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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Under Rule 14a-12
FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
No fee required
Fee paid previously with preliminary materials
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

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PROSPECTUS

PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS OF
FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
PROSPECTUS FOR 99,378,771 ORDINARY SHARES,
4,180,000 8.25% FIXED-TO-FLOATING RATE SERIES A CUMULATIVE PERPETUAL
REDEEMABLE PREFERRED SHARES,
4,940,000 8.00% FIXED-TO-FLOATING RATE SERIES B CUMULATIVE PERPETUAL
REDEEMABLE PREFERRED SHARES AND
4,200,000 8.25% FIXED-RATE RESET SERIES C CUMULATIVE PERPETUAL
REDEEMABLE PREFERRED SHARES OF
FTAI FINANCE HOLDCO LTD.
The board of directors of each of Fortress Transportation and Infrastructure Investors LLC, a Delaware limited liability company (“FTAI”), and FTAI Finance Holdco Ltd. (to be known as FTAI Aviation Ltd. following the Holdco Merger (as defined below)), a Cayman Islands exempted company (the “Company”) and, prior to the Holdco Merger, an indirect subsidiary of FTAI and a direct subsidiary of Fortress Worldwide Transportation and Infrastructure General Partnership, a Delaware general partnership (the “Partnership”), has unanimously approved the merger (the “merger”) of FTAI Aviation Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”) with and into FTAI, with FTAI surviving the merger and becoming a wholly-owned subsidiary of the Company in accordance with the terms and conditions of the merger agreement as described herein. In the merger, FTAI’s shareholders will receive (i) one ordinary share of the Company for each FTAI common share that they own, (ii) one 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series A Preferred Shares”) for each 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series A Preferred Shares”) that they own, (iii) one 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series B Preferred Shares”) for each 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series B Preferred Shares”) that they own and (iv) one 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series C Preferred Shares”) for each 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series C Preferred Shares” and, together with the FTAI Series A Preferred Shares and the FTAI Series B Preferred Shares, the “FTAI Preferred Shares”) that they own. Following the merger, the FTAI Preferred Shares will remain outstanding and will be owned by the Company. Prior to the consummation of the merger, the Partnership will convert into a Delaware limited liability company and merge with and into the Company, with the Company surviving the merger and being renamed “FTAI Aviation Ltd.,” and the equityholders of the Partnership, being FTAI and Fortress Worldwide Transportation and Infrastructure Master GP LLC, receiving ordinary shares of the Company in exchange for their interests of the Partnership (the “Holdco Merger”).
This prospectus covers an aggregate of (i) 99,378,771 ordinary shares of the Company issuable by the Company in exchange for the outstanding shares of common shares of FTAI, (ii) 4,180,000 Company Series A Preferred Shares issuable by the Company in exchange for the outstanding FTAI Series A Preferred Shares, (iii) 4,940,000 Company Series B Preferred Shares issuable by the Company in exchange for the outstanding FTAI Series B Preferred Shares and (iv) 4,200,000 Company Series C Preferred Shares issuable by the Company in exchange for the outstanding FTAI Series C Preferred Shares, in each case, upon consummation of the merger.
FTAI’s common shares, the FTAI Series A Preferred Shares, the FTAI Series B Preferred Shares and the FTAI Series C Preferred Shares are currently quoted on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “FTAI,” “FTAIP,” “FTAIO” and “FTAIN,” respectively. On August 11, 2022 the last full trading day before the signing of the merger agreement, the closing sale price of (i) FTAI’s common shares was $18.29 per share, (ii) FTAI Series A Preferred Shares was $24.69 per share, (iii) FTAI Series B Preferred Shares was $23.57 per share and (iv) FTAI Series C Preferred Shares was $24.64 per share. The Company will apply to list, to be effective at the time of the merger, its ordinary shares, the Company Series A Preferred Shares, the Company Series B Preferred Shares and the Company Series C Preferred Shares on Nasdaq under the symbols “FTAI,” “FTAIP,” “FTAIO” and “FTAIN,” respectively. We expect FTAI’s common shares and the FTAI Preferred Shares will be delisted from Nasdaq.
A proposal to approve and adopt the merger agreement and approve the merger as discussed in this proxy statement/prospectus will be presented at a special meeting (“special meeting”) of shareholders of FTAI. Approval and adoption of the merger agreement and approval of the merger requires the affirmative vote for the proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon. The special meeting will be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, New York 10001 on November 9, 2022 at 8:00 a.m.
This proxy statement/prospectus provides you with detailed information about the merger to be considered at the special meeting of FTAI’s shareholders. We urge you to carefully read this entire document including the annexes. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 19 of this proxy statement/prospectus.
This proxy statement/prospectus is dated October 11, 2022, and is first being mailed to FTAI shareholders on or about October 11, 2022.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS OR ANY OF THE SECURITIES TO BE ISSUED IN THE TRANSACTIONS, PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

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FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 9, 2022
To Fortress Transportation and Infrastructure Investors LLC Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting (“special meeting”) of shareholders of Fortress Transportation and Infrastructure Investors LLC, a Delaware limited liability company (“FTAI”), will be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, New York 10001 on November 9, 2022 at 8:00 a.m., local time. The purposes of the special meeting are:
1.
to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of August 12, 2022 (the “merger agreement”), by and among FTAI, FTAI Finance Holdco Ltd. (to be known as FTAI Aviation Ltd. following the Holdco Merger (as defined in the attached proxy statement/prospectus)), a Cayman Islands exempted company (the “Company”) and, prior to the merger, an indirect subsidiary of FTAI and a direct subsidiary of Fortress Worldwide Transportation and Infrastructure General Partnership, a Delaware general partnership, and FTAI Aviation Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”), which, among other things, provides for the merger of Merger Sub with and into FTAI, with FTAI surviving the merger and becoming a wholly-owned subsidiary of the Company, and with:
(a)
holders of FTAI common shares receiving newly issued ordinary shares of the Company;
(b)
holders of 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series A Preferred Shares”) receiving 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series A Preferred Shares”);
(c)
holders of 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series B Preferred Shares”) receiving 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series B Preferred Shares”); and
(d)
holders of 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series C Preferred Shares” and collectively with the FTAI Series A Preferred Shares and the FTAI Series B Preferred Shares, the “FTAI Preferred Shares”) receiving 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series C Preferred Shares” and collectively with the Company Series A Preferred Shares and the Company Series B Preferred Shares, the “Company Preferred Shares”) with the FTAI Preferred Shares to remain outstanding and owned by the Company,
— we refer to this proposal as the “merger proposal”; and
2.
to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, FTAI is not authorized to consummate the merger — we refer to this proposal as the “adjournment proposal.”
These items of business are described in the attached proxy statement/prospectus, which we encourage you to read in its entirety before voting. Only holders of record of FTAI common shares at the close of business on October 6, 2022, are entitled to notice of the special meeting and to vote and have their votes counted at the special meeting and any adjournments or postponements of the special meeting.
The board of directors of FTAI unanimously recommends a vote “FOR” each of the merger proposal and, if presented, the adjournment proposal. Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement.
All FTAI shareholders are cordially invited to attend the special meeting. To ensure your representation at the special meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible in the enclosed prepaid envelope or by voting by telephone or through the Internet by following the instructions on the accompanying proxy card. If you are a shareholder of record of FTAI common shares, you may also cast your vote at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your
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broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote, obtain a proxy from your broker or bank. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the merger proposal but will have no effect on the adjournment proposal.
A complete list of FTAI shareholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at the principal executive offices of FTAI for inspection by shareholders during ordinary business hours for any purpose germane to the special meeting.
It is important that your shares be represented at the special meeting regardless of the size of your holdings. A proxy statement, proxy card and self-addressed envelope are enclosed. Return the proxy card promptly in the envelope provided, which requires no postage if mailed in the United States. You can also vote by telephone or by the Internet by following the instructions provided on the proxy card. Whether or not you plan to attend the special meeting in person, please vote by one of these three methods. If you are the record holder of your shares and you attend the special meeting, you may withdraw your proxy and vote in person, if you so choose. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.
 
By Order of the Board of Directors
 
 
 
/s/ Joseph P. Adams, Jr.
 
Joseph P. Adams, Jr.
Chairman and Chief Executive Officer
IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS.
This proxy statement/prospectus is dated October 11, 2022 and is first being mailed to FTAI shareholders on or about October 11, 2022.
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PROXY STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) by the Company (File No. 333-266851) (the “registration statement”), constitutes a prospectus of the Company under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the ordinary shares of the Company and the preferred shares of the Company to be issued if the merger described below is consummated. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of FTAI shareholders at which holders of FTAI common shares will be asked to consider and vote upon a proposal to approve the merger by the approval and adoption of the merger agreement.
You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. FTAI and the Company have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference into this proxy statement/prospectus. This proxy statement/prospectus is dated October 11, 2022 and you should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than such date unless otherwise specifically provided herein.
FTAI files reports, proxy statements/prospectuses and other information with the SEC as required by the Exchange Act. You can read FTAI’s SEC filings, including the Annual Report on Form 10-K for the year ended December 31, 2021, at the SEC’s website at http://www.sec.gov.
If you would like additional copies of this proxy statement/prospectus, without charge, or if you have questions about the merger or the proposal to be presented at the special meeting, you should contact us by telephone or in writing at:
Fortress Transportation and Infrastructure Investors LLC
1345 Avenue of the Americas, 45th Floor
New York, New York 10105
Attention: Investor Relations
(212) 798-6128
In order for FTAI shareholders to receive timely delivery of the proxy statement/prospectus in advance of the special meeting of FTAI shareholders to be held on November 9, 2022, you must request the information from FTAI no later than November 2, 2022, which is the date that is five business days before the date of the special meeting.
