FLY Fly Leasing Limited

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the Securities

Exchange Act of 1934

Date of Report: October 2, 2015

Commission File Number: 001-33701

Fly Leasing Limited

West Pier

Dun Laoghaire

County Dublin, Ireland

Indicate by check mark whether registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

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On June 19, 2015, Fly Leasing Limited entered into an agreement to sell 33 aircraft 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 unaudited pro forma financial statements, presented as an exhibit hereto, have been adjusted to give effect to the Transaction as if it 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.

The following document, which is attached as an exhibit hereto, is incorporated by reference herein:

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

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Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Introduction

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:

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.  Additionally, the extinguishment of debt may result in swap ineffectiveness or loss of hedge accounting. The effects of losses on debt extinguishment and amounts related to swap ineffectiveness, dedesignation and termination have not been included in the unaudited pro forma condensed statements of income for the year ended December 31, 2014 or for the six months ended June 30, 2015.

Fly has incurred and will continue to incur expenses in connection with the Transaction that are not reflected in the pro forma financial statements.  These expenses include legal, accounting and other professional fees.

In addition to the pro forma adjustments to the historical consolidated financial statements, various other factors will have an effect on Fly’s results of operations.  You should read the pro forma financial statements in conjunction with information filed in reports by Fly with the Securities Exchange Commission, including Fly’s consolidated financial statements and related notes, “Management’s Discussion & Analysis of Financial Condition and Results of Operations”, and “Risk Factors” included in its Annual Report on Form 20-F for the year ended December 31, 2014 and subsequent Reports on Form 6-K. The unaudited pro forma financial statements are presented for illustrative purposes only and are not intended to be indicative of actual results that would have been achieved had the transactions described above actually been consummated as of the dates or for the periods presented. The unaudited pro forma financial statements also should not be considered representative of Fly’s future financial condition or results of operations.

Fly Leasing Limited
Unaudited Pro Forma Condensed Balance Sheet
As of June 30, 2015
(Dollar amounts in thousands)

 

Fly Leasing Limited
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 2014
(Dollar amounts in thousands, except per share data)

 

Fly Leasing Limited
Unaudited Pro Forma Condensed Statement of Income
For the six months ended June 30, 2015
(Dollar amounts in thousands, except per share data)

 

 

Notes to Unaudited Pro Forma Combined Condensed Statements

(1)

Represents the net cash proceeds from the Transaction after estimated: (i) selling fees and expenses, (ii) repayment of borrowings secured by aircraft in the Portfolio, (iii) loan prepayment penalties, (iv) swap breakage fees, and (v) remittance of maintenance reserve liabilities and security deposits to the Purchaser, assuming the Transaction closed on June 30, 2015.

(2)	Represents the remittance to the Purchaser of an additional $20.2 million of security deposits and maintenance payment liabilities from restricted cash accounts held by Fly.

(3)	Represents the aggregate net book value of aircraft in the Portfolio as of June 30, 2015.

(4)	Represents the fair value of derivative assets anticipated to be terminated upon repayment of certain secured borrowings.

(5)	Represents the write-off of (i) unamortized lease costs and lease premiums on aircraft in the Portfolio and (ii) unamortized loan fees associated with secured borrowings, which are expected to be extinguished:

(6)	Represents rentals received in advance on leases of aircraft in the Portfolio.

(7)	Represents the security deposits and maintenance payment liabilities to be transferred to the Purchaser:

 

(8)	Represents the repayment of secured borrowings, net of unamortized debt discount:

(9)	Represents the net effect on Fly’s deferred tax liability resulting from the Transaction. An effective tax rate of 12.5% was used, as Fly and the majority of its subsidiaries are tax residents of Ireland and therefore subject to a corporate tax rate of 12.5% on its trading income.

(10)	Represents the fair market value of derivative liabilities anticipated to be terminated upon repayment of certain secured borrowings.

(11)	Represents the write-off of other liabilities associated with the Portfolio:

(12)	Represents the after tax impact of the Transaction to Fly’s retained earnings assuming a 12.5% effective tax rate.

(13)	Represents the operating lease revenues associated with the Portfolio, including end of lease income of $11.3 million and $2.4 million for the year ended December 31, 2014 and for the six month period ended June 30, 2015, respectively.

(14)	Excludes gain on sale of aircraft resulting from the Transaction because such gain will not have a continuing impact on Fly’s results of operations.

(15)	Represents the depreciation associated with the Portfolio.

(16)	Represents the interest expense and amortization of debt discounts and loan issuance costs associated with certain secured borrowings that will be extinguished with a portion of the sale proceeds.

(17)	Represents the management and servicing fees associated with the Portfolio.

 

For the year ended December 31, 2014:

 

For the six month period ended June 30, 2015:

Please refer to “Item 7. Major Shareholders and Related Party Transactions” in Fly’s Annual Report on Form 20-F for a description of the management and servicing fees paid by Fly. Pursuant to the Amendment, the management expense amount was reduced by $5.0 million, effective July 1, 2015.

(18)

In instances where Fly has entered into interest rate swap agreements to hedge its interest rate exposure, extinguishment of the borrowings secured by aircraft in the Portfolio could result in swap ineffectiveness and dedesignations of hedge accounting. The potential impact from such event has not been included in the pro forma statements of income.

(19)

Fly will extinguish certain secured borrowing associated with aircraft in the Portfolio which will result in non-cash write-offs of unamortized debt discounts and loan fees and certain prepayment penalties and breakage costs. Such amounts have not been included in the pro forma statements of income.

(20)	Represents the historical maintenance related expenses incurred on aircraft in the Portfolio.

(21)	Fly and the majority of its subsidiaries are tax residents of Ireland, subject to a corporate tax rate of 12.5% on its trading income. An effective tax rate of 12.5% was used for the pro forma statements of income.

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