sale. The repayment of such underlying debt will result in non-cash write-offs of unamortized debt discounts and loan fees. In addition, certain loan agreements contain prepayment penalties that require Fly to pay breakage fees to the lenders when debt is repaid before its contracted maturity. These amounts are determined at the time debt is extinguished. In instances where Fly has entered into interest rate swap agreements to hedge its interest rate exposure, it may terminate swap contracts in connection with the repayment of debt...


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