The contents of the websites of the SEC, FTAI or any other entity are not being incorporated into this proxy statement/prospectus. The information about how you can obtain certain documents at these websites is being provided only for your convenience.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
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IMPORTANT INFORMATION ABOUT U.S. GAAP AND NON-U.S. GAAP FINANCIAL MEASURES
To evaluate the performance of its business, each of the Company and FTAI relies on both its results of operations recorded in accordance with U.S. GAAP and certain non-U.S. GAAP financial measures, including “Adjusted EBITDA” (defined as net income (loss) attributable to shareholders from continuing operations, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, and interest expense, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA) and “Funds Available for Distribution” (defined as net cash provided by operating activities plus principal collections on finance leases, proceeds from sale of assets, and return of capital distributions from unconsolidated entities, less required payments on debt obligations and capital distributions to non-controlling interest, and excluding changes in working capital). These measures, as defined above, are not defined or calculated under principles, standards or rules that comprise U.S. GAAP. Accordingly, the non-U.S. GAAP financial measures the Company and FTAI uses and refers to should not be viewed as a substitute for the Company and FTAI’s consolidated financial statements prepared and presented in accordance with U.S. GAAP or any other performance measure derived in accordance with U.S. GAAP, and we encourage you not to rely on any single financial measure to evaluate the Company and FTAI’s business, financial condition or results of operations. The Company and FTAI’s definition of Adjusted EBITDA is specific to its business and you should not assume that it is comparable to similarly titled financial measures of other companies.
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INDUSTRY AND MARKET DATA
Unless otherwise indicated, information contained in this proxy statement/prospectus concerning FTAI’s industry and the regions in which it operates, including FTAI’s general expectations and market position, market opportunity, market share and other management estimates, is based on information obtained from various independent publicly available sources and reports provided to FTAI. While FTAI has compiled, extracted, and reproduced industry data from these sources, FTAI has not independently verified the data. Similarly, internal surveys, industry forecasts and market research, which FTAI believes to be reliable based upon its management’s knowledge of the industry, have not been independently verified. While FTAI believes that the market data, industry forecasts and similar information included in this proxy statement/prospectus are generally reliable, such information is inherently imprecise and the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this proxy statement/prospectus. In addition, assumptions and estimates of FTAI’s future performance and growth objectives and the future performance of its industry and the markets in which it operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those discussed under the headings “Summary of the Proxy Statement/Prospectus,” “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” and “Business of the Company” in this proxy statement/prospectus.
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
FTAI has proprietary rights to trademarks used in this proxy statement/prospectus that are important to its business, many of which are registered (or pending registration) under applicable intellectual property laws. This proxy statement/prospectus contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this proxy statement/prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks, trade names and service marks. FTAI does not intend its use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of FTAI by, any other companies.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
The following are brief answers to common questions that you may have regarding the special meeting. We urge you to carefully read this entire proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional information is also contained in the annexes to this proxy statement/prospectus. See “Where You Can Find More Information About FTAI and the Company” beginning on page 155.
Unless otherwise stated in this proxy statement/prospectus:
references herein to the “merger agreement” are to the Agreement and Plan of Merger, dated as of August 12, 2022, by and among FTAI, the Company and Merger Sub, a copy of which is attached hereto as Annex A, as the same may be amended or supplemented from time to time;
references herein to the “merger” are to the merger of Merger Sub with and into FTAI, with FTAI surviving the merger as a wholly-owned subsidiary of the Company, and with holders of FTAI common shares receiving newly issued ordinary shares of the Company and holders of FTAI Preferred Shares receiving newly issued preferred shares of the Company, as contemplated by the merger agreement; and
references herein to “we,” “us” or “our” or to “our company,” unless otherwise indicated, are to FTAI before completion of the merger, and to the Company and its subsidiaries after the completion of the merger.
Q:
On what matters am I being asked to vote?
A:
You are being asked to consider and vote on the following proposals:
A proposal to approve and adopt the merger agreement and approve the merger, which, among other things, provides for the merger of Merger Sub with and into FTAI, with FTAI surviving the merger and becoming a wholly-owned subsidiary of the Company, and with:
i.
holders of FTAI common shares receiving newly issued ordinary shares of the Company;
ii.
holders of 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series A Preferred Shares”) receiving 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series A Preferred Shares”);
iii.
holders of 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series B Preferred Shares”) receiving 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series B Preferred Shares”); and
iv.
holders of 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of FTAI (the “FTAI Series C Preferred Shares” and collectively with the FTAI Series A Preferred Shares and the FTAI Series B Preferred Shares, the “FTAI Preferred Shares”) receiving 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Share of the Company (the “Company Series C Preferred Shares”) with the FTAI Preferred Shares to remain outstanding and owned by the Company,
— we refer to this proposal as the “merger proposal.”
A proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, FTAI is not authorized to consummate the merger — we refer to this proposal as the “adjournment proposal.”
If the merger is approved, pursuant to the merger agreement, Merger Sub will merge with and into FTAI, with FTAI surviving the merger as a wholly-owned subsidiary of the Company. In the merger, (i) each FTAI common share will be exchanged for one ordinary share of the Company, (ii) each outstanding FTAI Series A Preferred Share will be exchanged for one Company Series A Preferred Share; (iii) each outstanding FTAI Series B Preferred Share will be exchanged for one Company Series B Preferred Share and (iv) each outstanding FTAI Series C Preferred Share will be exchanged for one Company Series C Preferred Share, with such preferred shares having substantially equivalent rights as compared to the rights of such FTAI preferred share immediately prior to closing. The Company
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will become a publicly traded company and FTAI will become a wholly-owned subsidiary of the Company. The shares will be exchanged automatically without any further action from the shareholders. The ordinary shares and preferred shares of the Company are expected to continue to trade on Nasdaq under the existing ticker symbols “FTAI,” “FTAIP,” “FTAIO” and “FTAIN,” respectively.
If the merger proposal is approved, the adjournment proposal will not be presented at the special meeting. If the merger proposal is not approved and the adjournment proposal is approved, the FTAI board of directors may adjourn the special meeting to a later date to permit further solicitation of proxies in favor of approval and adoption of the merger agreement and approval of the merger. Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement. FTAI is holding the special meeting to obtain approval of the merger proposal and, if presented, the adjournment proposal. The enclosed proxy card or voting instruction card allows you to vote your FTAI common shares without attending the special meeting.
Q:
When and where is the special meeting?
A:
The special meeting is scheduled to be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, New York 10001, on November 9, 2022 at 8:00 a.m., local time. Even if you plan to attend the special meeting virtually, FTAI recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the special meeting via the special meeting website. If your shares of FTAI common shares are held in street name and you wish to vote your shares at the special meeting via the special meeting website, you must have your specific 16-digit control number, which is included on your proxy card or the voting instruction form from your bank, broker, trustee or other nominee. Please contact your bank, broker, trustee or other nominee to obtain further instructions.
Q:
Who is entitled to vote at the special meeting?
A:
The board of directors of FTAI has fixed October 6, 2022 as the record date for the special meeting. If you were a FTAI shareholder at the close of business on the record date, you are entitled to vote your FTAI shares at the special meeting.
Q:
What is a proxy?
A:
A stockholder’s legal designation of another person to vote shares of such stockholder’s common stock at a special meeting is referred to as a proxy. The document used to designate a proxy to vote your shares of FTAI common shares is referred to as a proxy card.
Q:
What constitutes a quorum for the special meeting?
A:
A majority of the outstanding common shares of FTAI entitled to vote, present at the special meeting in person or by proxy, will constitute a quorum for the special meeting.
Q:
Will the newly issued Company ordinary shares or preferred shares that I receive in the merger be publicly traded?
A:
Yes. The ordinary shares of the Company, the Company Series A Preferred Shares, the Company Series B Preferred Shares and the Company Series C Preferred Shares each to be issued in the merger will be listed for trading on the Nasdaq under the symbols “FTAI,” “FTAIP,” “FTAIO” and FTAIN,” respectively.
Q:
Who can attend the special meeting?
A:
All holders of FTAI common shares and FTAI Preferred Shares as of the record date may attend the special meeting, however only holders of FTAI common shares can vote at the special meeting. If you are a beneficial owner of FTAI common shares held in street name and you wish to attend the special meeting, you must provide evidence of your ownership of FTAI shares, which you can obtain from your broker, banker or nominee.
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Q:
How many votes do I have as a holder of FTAI common shares?
A:
You are entitled to one vote at the special meeting for each common share of FTAI that you owned as of the record date. As of the close of business on the record date, there were approximately 99,378,771 common shares of FTAI outstanding.
Q:
Will holders of FTAI Preferred Shares be entitled to vote on the merger proposal at the special meeting?
A:
No. The holders of FTAI Preferred Shares do not have voting rights with respect to the merger proposal that will be considered at the special meeting. Holders of FTAI Preferred Shares will not be entitled to vote at the special meeting, and should not submit a proxy card with respect to the special meeting or otherwise attempt to vote with respect to their FTAI Preferred Shares.
Q:
What vote is required to approve the proposals being presented at the special meeting?
A:
Merger Proposal: The approval of the merger proposal requires the affirmative vote for the proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon.
Adjournment Proposal: Approval of the adjournment proposal, if presented, requires the affirmative vote of the holders of a majority of the votes cast by holders present in person or represented by proxy at the meeting and entitled to vote thereon. Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement.
The current officers and directors of FTAI have indicated their intention to vote in favor of the matters presented at the special meeting.
Q:
What if my bank, broker or other nominee holds my shares of FTAI in “street name”?
A:
If a bank, broker or other nominee holds your FTAI shares for your benefit but not in your own name, your FTAI shares are in “street name.” In that case, your bank, broker or other nominee will send you a voting instruction form to use for your FTAI shares. The availability of telephone and Internet voting depends on the voting procedures of your bank, broker or other nominee. Please follow the instructions on the voting instruction form they send you. If your FTAI shares are held in the name of your bank, broker or other nominee and you wish to vote in person at the special meeting, you must contact your bank, broker or other nominee and request a document called a “legal proxy.”
Q:
How do I vote?
A:
After reading and carefully considering the information contained in or incorporated by reference in this proxy statement/prospectus, please vote promptly. In order to ensure your vote is recorded, please submit your proxy or voting instructions as set forth below as soon as possible even if you plan to attend the special meeting.
Internet. You can vote over the internet by following the instructions provided on your proxy card. If you vote over the internet, do not return your proxy card. The availability of internet voting for beneficial owners holding FTAI shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.
Telephone. You can vote by telephone by following the instructions provided on your proxy card. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card. The availability of telephone voting for beneficial owners holding FTAI shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.
Mail. You can vote by mail by simply completing, signing, dating and mailing your proxy card or voting instruction card in the postage-paid envelope included with this proxy statement/prospectus.
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In addition, all FTAI shareholders may vote in person at the special meeting. You may also be represented by another person at the special meeting by executing a proper proxy designating that person. If you are a beneficial owner of FTAI shares held in street name, you must obtain a legal proxy from your broker, bank or nominee and present it to the inspectors of election with your ballot when you vote at the special meeting. You must also contact our Investor Relations department to obtain an admission card, and present this admission card, alongside an acceptable form of photo identification (such as a driver's license) to the inspector of elections.
For additional information on voting procedures, see “Special Meeting of FTAI Shareholders — Voting Your Shares,” beginning on page 49.
Q:
What do I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your FTAI shares in more than one brokerage account, you will receive a separate instruction card for each brokerage account in which you hold shares. If you are a holder of record and your FTAI shares are held in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card you receive, or you may cast your vote by telephone or Internet by following the instructions on your proxy card.
Q:
How will my proxy be voted?
A:
If you vote by Internet, by telephone or by completing, signing, dating and mailing your proxy card or voting instruction card, your FTAI shares will be voted in accordance with your instructions. If you are a shareholder of record and you sign, date, and return your proxy card but do not indicate how you want to vote with respect to a proposal and do not indicate that you wish to abstain with respect to that proposal, your FTAI shares will be voted in favor of that proposal.
Q:
What is a “broker non-vote”?
A:
Under the Nasdaq rules, banks, brokers and other nominees may use their discretion to vote “uninstructed” shares (i.e., shares of record held by banks, brokers or other nominees, but with respect to which the beneficial owner of such shares has not provided instructions on how to vote on a particular proposal) with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. All the proposals currently scheduled for consideration at the special meeting are “non-routine” matters.

A “broker non-vote” occurs on an item when (a) a bank, broker or other nominee has discretionary authority to vote on one or more proposals to be voted on at a meeting of stockholders, but is not permitted to vote on other proposals without instructions from the beneficial owner of the shares and (b) the beneficial owner fails to provide the bank, broker or other nominee with such instructions. Because none of the proposals currently scheduled to be voted on at the special meeting are routine matters for which brokers may have discretionary authority to vote, FTAI does not expect there to be any broker non-votes at the special meeting.
Q:
How are abstentions and broker non-votes treated?
A:
Abstentions will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but broker non-votes will not be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. For purposes of approval, an abstention, broker non-vote or failure to vote will have the same effect as a vote against the merger proposal and will have no effect on the adjournment proposal.

For more information, see “Special Meeting of FTAI Shareholders — Abstentions and Broker Non-Votes” beginning on page 48.
Q:
Can I change my vote after I have submitted a proxy or voting instruction card?
A:
Yes. If you are a shareholder of record, you can change your vote at any time before your proxy is voted at the special meeting. If you are a beneficial owner of FTAI shares held in street name, you
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should follow the instructions of your broker, bank or nominee to change your vote. For additional information on changing your vote, see “Special Meeting of FTAI Shareholders — Revoking Your Proxy” beginning on page 49.
Q:
Where can I find the voting results of the special meeting?
A:
The preliminary voting results for the special meeting will be announced at the special meeting. In addition, within four business days following certification of the final voting results, the Company intends to file the final voting results of its special meeting with the SEC on a Current Report on Form 8-K.
Q:
What happens if I fail to take any action with respect to the meeting?
A:
If you fail to take any action with respect to the meeting and the merger is approved by FTAI’s shareholders and consummated, you will become a shareholder of the Company.

The current officers and directors of FTAI have indicated their intention to vote in favor of the matters presented at the special meeting.
Q:
Are FTAI shareholders entitled to exercise dissenters’ or appraisal rights in connection with the merger?
A:
No. Holders of FTAI common and preferred shares are not entitled to appraisal or dissenters’ rights under Delaware law in connection with the merger. If FTAI shareholders are not in favor of the merger, they may vote against or choose to abstain from voting on the merger proposal. Information about how FTAI shareholders may vote on the proposals being considered in connection with the merger can be found under “Special Meeting of FTAI Shareholders.”
Q:
How does the board of directors of FTAI recommend that I vote with respect to the proposed merger and, if presented, the adjournment proposal being presented at the special meeting?
A:
FTAI’s board of directors recommends that the shareholders of FTAI vote “FOR” the merger proposal and, if presented, the adjournment proposal being presented at the special meeting. Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement. Additional information on the recommendation of FTAI’s board of directors is set forth in “Special Meeting of FTAI Shareholders — Recommendation of FTAI Board of Directors” beginning on page 48.
Q:
What are the United States federal income tax considerations of the merger to holders of FTAI shares?
A:
The receipt of the Company shares in exchange for FTAI shares pursuant to the merger is generally not expected to be a taxable transaction for U.S. federal income tax purposes, except to the extent that your basis in the FTAI shares is less than the amount of FTAI liabilities allocated to you immediately prior to the merger. See U.S. Federal Income Tax Considerations of the Merger.” Certain transactions effected as part of the internal restructuring transactions undertaken by FTAI subsidiaries in anticipation of the merger (the “Restructuring Transactions”) are expected to generate income or gain that is taxable to holders of FTAI shares. The specific tax consequences of the merger and the Restructuring Transactions to you will depend upon your own personal circumstances. You should consult your tax advisors for a full understanding of the U.S. federal, state, local, foreign and other tax consequences of the merger and the Restructuring Transactions to you.

For further information, see the section entitled “U.S. Federal Income Tax Considerations of the Merger” beginning on page 15.
Q:
What are the conditions to completion of the merger?
A:
The merger is subject to a number of conditions to closing as specified in the merger agreement. These closing conditions include, among others, holders of FTAI common shares having approved the
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merger, the registration statement of which this proxy statement/prospectus forms a part having been declared effective, and all necessary authorizations under the Securities Act and Exchange Act relating to the issuance and trading of the Company ordinary shares to be issued under the merger agreement having been obtained and being in effect.

In addition, prior to the consummation of the merger, the Partnership will convert into a Delaware limited liability company and merge with and into the Company, with the Company surviving the merger and being renamed “FTAI Aviation Ltd.,” and the equityholders of the Partnership, being FTAI and Fortress Worldwide Transportation and Infrastructure Master GP LLC (the “Master GP”), receiving ordinary shares of the Company in exchange for their interests of the Partnership (the “Holdco Merger”).

In connection with the Holdco Merger, each of FTAI’s 99.9% interest and the Master GP’s 0.01% interest in the Partnership will be exchanged pro rata for Company ordinary shares and the number of ordinary shares of the Company owned by FTAI will correspond to the equivalent number of common shares of FTAI owned by FTAI’s public common shareholders. Prior to the merger of FTAI and Merger Sub, the Company’s shares will be recapitalized (i) to authorize and designate Company preferred shares consisting of Company Series A Preferred Shares, Company Series B Preferred Shares and Company Series C Preferred shares, with such series of preferred shares having substantially equivalent rights as compared to the rights of the equivalent classes of FTAI preferred shares immediately prior to closing (and pursuant to the merger, (a) each FTAI common share will be exchanged for one ordinary share of the Company, (b) each outstanding FTAI Series A Preferred Share will be exchanged for one Company Series A Preferred Share; (c) each outstanding FTAI Series B Preferred Share will be exchanged for one Company Series B Preferred Share and (d) each outstanding FTAI Series C Preferred Share will be exchanged for one Company Series C Preferred Share) and (ii) FTAI’s 99.9% interest and the Master GP’s 0.01% interest in the Company prior to the recapitalization is maintained (the “recapitalization”). Following the Holdco Merger and recapitalization, (i) FTAI will hold one ordinary share of the Company and for each common FTAI share held by FTAI’s public common shareholders and (ii) the Master GP will hold 0.01% of the outstanding ordinary shares of the Company.

If the merger is approved, FTAI’s public common shareholders will not need to take any action in connection with the recapitalization or merger. At the time of the recapitalization, the Company will be a subsidiary of FTAI and Master GP, and FTAI will be held by its public shareholders. Following the recapitalization and pursuant to the merger, shares of FTAI will be exchanged automatically for shares of the Company without any further action from the shareholders and FTAI will become a subsidiary of the Company. Following the merger, the ordinary shares and preferred shares of the Company are expected to continue to trade on Nasdaq under the existing ticker symbols “FTAI,” “FTAIP,” “FTAIO” and “FTAIN,” respectively.
Q:
When do you expect the merger to be completed?
A:
The merger is expected to close promptly after the special meeting. However, it is possible that factors outside the control of FTAI could result in the merger being completed at a later time, or not at all.
Q:
Are there any risks that I should consider?
A:
Yes. There are risks associated with all reorganization transactions, including the proposed merger. There are also risks associated with the Company’s business and the ownership of the Company shares. We have described certain of these risks and other risks in more detail under “Risk Factorsbeginning on page 19.
Q:
Where can I find more information about FTAI?
A:
FTAI files periodic reports and other information with the SEC. You may read and copy this information at the SEC’s public reference facility. Please call the SEC at 1-800-SEC-0330 for information about this facility. FTAI’s SEC filings are also available at the SEC’s website at http://www.sec.gov.
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Q:
Who can answer my questions I may have about the special meeting or the merger?
A:
If you have more questions about the merger, please call Alan Andreini, Investor Relations of FTAI at (212) 798-6128 or email aandreini@fortress.com.
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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the special meeting, including the merger proposal, you should read this entire document carefully, including the merger agreement attached as Annex A to this proxy statement/prospectus. The merger agreement is the legal document that governs the merger and the other transactions that will be undertaken in connection with the merger. It is also described in detail in this proxy statement/prospectus in the section entitled “The Merger Proposal.”
The Parties
Fortress Transportation and Infrastructure Investors LLC
Fortress Transportation and Infrastructure Investors LLC, a Delaware limited liability company, was formed on February 19, 2014. FTAI’s business has been acquiring, managing and disposing of transportation and transportation-related infrastructure and equipment assets.
FTAI is externally managed by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), which has a dedicated team of experienced professionals focused on the acquisition of transportation and infrastructure assets since 2002. On December 27, 2017, SoftBank Group Corp. (“SoftBank”) acquired Fortress (the “SoftBank Merger”). In connection with the SoftBank Merger, Fortress operates within SoftBank as an independent business headquartered in New York. Fortress is a leading, highly diversified global investment manager with approximately $44.4 billion of assets under management as of June 30, 2022.
On August 1, 2022, FTAI completed a spin-off of its infrastructure business pursuant to which it distributed all of the shares owned by FTAI of common stock of FTAI Infrastructure Inc. (“FTAI Infrastructure”), a majority-owned subsidiary of FTAI, to FTAI shareholders as of July 21, 2022, the record date of the distribution. The common stock of FTAI Infrastructure trades on The Nasdaq Global Select Market under the symbol “FIP.”
Following the spin-off of FTAI Infrastructure, FTAI owns and acquires high quality aviation and offshore equipment assets that are essential for the transportation of goods and people globally. FTAI targets assets that, on a combined basis, generate strong cash flows with potential for earnings growth and asset appreciation. FTAI believes that there are a large number of acquisition opportunities in our markets and that FTAI’s Manager’s expertise and business and financing relationships, together with FTAI’s access to capital, will allow FTAI to take advantage of these opportunities. As of June 30, 2022, on a pro forma basis after giving effect to the spin-off transaction, FTAI had total consolidated assets of $2,321.9 million and total equity of $61.9 million.
FTAI’s operations consist of two primary strategic business units — Aviation and Offshore Leasing. Our Aviation Leasing Business acquires assets that are designed to carry cargo or people. Aviation equipment assets are typically long-lived, moveable, and leased by us on either operating leases or finance leases to companies that provide transportation services. FTAI’s Offshore Leasing Business acquires assets, which consist of vessels and equipment that support offshore oil and gas activities and production which are typically subject to operating leases. Our leases generally provide for long-term contractual cash flow with high cash-on-cash yields and include structural protections to mitigate credit risk.
FTAI Finance Holdco Ltd.
FTAI Finance Holdco Ltd. (to be known as FTAI Aviation Ltd. following the Holdco Merger), a Cayman Islands exempted company and, prior to the consummation of the Holdco Merger, a subsidiary of Fortress Worldwide Transportation and Infrastructure General Partnership, a Delaware general partnership, that owns the equity interests of certain aviation assets of FTAI and, immediately prior to the merger, will own equity interests of certain offshore equipment assets of FTAI.
FTAI Aviation Merger Sub LLC
Merger Sub is a wholly-owned subsidiary of the Company formed solely for the purpose of effecting the merger with FTAI described herein. Merger Sub owns no material assets and does not operate any business. Merger Sub was incorporated as a limited liability company under the laws of Delaware on August 11, 2022.
The mailing address of Merger Sub’s principal executive office is c/o Fortress Investment Group LLC, 1345 Avenue of the Americas, 45th Floor, New York, New York 10105 and its telephone number is (212) 798-6100. After the consummation of the merger, Merger Sub will cease to exist.
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The Merger Proposal
Overview
The merger agreement provides for a reorganization transaction by means of the merger of Merger Sub with and into FTAI, with FTAI surviving and becoming a wholly-owned subsidiary of the Company.
Pursuant to the merger agreement:
a)
holders of FTAI common shares will receive newly issued ordinary shares of the Company;
b)
holders of the FTAI Series A Preferred Shares will receive the Company Series A Preferred Shares;
c)
holders of the FTAI Series B Preferred Shares will receive the Company Series B Preferred Shares; and
d)
holders of the FTAI Series C Preferred Shares will receive the Company Series C Preferred Shares.
The parties to the merger agreement plan to complete the merger promptly after the special meeting; provided that FTAI’s shareholders have approved the merger proposal and the other conditions specified in the merger agreement have been satisfied or waived. The current officers and directors of FTAI have indicated their intention to vote in favor of the matters presented at the special meeting.
As a result of the merger, (i) the Company will become a new publicly traded company, and (ii) FTAI will become a wholly-owned subsidiary of the Company, with the Company holding FTAI’s outstanding Preferred Shares. See the section entitled “The Merger Proposal” for further discussion of the terms of the merger agreement and merger.
The Adjournment Proposal
If, based on the tabulated vote, there are not sufficient votes at the time of the special meeting to authorize FTAI to consummate the merger, FTAI’s board of directors may submit a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies. See the section entitled “The Adjournment Proposal.” Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement.
Date, Time and Place of Special Meeting of FTAI’s Shareholders
The special meeting of the shareholders of FTAI will be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, New York 10001 on November 9, 2022 at 8:00 a.m., local time, to consider and vote upon the merger proposal and, if presented, the adjournment proposal to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, FTAI is not authorized to consummate the merger. See the section entitled “Special Meeting of FTAI Shareholders.”
Voting Power; Record Date
Shareholders will be entitled to vote or direct votes to be cast at the special meeting if they owned common shares of FTAI at the close of business on October 6, 2022, which is the record date for the special meeting. Shareholders will have one vote for each common share of FTAI owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were 99,378,771 common shares of FTAI outstanding. See “Special Meeting of FTAI Shareholders — Record Date; Who is Entitled to Vote.”
Quorum and Vote of FTAI Shareholders
A quorum of FTAI shareholders is necessary to hold a valid meeting. A quorum will be present at the FTAI special meeting if a majority of the outstanding shares entitled to vote at the meeting are represented in person or by proxy. The approval of the merger proposal requires the affirmative vote for the proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon. The approval of the adjournment proposal, if presented, requires the affirmative vote of the holders of a majority of the votes cast by holders present in person or represented by proxy at the meeting and entitled to vote thereon. The chairperson of the special meeting
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may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement. Abstentions will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but broker non-votes will not be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. See “Special Meeting of FTAI Shareholders — Quorum; Vote Required.”
Appraisal Rights
FTAI shareholders are not entitled to appraisal of their shares or dissenters’ rights under Delaware law in connection with the merger. See “Special Meeting of FTAI Shareholders — Appraisal Rights.”
Revoking Your Proxy
If a shareholder grants a proxy, the shareholder may revoke it at any time before it is exercised by sending another proxy card with a later date; notifying FTAI’s Chief Executive Officer in writing before the special meeting that the proxy is revoked; or attending the special meeting and voting in person or revoking the proxy. See “Special Meeting of FTAI Shareholders — Revoking Your Proxy.”
Interests of FTAI’s Directors and Officers in the Merger
When you consider the recommendation of FTAI’s board of directors in favor of approval of the merger proposal, you should keep in mind that FTAI’s directors and executive officers have interests in such proposal that are different from, or in addition to, your interests as a shareholder.
The existence of the financial and personal interests of the FTAI directors may result in a conflict of interest on the part of one or more of them between what he or she may believe is best for FTAI and what he or she may believe is best for himself or herself in determining whether or not to grant a waiver in a specific situation. See the section entitled “Risk Factors” for a fuller discussion of this and other risks.
FTAI’s board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and in recommending the merger proposal. These interests are described in more detail in the section entitled “The Merger Proposal — FTAI’s Board of Directors’ Reasons for Approval of the Merger.”
Recommendation of FTAI’s Board of Directors
After careful consideration of the matters described above, FTAI’s board of directors determined unanimously that the merger proposal and, if presented, the adjournment proposal, to be presented at the special meeting are fair to and in the best interest of FTAI’s shareholders. FTAI’s board of directors has approved and declared advisable and unanimously recommend that you vote or give instructions to vote “FOR” the merger proposal and “FOR” the adjournment proposal, if presented.
The discussion herein of the information and factors considered by the FTAI board of directors is not meant to be exhaustive, but includes the material information and factors considered by the FTAI board of directors. Additional information on the recommendation of FTAI’s board of directors is set forth in “Special Meeting of FTAI Shareholders — Recommendation of FTAI Board of Directors” beginning on page 48.
Recommendation to Shareholders
FTAI’s board of directors believes that the merger proposal and, if presented, the adjournment proposal, to be presented at the special meeting are fair to and in the best interest of FTAI’s shareholders and unanimously recommends that its shareholders vote “FOR” the merger proposal and “FOR” the adjournment proposal, if presented.
Conditions to the Closing of the Merger
General Conditions
Consummation of the merger is conditioned on the holders of FTAI common shares having approved the merger, the registration statement of which this proxy statement/prospectus forms a part having been declared effective, and all necessary authorizations under the Securities Act and Exchange Act relating to the issuance and trading of the Company ordinary shares to be issued under the merger agreement having been obtained and being in effect. See “The Merger Proposal — Conditions to Closing of the Merger.”
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In addition, prior to the consummation of the merger, the Holdco Merger shall be consummated.
Termination
The merger agreement may be terminated at any time, but not later than the closing, by mutual written agreement of FTAI and the Company. See “The Merger Proposal — Termination.”
U.S. Federal Income Tax Considerations of the Merger
The following is a summary of U.S. federal income tax considerations generally applicable to the merger, and in particular the exchange of FTAI shares for Company shares. For purposes of this section under this heading “—U.S. Federal Income Tax Considerations of the Merger”, references to “FTAI” mean only FTAI and not its subsidiaries or other lower-tier entities, except as otherwise indicated.
The information in this summary is based on the Code; current regulations promulgated by the U.S. Treasury Department (“Treasury Regulations”); the legislative history of the Code; current administrative interpretations and practices of the IRS; and court decisions; all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax considerations described below. The summary is also based upon the assumption that FTAI, the Company, and their respective subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents or partnership agreements and the agreements and other documents applicable to the merger and the Restructuring Transactions. This summary is for general information only and is not legal or tax advice. The Code provisions applicable to the merger and the Restructuring Transactions are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof. The U.S. federal income tax treatment of the merger and the Restructuring Transactions will depend in some instances on determinations of fact and interpretations of U.S. federal income tax law for which no clear precedent or authority may be available. Moreover, this summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:
financial institutions;
insurance companies;
broker-dealers;
regulated investment companies;
partnerships and trusts;
expatriates or former long-term residents of the United States;
persons who receive FTAI shares through the exercise of stock options (including tandem options) or otherwise as compensation;
persons holding FTAI shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;
persons who hold (actually or constructively) 10% or more of the vote or value of FTAI;
tax-exempt organizations; and
foreign investors.
This summary assumes that investors hold their FTAI shares and will hold their Company shares as capital assets, which generally means property held for investment. This summary also assumes that investors will hold their FTAI shares at all times from the record date through the date to the merger. Special rules may apply to determine the tax considerations for an investor that purchases or sells FTAI shares between the record date and the merger date. You are urged to consult your tax advisor regarding the consequences to you of any such sale.
For purposes of this discussion under this heading “U.S. Federal Income Tax Considerations of the Merger,” a “U.S. Holder” is an FTAI shareholder that is for U.S. federal income tax purposes:
a citizen or resident of the United States;
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a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;
an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or
a trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person.
A “Non-U.S. Holder” is an FTAI shareholder that is neither a U.S. Holder nor a partnership (or other entity or arrangement treated as a partnership) for U.S. federal income tax purposes. If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, holds FTAI shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax considerations of the merger and the Restructuring Transactions.
Tax Treatment of the Merger to U.S. Holders
The following discussion describes the U.S. federal income tax considerations for a U.S. Holder of FTAI shares of the merger.
Skadden has delivered and expects to deliver an opinion that the merger should be treated as a distribution by FTAI to its shareholders of Company shares within the meaning of Section 731(a) of the Code in which gain or loss is generally not recognized. Notwithstanding our conclusion and as discussed below, shareholders may recognize income or gain as a result of the deemed distribution described below, and certain shareholders may recognize income, gain or loss in connection with the merger as a result of their particular facts and circumstances, as described below. Such opinions are subject to customary exceptions, assumptions, and qualifications, and are conditioned on the accuracy, as of the date of the merger agreement and as of the closing time of the merger, of representations made by FTAI, the Partnership, and the Company regarding factual matters. If any assumption or representation is inaccurate in any way, or any covenant is not complied with, the tax consequences of the merger could differ from those described in the tax opinion and in this discussion. These tax opinions will represent the legal judgment of counsel rendering the opinion and are not binding on the IRS or the courts; there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to the conclusions set forth in the tax opinion. This discussion assumes that the merger will be treated as a distribution within the meaning of Section 731(a) of the Code.
Subject to the discussions below of shareholders whose allocable share of FTAI liabilities exceeds their basis in their FTAI shares, the rules governing distributions of “marketable securities,” and the “disguised sale” rules, the receipt of Company shares is generally not expected to be a taxable event for U.S. Holders. The merger is intended to be treated as a liquidation of FTAI in which FTAI is treated as distributing to its shareholders all of its shares of the Company. The holding period for the Company shares received in the merger will take into account FTAI’s holding period with respect thereto. An FTAI shareholder’s basis in the Company shares received in the merger will equal such shareholders’ basis in its FTAI shares immediately prior to the merger (as adjusted to reflect the assumption of FTAI's liabilities by the Company, as discussed below) without regard to FTAI’s basis in the corresponding Company shares. Although FTAI does not intend to report the spin-off of FTAI Infrastructure Inc. on August 1, 2022, as part of this liquidating distribution, if such position were successfully challenged, it could result in a different allocation of basis between an FTAI common shareholder's FTAI Infrastructure Inc. stock and its Company shares.
As a result of the Company's assumption of FTAI liabilities for U.S. federal income tax purposes in the merger, described further below, each FTAI shareholder will be treated as receiving a cash distribution from FTAI in the amount of such shareholder’s allocable share of such liabilities, which distribution will reduce the shareholders' basis in its FTAI shares (but not below zero) and, to the extent that such deemed distribution exceeds a U.S. Holder's adjusted tax basis in its FTAI shares immediately prior to the merger, it will generally be treated as gain from the sale or exchange of its FTAI shares. Such gain would generally be treated as capital gain and would be long-term capital gain to the extent the shareholder’s holding period for its FTAI shares exceeds one year.
Under Section 731(c) of the Code, a partnership’s distribution of “marketable securities” to a partner is generally treated as a distribution of cash, which would generally be taxable to the extent that such distribution
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exceeds the partner’s adjusted tax basis in its partnership interest. Although Company shares will be considered “marketable securities” under Section 731(c) immediately following the merger, FTAI anticipates that certain exceptions to these rules should apply to the distribution in connection with the merger such that the distribution in general should not trigger gain recognition under these rules.
Under Section 707(a) of the Code, a transfer of money or property by a partner to a partnership followed by a related transfer of property by the partnership to the partner is treated as a disguised sale if (i) the second transfer would not have occurred but for the first transfer and (ii) the second transfer is not dependent on the entrepreneurial risks of the partnership’s operations. Transfers of money or other property between a partnership and a partner that are made within two years of each other must be reported to the IRS and are presumed to be a disguised sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale.
Under these rules, it is possible that the IRS could assert that the distribution of Company shares by FTAI or the Partnership in connection with the merger, together with contributions of cash to FTAI by certain holders, or to the Partnership by FTAI, in the two years preceding the merger, should be treated as a sale of property to such contributing holders. FTAI intends to take the position that the facts and circumstances establish the absence of a sale in connection with the merger. Nevertheless, in light of the lack of directly applicable authority, there can be no assurance that the disguised sale rules will not apply. If FTAI’s position were successfully challenged, holders who purchased FTAI shares for cash from FTAI in the two years preceding the merger would be treated for U.S. federal income tax purposes as if they had purchased Company shares in exchange for cash. Similar treatment could apply to contributions by FTAI to the Partnership in the two years preceding the merger. In that case, FTAI or the Partnership, as applicable, would generally be required to recognize gain or loss, which gain would be allocated to all of its holders. U.S. Holders are urged to consult their tax advisors with respect to the potential disguised sale of the Company shares.
In addition, as a result of the merger, the Company will be deemed to assume FTAI’s outstanding liabilities for U.S. federal income tax purposes, which assumption is expected to be treated as a distribution from the Company to FTAI immediately prior to FTAI’s deemed liquidation. Such distribution will constitute a dividend for U.S. federal income tax purposes to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), except for the portion of such distribution that is treated as paid out of earnings and profits that have been previously taxed under subpart F of the Code, which would generally not constitute dividend income upon distribution. Thereafter, the distribution will constitute a return of capital to the extent of FTAI’s tax basis in the Company shares on which the distribution was made, and then as gain from the sale or exchange of such shares. U.S. Holders may be subject to U.S. federal, state or local income taxation on their allocable share of FTAI’s items of income or gain realized in connection with such distribution, which could result in an increase in the U.S. Holders’ basis in their FTAI shares.
Tax Treatment of the Merger to Non-U.S. Holders
The following discussion describes the U.S. federal income tax considerations for a Non-U.S. Holder of FTAI shares of the merger.
Except as described below, Non-U.S. Holders are generally not expected to be subject to U.S. federal income tax on the distribution of Company shares in the merger (and will generally be subject to the basis and holding period rules applicable to a U.S. Holder, as described above).
As a result of the merger, the Company will be deemed to assume FTAI’s outstanding liabilities for U.S. federal income tax purposes, which assumption is expected to be treated as a distribution from the Company to FTAI immediately prior to FTAI’s deemed liquidation. Such distribution will constitute a dividend for U.S. federal income tax purposes to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), except for the portion of such distribution that is treated as paid out of earnings and profits that have been previously taxed under subpart F of the Code, which would generally not constitute dividend income upon distribution. Thereafter, the distribution will constitute a return of capital to the extent of FTAI’s tax basis in the Company shares on which the distribution was made, and then as gain from the sale or exchange of such shares. Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received with respect to Company shares, unless that income is effectively connected with such Non-U.S. Holder's conduct of a trade or business in the United States.
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Withholding with respect to Non-U.S. Holders in the Merger
A Non-U.S. Holder generally is subject to withholding by FTAI or the applicable withholding agent of U.S. tax at a 30% rate on such Non-U.S. Holder’s distributive share of the gross amount of interest, dividends and other fixed or determinable annual or periodical income (“FDAP Income”) received by FTAI from sources within the United States if such income is not treated as effectively connected with a U.S. trade or business. Generally, a U.S. partnership that recognizes FDAP Income is required to withhold on each Non-U.S. Holder’s allocable share of such income at the time it makes a distribution to such Non-U.S. Holders. If any FDAP Income recognized by FTAI prior to the merger and allocable to a Non-U.S. Holder has not previously been subject to such withholding, FTAI or the applicable withholding agent may be required to deduct and withhold such tax at the time of the merger from such Non-U.S. Holder’s Company shares.
FTAI generally does not expect that withholding will be required in connection with the exchange of FTAI and Company shares in the merger. To the extent that any withholding is required on any amounts otherwise distributable to a Non-U.S. Holder in the merger, FTAI or other applicable withholding agents may collect the amount required to be withheld by converting to cash for remittance to the IRS a sufficient portion of Company shares that such Non-U.S. Holder would otherwise receive or may withhold from other property held in the Non-U.S. Holder’s account with the withholding agent, and such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. Holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the merger occurred.
Restructuring Transactions
As noted above, FTAI and its subsidiaries have engaged and intend to engage in certain Restructuring Transactions in connection with the merger. It is expected that FTAI will recognize certain items of income or gain as a result of certain of those transactions. Holders of FTAI shares may be subject to U.S. federal, state, local, or non-U.S. income taxation on their allocable share of FTAI’s items of income or gain realized in connection with the Restructuring Transactions, and Non-U.S. Holders may be subject to withholding tax, as described above.
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF THE POTENTIAL TAX CONSIDERATIONS APPLICABLE TO THE MERGER AND THE RESTRUCTURING TRANSACTIONS. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A HOLDER DEPENDING UPON THE HOLDER’S PARTICULAR SITUATION. EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF THE MERGER AND THE RESTRUCTURING TRANSACTIONS, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, ESTATE, FOREIGN AND OTHER TAX LAWS AND TAX TREATIES AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. OR OTHER TAX LAWS. NOTHING IN THIS SUMMARY IS INTENDED TO BE, OR SHOULD BE CONSTRUED AS, TAX ADVICE.
Regulatory Matters
The merger and the transactions contemplated by the merger agreement are not subject to any federal or state regulatory requirement or approval, except for filings with the State of Delaware necessary to effectuate the merger.
Risk Factors
In evaluating the proposals to be presented at the special meeting, a shareholder should carefully read this proxy statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors.”
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RISK FACTORS
In addition to the other information included in and found in the annexes attached to this proxy statement/prospectus, including the matters addressed in the “Cautionary Statement Regarding Forward-Looking Statements” on page 46, you should carefully consider the following risk factors in deciding whether to vote for the merger proposal and, if presented, the adjournment proposal, being presented at the special meeting. You should also read and consider the other information in this proxy statement/prospectus.
An investment in the Company’s shares involves a high degree of risk. If any of the following risks or uncertainties occurs, the Company’s business, financial condition and operating results could be materially and adversely affected. As a result, the trading price of its shares could decline and you may lose all or a part of your investment in the Company’s shares. You should carefully consider the following risks and other information in this proxy statement/prospectus in evaluating us and our shares. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition. The risk factors generally have been separated into the following categories: risks related to the merger; risks related to the Company’s business; risks related to our Manager; risks related to taxation and risks related to the Company’s shares. However, these categories do overlap and should not be considered exclusive.
Unless the context requires otherwise, references to “FTAI,” “we,” “our,” or “us” in this section are to the business and operations of FTAI prior to the merger which will be the business of the Company after the merger, and references to “Company” in this section are to the business and operations of the Company by virtue of the Company’s ownership of the business of FTAI after the merger.
Risks Related to the Merger
The consummation of the merger is subject to the satisfaction of certain closing conditions, including receipt of the requisite approval of the holders of FTAI common shares.
The merger and the other transactions are subject to a number of conditions. The obligation of each party to effect the merger and the other transactions is also subject to the condition that there is no legal prohibition against consummation of the transactions, that the Company’s ordinary shares be approved for listing on Nasdaq subject only to official notice of issuance thereof, receipt of the requisite approval of the holders of FTAI common shares and the continued effectiveness of the registration statement of which this proxy statement/prospectus is a part. There are no assurances that all conditions to effecting the merger and the other transactions will be satisfied or that the conditions will be satisfied in the time frame expected.
If the conditions to effect the merger and the other transactions are not satisfied (or are not waived, to the extent waivable), either FTAI or the Company, as applicable, may, subject to the terms and conditions of the merger agreement, terminate the merger agreement under certain circumstances. See the section of this proxy statement/prospectus entitled “Summary of the Proxy Statement/Prospectus – Termination.”
FTAI may be a target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the reorganization transaction from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into business combinations or merger agreements or similar agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on FTAI’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the merger or any other part of the transactions, then that injunction may delay or prevent the transactions from being completed. Currently, FTAI is not aware of any securities class action lawsuits or derivative lawsuits that have been filed in connection with the merger or any other part of the transactions.
Some of FTAI’s officers and directors may have conflicts of interest that may influence or have influenced them to support or approve the merger without regard to the interests of FTAI’s shareholders or in determining whether the Company is appropriate for FTAI’s merger.
The personal and financial interests of FTAI’s officers and directors may influence or have influenced their support for completing the merger and the Company’s operation following the merger.
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The transactions contemplated by the merger agreement provide that each of Messrs. Adams, Goodwin, Ms. Hannaway, Messrs. Levison, Nicholson, Robinson and Tuchman will be directors of the Company after the closing of the merger. As such, in the future each non-employee director will receive any cash fees, share options or share awards that the Company board of directors determines to pay to its non-employee directors.The total annual compensation generally payable by FTAI to its non-employee directors is $150,000. In addition, FTAI pays an annual fee to the chairperson of the Audit Committee of $10,000. See “Executive CompensationCompensation of Directors” for a more detailed discussion of FTAI’s current director compensation program.
FTAI has granted stock options to acquire FTAI common shares to its Manager, who may in turn assign a portion of the options to its employees, including our officers and directors. Any such “tandem options” assigned to employees of the Manager, including our officers and directors, correspond on a one-to-one basis with the options granted to the Manager, such that exercise by an employee or director of the tandem options would result in the corresponding option held by our Manager being cancelled.
The Manager (or its affiliate) holds 3,122,410 options, all of which are fully vested as of the date of the grant;
FTAI’s chief executive officer, Mr. Adams, holds 307,666 tandem options in various stages of vesting;
FTAI has granted stock options to acquire FTAI common stock to each of its non-employee directors, and each of the non-employee directors holds 5,000 fully vested director options; and
The affiliated director, Mr. Nicholson, holds 307,666 tandem options in various stages of vesting.
We cannot assure you that the Company’s ordinary shares and preferred shares will be approved for listing on Nasdaq or that FTAI will be able to comply with the continued listing standards of Nasdaq.
In connection with the closing, FTAI intends to list the Company’s (i) ordinary shares on Nasdaq under the ticker symbol “FTAI,” (ii) Company Series A Preferred Shares on Nasdaq under the ticker symbol “FTAIP,” (iii) Company Series B Preferred Shares on Nasdaq under the ticker symbol “FTAIO” and (iv) Company Series C Preferred Shares on Nasdaq under the ticker symbol “FTAIN.” If, after the merger, Nasdaq delists the Company’s ordinary shares or preferred shares from trading on its exchange for failure to meet the listing standards and FTAI is unable to list such securities on another national securities exchange, FTAI expects such securities could be quoted on an over-the-counter market. If this were to occur, FTAI and its shareholders could face significant material adverse consequences including, but not limited to:
a limited availability of market quotations for FTAI’s securities;
reduced liquidity for FTAI’s securities;
a determination that the Company’s ordinary shares or preferred shares are a “penny stock,” which will require brokers trading the Company’s ordinary shares or preferred shares, as applicable, to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the Company’s ordinary shares or preferred shares, as applicable;
a limited amount of news and analyst coverage; and/or
a decreased ability to issue additional securities or obtain additional financing in the future.
Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.
We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or officers, or enforce judgments obtained in the United States courts against our directors or officers.
Our corporate affairs will be governed by our amended and restated memorandum and articles of association to be adopted prior to the consummation of the merger (as amended from time to time, the “Articles”), the Companies Act (As Revised) of the Cayman Islands (the “Cayman Companies Act”) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively
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limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a federal court of the United States.
We have been advised by Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (1) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (2) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.
The Financial Action Task Force has increased monitoring of the Cayman Islands.
In February 2021, the Cayman Islands was added to the Financial Action Task Force (“FATF”) list of jurisdictions whose anti-money laundering/counter-terrorist and proliferation financing practices are under increased monitoring, commonly referred to as the “FATF grey list.” The FATF was established in July 1989 by a Group of Seven (G-7) Summit and is a task force composed of member governments who agree to fund the FATF on temporary basis with specific goals and projects – it is an international policy-making body that sets international anti-money laundering standards and counter-terrorist financing measures. The FATF monitors countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. In its October 2021 plenary, the FATF positively recognized the ongoing efforts of the Cayman Islands to improve its anti-money laundering and counter-terrorist financing regime. Despite the progress the Cayman Islands is making on satisfying the final outstanding recommendations (being considered as compliant or largely compliant with all of the FATF’s 40 recommendations and having completed 60 out of 63 FATF recommendation actions), it is still unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.
EU AML High-Risk Third Countries List
On March 13, 2022, the European Commission (“EC”) updated its list of 'high-risk third countries' (“EU AML List”) identified as having strategic deficiencies in their anti-money laundering/counter-terrorist financing regimes to add nine countries, including the Cayman Islands. The EC has noted it is committed to there being a greater alignment between the EU AML List and the FATF listing process. The addition of the Cayman Islands to the EU AML List is a direct result of the inclusion of the Cayman Islands on the FATF grey list in February 2021. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.
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Upon consummation of the merger, the rights of holders of Company ordinary shares arising under the Cayman Companies Act as well as the Articles will differ from and may be less favorable to the rights of holders of FTAI common shares arising under the DGCL as well as our current certificate of formation and fourth amended and restated limited liability company agreement.
Upon consummation of the merger, the rights of holders of Company ordinary shares will arise under the Articles as well as the Cayman Companies Act. Those Articles and the Cayman Companies Act contain provisions that differ in some respects from those in our current certificate of formation and fourth amended and restated limited liability company agreement and the DGCL and, therefore, some rights of holders of Company ordinary shares could differ from the rights that holders of FTAI common shares currently possess. For instance, while class actions are generally not available to shareholders under Cayman Companies Act, such actions are generally available under the DGCL. This change could increase the likelihood that the Company becomes involved in costly litigation, which could have a material adverse effect on the Company.
In addition, there are differences between the Articles and the current organizational documents of FTAI. For a more detailed description of the rights of holders of the Company ordinary shares and how they may differ from the rights of holders of FTAI common shares, please see “Comparison of Rights of FTAI Shareholders and Company Shareholders.” The form of the Proposed Amended and Restated Memorandum and Articles of Association of the Company to be adopted prior to the consummation of the merger is attached as Annex B, to this proxy statement/prospectus and we urge you to read them.
Risks Related to the Company’s Business
A pandemic, including COVID-19, could have an adverse impact on our business, financial condition, and results of operations.
In recent years, the outbreaks of certain highly contagious diseases have increased the risk of a pandemic resulting in economic disruptions. In particular, the ongoing COVID-19 pandemic has led to severe disruptions in the market and the global, U.S. and regional economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown. In response, various governmental bodies and private enterprises have implemented, and may in the future implement, numerous measures intended to mitigate the outbreak, such as travel bans and restrictions, quarantines, shutdowns and testing or vaccination mandates. The COVID-19 pandemic continues to be dynamic and evolving, including a resurgence of COVID-19 cases in certain geographies, and its ultimate scope, duration and impact, including the efficacy and availability of vaccines, remain uncertain.
The ongoing COVID-19 pandemic adversely affected the Company’s aviation business in several material ways during the years ended December 31, 2020 and 2021.
We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industries and customers, which in turn may impact our business, results of operations and financial condition. Effects of the current pandemic have included, or may in the future include, among others:
deterioration of worldwide, regional or national economic conditions and activity, which could adversely affect global demand for our services, and time charter and spot rates;
disruptions to our operations as a result of the potential health impact, such as the availability and efficacy of vaccines, on our employees and crews, and on the workforces of our customers and business partners;
disruptions to our business from, or additional costs related to, new regulations, directives or practices implemented in response to the pandemic, such as travel restrictions, increased inspection regimes, hygiene measures (such as quarantining and physical distancing) or increased implementation of remote working arrangements;
asset impairment charges and a decline in equipment leasing revenues;
a lack of air travel demand or an inability of airlines to operate to or from certain regions could impact demand for air travel and the financial health of certain airlines, including increasing the financial stress of our lessees;
any related off hire due to global supply chain disruptions resulting from quarantines, worker health, regulations or other impacts of the COVID-19 pandemic, which in turn could disrupt our operations and result in a reduction of revenue;
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potential shortages or a lack of access to required spare parts for our vessels, or potential delays in any repairs to, scheduled or unscheduled maintenance or modifications;
potential delays in vessel inspections and related certifications by class societies, customers or government agencies;
potential reduced cash flows and financial condition, including potential liquidity constraints;
reduced access to or increased cost of capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to continued declines in global financial markets, including potential interest rate increases and declines in the prices of publicly traded securities of us, our peers and of listed companies generally; and
potential deterioration in the financial condition and prospects of our customers, joint venture partners or business partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
As the COVID-19 pandemic continues to evolve, the extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to try and contain COVID-19 or treat its impact. We continue to monitor the pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, our plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows.
Uncertainty relating to macroeconomic conditions may reduce the demand for our assets, result in non-performance of contracts by our lessees or charterers, limit our ability to obtain additional capital to finance new investments, or have other unforeseen negative effects.
Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and commodity price volatility, historically have created difficult operating environments for owners and operators in the aviation and offshore equipment industries. Many factors, including factors that are beyond our control, may impact our operating results or financial condition and/or affect the lessees and charterers that form our customer base. For some years, the world has experienced weakened economic conditions and volatility following adverse changes in global capital markets. Excess supply in oil and gas markets can put significant downward pressure on prices for these commodities, and may affect demand for assets used in production, refining and transportation of oil and gas. In the past, a significant decline in oil prices has led to lower offshore exploration and production budgets worldwide. These conditions have resulted in significant contraction, deleveraging and reduced liquidity in the credit markets. Several governments have implemented, or are considering implementing, a broad variety of governmental actions or new regulations for the financial markets. In addition, limitations on the availability of capital, higher costs of capital for financing expenditures or the desire to preserve liquidity, may cause our current or prospective customers to make reductions in future capital budgets and spending.
Further, demand for our assets is related to passenger and cargo traffic growth, which in turn is dependent on general business and economic conditions. Global economic downturns could have an adverse impact on passenger and cargo traffic levels and consequently our lessees’ and charterers’ business, which may in turn result in a significant reduction in revenues, earnings and cash flows, difficulties accessing capital and a deterioration in the value of our assets. We have in the past been exposed to increased credit risk from our customers and third parties who have obligations to us, which resulted in non-performance of contracts by our lessees and adversely impacted our business, financial condition, results of operations and cash flows. We cannot assure you that similar loss events may not occur in the future.
Instability in geographies where we have assets or where we derive revenue could have a material adverse effect on our business, customers, operations and financial results.
Economic, civil, military and political uncertainty exists and may increase in regions where we operate and derive our revenue. Various countries in which we operate are experiencing and may continue to experience military action and civil and political unrest. We have assets in the emerging market economies of Eastern Europe, including some assets in Russia and Ukraine. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely. The impact to Russia and Ukraine, as well
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as actions taken by other countries, including new and stricter export controls and sanctions by Canada, the United Kingdom, the European Union, the U.S. and other countries and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, could have a material adverse effect on our business and delay or prevent us from accessing certain of our assets. We are actively monitoring the security of our remaining assets in the region.
The aviation and offshore industries have experienced periods of oversupply during which lease rates and asset values have declined, particularly during the most recent economic downturn, and any future oversupply could materially adversely affect our results of operations and cash flows.
The oversupply of a specific asset is likely to depress the lease rates for and the value of that type of asset and result in decreased utilization of our assets, and the industries in which we operate have experienced periods of oversupply during which rates and asset values have declined, particularly during the most recent economic downturn. Factors that could lead to such oversupply include, without limitation:
general demand for the type of assets that we purchase;
general macroeconomic conditions, including market prices for commodities that our assets may serve;
geopolitical events, including war, prolonged armed conflict and acts of terrorism;
outbreaks of communicable diseases and natural disasters;
governmental regulation;
interest rates;
the availability of credit;
potential reduced cash flows and financial condition, including potential liquidity constraints;
restructurings and bankruptcies of companies in the industries in which we operate, including our customers;
manufacturer production levels and technological innovation;
manufacturers merging or exiting the industry or ceasing to produce certain asset types;
retirement and obsolescence of the assets that we own;
increases in supply levels of assets in the market due to the sale or merging of operating lessors; and
reintroduction of previously unused or dormant assets into the industries in which we operate.
These and other related factors are generally outside of our control and could lead to persistence of, or increase in, the oversupply of the types of assets that we acquire or decreased utilization of our assets, either of which could materially adversely affect our results of operations and cash flow. In addition, aviation lessees may redeliver our assets to locations where there is oversupply, which may lead to additional repositioning costs for us if we move them to areas with higher demand. Positioning expenses vary depending on geographic location, distance, rates and other factors, and may not be fully covered by drop-off charges collected from the last lessees of the equipment or pick-up charges paid by the new lessees. Positioning expenses can be significant if a large portion of our assets are returned to locations with weak demand, which could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
The airline industry is heavily regulated, and if we fail to comply with applicable requirements, our results of operations could suffer.
The Federal Aviation Administration (“FAA”) and equivalent regulatory agencies have increasingly focused on the need to assure that airline industry products are designed with sufficient cybersecurity controls to protect against unauthorized access or other unwanted compromise. A failure to meet these evolving expectations could negatively impact sales into the industry and expose us to legal or contractual liability.
Governmental agencies throughout the world, including the FAA, prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies
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regulatory requirements in other countries. If any material authorization or approval qualifying us to supply our products is revoked or suspended, then sale of the product would be prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.
From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which often are more stringent than existing regulations. If such proposals are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition and results of operations.
Recent trends by China’s aviation authority to relax restrictions on airspace may be reversed, and anticipated new regulations loosening airspace restrictions may not materialize, which could impact sales prospects in China for our commercial aerospace businesses
The retirement or prolonged grounding of commercial aircraft could reduce our revenues and the value of any related inventory.
We sell aircraft components and replacement parts. If aircraft or engines for which we offer aircraft components and replacement parts are retired or grounded for prolonged periods of time and there are fewer aircraft that require these components or parts, our revenues may decline as well as the value of any related inventory.
Contractual defaults may adversely affect our business, prospects, financial condition, results of operations and cash flows by decreasing revenues and increasing storage, positioning, collection, recovery and lost equipment expenses.
The success of our business depends in large part on the success of the operators in the sectors in which we participate. Cash flows from our assets are substantially impacted by our ability to collect compensation and other amounts to be paid in respect of such assets from the customers with whom we enter into leases, charters or other contractual arrangements. Inherent in the nature of the leases, charters and other arrangements for the use of such assets is the risk that we may not receive, or may experience delay in realizing, such amounts to be paid. While we target the entry into contracts with credit-worthy counterparties, no assurance can be given that such counterparties will perform their obligations during the term of the leases, charters or other contractual arrangements. In addition, when counterparties default, we may fail to recover all of our assets, and the assets we do recover may be returned in damaged condition or to locations where we will not be able to efficiently lease, charter or sell them. In most cases, we maintain, or require our lessees to maintain, certain insurances to cover the risk of damages or loss of our assets. However, these insurance policies may not be sufficient to protect us against a loss.
Depending on the specific sector, the risk of contractual defaults may be elevated due to excess capacity as a result of oversupply during the most recent economic downturn. We lease assets to our customers pursuant to fixed-price contracts, and our customers then seek to utilize those assets to transport goods and provide services. If the price at which our customers receive for their transportation services decreases as a result of an oversupply in the marketplace, then our customers may be forced to reduce their prices in order to attract business (which may have an adverse effect on their ability to meet their contractual lease obligations to us), or may seek to renegotiate or terminate their contractual lease arrangements with us to pursue a lower-priced opportunity with another lessor, which may have a direct, adverse effect on us. See “—The industries in which we operate have experienced periods of oversupply during which lease rates and asset values have declined, particularly during the most recent economic downturn, and any future oversupply could materially adversely affect our results of operations and cash flows.” Any default by a material customer would have a significant impact on our profitability at the time the customer defaulted, which could materially adversely affect our operating results and growth prospects. In addition, some of our counterparties may reside in jurisdictions with legal and regulatory regimes that make it difficult and costly to enforce such counterparties’ obligations.
If we acquire a high concentration of a particular type of asset, or concentrate our investments in a particular sector, our business, prospects, financial condition, results of operations and cash flows could be adversely affected by changes in market demand or problems specific to that asset or sector.
If we acquire a high concentration of a particular asset, or concentrate our investments in a particular sector, our business and financial results could be adversely affected by sector-specific or asset-specific factors. If we acquire a high concentration of a particular asset and the market demand for a particular asset declines, it is redesigned or replaced by its manufacturer or it experiences design or technical problems, the value and rates relating to such asset
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may decline, and we may be unable to lease or charter such asset on favorable terms, if at all. Any decrease in the value and rates of our assets may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We operate in highly competitive markets.
The business of acquiring aviation and offshore energy equipment assets is highly competitive. Market competition for opportunities includes traditional transportation companies, commercial and investment banks, as well as a growing number of non-traditional participants, such as hedge funds, private equity funds and other private investors, including Fortress-related entities. Some of these competitors may have access to greater amounts of capital and/or to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have certain advantages not shared by us. In addition, competitors may have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us. Strong competition for investment opportunities could result in fewer such opportunities for us, as certain of these competitors have established and are establishing investment vehicles that target the same types of assets that we intend to purchase.
In addition, some of our competitors may have longer operating histories, greater financial resources and lower costs of capital than us, and consequently, may be able to compete more effectively in one or more of our target markets. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
Certain liens may arise on our assets.
Certain of our assets are currently subject to liens under separate financing arrangements entered into by certain subsidiaries in connection with acquisitions of assets. In the event of a default under such arrangements by the applicable subsidiary, the lenders thereunder would be permitted to take possession of or sell such assets. In addition, our currently owned assets and assets that we purchase in the future may be subject to other liens based on the industry practices relating to such assets. Until they are discharged, these liens could impair our ability to repossess, re-lease or sell our assets, and to the extent our lessees or charterers do not comply with their obligations to discharge any liens on the applicable assets, we may find it necessary to pay the claims secured by such liens in order to repossess such assets. Such payments could materially adversely affect our operating results and growth prospects.
The values of our assets may fluctuate due to various factors.
The fair market values of our assets may decrease or increase depending on a number of factors, including the prevailing level of charter or lease rates from time to time, general economic and market conditions affecting our target markets, type and age of assets, supply and demand for assets, competition, new governmental or other regulations and technological advances, all of which could impact our profitability and our ability to lease, charter, develop, operate, or sell such assets. In addition, our assets depreciate as they age and may generate lower revenues and cash flows. We must be able to replace such older, depreciated assets with newer assets, or our ability to maintain or increase our revenues and cash flows will decline. In addition, if we dispose of an asset for a price that is less than the depreciated book value of the asset on our balance sheet or if we determine that an asset’s value has been impaired, we will recognize a related charge in our consolidated statement of operations and such charge could be material.
We may not generate a sufficient amount of cash or generate sufficient free cash flow to fund our operations or repay our indebtedness.
Our ability to make payments on our indebtedness as required depends on our ability to generate cash flow in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not generate sufficient free cash flow to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be
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permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient free cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition and results of operations.
Our use of joint ventures or partnerships, and our Manager’s outsourcing of certain functions, may present unforeseen obstacles or costs.
We have acquired and may in the future acquire interests in certain assets in cooperation with third-party partners or co-investors through jointly owned acquisition vehicles, joint ventures or other structures. In these co-investment situations, our ability to control the management of such assets depends upon the nature and terms of the joint arrangements with such partners and our relative ownership stake in the asset, each of which will be determined by negotiation at the time of the investment and the determination of which is subject to the discretion of our Manager. Depending on our Manager’s perception of the relative risks and rewards of a particular asset, our Manager may elect to acquire interests in structures that afford relatively little or no operational and/or management control to us. Such arrangements present risks not present with wholly-owned assets, such as the possibility that a co-investor becomes bankrupt, develops business interests or goals that conflict with our interests and goals in respect of the assets, all of which could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
In addition, our Manager expects to utilize third-party contractors to perform services and functions related to the operation and leasing of our assets. These functions may include billing, collections, recovery and asset monitoring. Because we and our Manager do not directly control these third parties, there can be no assurance that the services they provide will be delivered at a level commensurate with our expectations, or at all. The failure of any such third-party contractors to perform in accordance with our expectations could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
We are subject to the risks and costs of obsolescence of our assets.
Technological and other improvements expose us to the risk that certain of our assets may become technologically or commercially obsolete. For example, as manufacturers introduce technological innovations and new types of aircraft, some of our assets could become less desirable to potential lessees. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by us. In addition, the imposition of increased regulation regarding stringent noise or emissions restrictions may make some of our aircraft less desirable and less valuable in the marketplace. In our offshore energy business, development and construction of new, sophisticated, high-specification assets could cause our assets to become less desirable to potential charterers, and insurance rates may also increase with the age of a vessel, making older vessels less desirable to potential charterers. Any of these risks may adversely affect our ability to lease, charter or sell our assets on favorable terms, if at all, which could materially adversely affect our operating results and growth prospects.
The inability to obtain certain components from suppliers could harm our business.
Our business is affected by the availability and price of the component parts that we use to manufacture our products. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead time products during times of volatile demand. The supply chains for our business could also be disrupted by external events such as natural disasters, extreme weather events, pandemics, labor disputes, governmental actions and legislative or regulatory changes. As a result, our suppliers may fail to perform according to specifications when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance.
Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. Our inability to fill our supply needs could jeopardize our ability to fulfill obligations under customer contracts, which could result in reduced revenues and profits, contract penalties or terminations, and damage to customer relationships. Further, increased costs of such components could reduce our profits if we were unable to pass along such price in-creases to our customers.
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We could be negatively impacted by environmental, social, and governance (ESG) and sustainability-related matters.
Governments, investors, customers, employees and other stakeholders are increasingly focusing on corporate ESG practices and disclosures, and expectations in this area are rapidly evolving. We may in the future announce sustainability-focused investments, partnerships and other initiatives and goals. These initiatives, aspirations, targets or objectives reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these initiatives and goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation and stock price.
In addition, the standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various voluntary reporting standards may change from time to time and may result in a lack of comparative data from period to period. Moreover, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and reporting ESG metrics, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals. In this regard, the criteria by which our ESG practices and disclosures are assessed may change due to the quickly evolving landscape, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. The increasing attention to corporate ESG initiatives could also result in increased investigations and litigation or threats thereof. If we are unable to satisfy such new criteria, investors may conclude that our ESG and sustainability practices are inadequate. If we fail or are perceived to have failed to achieve previously announced initiatives or goals or to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition, and results of operations could be adversely impacted.
We may be affected by fluctuating prices for fuel and energy.
Volatility in energy prices could have a significant effect on a variety of items including, but not limited to: the economy; demand for transportation services; business related to the energy sector, including the fuel prices and fuel surcharges.
International, political, and economic factors, events, and conditions, including current sanctions against Russia related to its invasion of Ukraine, affect the volatility of fuel prices and supplies. Weather can also affect fuel supplies and limit domestic refining capacity. A severe shortage of, or disruption to, domestic fuel supplies could have a material adverse effect on our results of operations, financial condition, and liquidity. In addition, lower fuel prices could have a negative impact on commodities we process and transport, such as crude oil and petroleum products, which could have a material adverse effect on our results of operations, financial condition, and liquidity.
Our assets generally require routine maintenance, and we may be exposed to unforeseen maintenance costs.
We may be exposed to unforeseen maintenance costs for our assets associated with a lessee’s or charterer’s failure to properly maintain the asset. We enter into leases and charters with respect to some of our assets pursuant to which the lessees are primarily responsible for many obligations, which generally include complying with all governmental requirements applicable to the lessee or charterer, including operational, maintenance, government agency oversight, registration requirements and other applicable directives. Failure of a lessee or charterer to perform required maintenance during the term of a lease or charter could result in a decrease in value of an asset, an inability to re-lease or charter an asset at favorable rates, if at all, or a potential inability to utilize an asset. Maintenance failures would also likely require us to incur maintenance and modification costs upon the termination of the applicable lease or charter; such costs to restore the asset to an acceptable condition prior to re-leasing, charter or sale could be substantial. Any failure by our lessees or charterers to meet their obligations to perform required scheduled maintenance or our inability to maintain our assets could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
Some of our customers operate in highly regulated industries and changes in laws or regulations, including laws with respect to international trade, may adversely affect our ability to lease, charter or sell our assets.
Some of our customers operate in highly regulated industries. A number of our contractual arrangements-for example, our leasing aircraft engines to third-party operators-require the operator (our customer) to obtain specific governmental or regulatory licenses, consents or approvals. These include consents for certain payments under such
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arrangements and for the export, import or re-export of the related assets. Failure by our customers or, in certain circumstances, by us, to obtain certain licenses and approvals could negatively affect our ability to conduct our business. In addition, the shipment of goods, services and technology across international borders subjects the operation of our assets to international trade laws and regulations. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. If any such regulations or sanctions affect the asset operators that are our customers, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
Certain of our assets are subject to purchase options held by the charterer or lessee of the asset which, if exercised, could reduce the size of our asset base and our future revenues.
We have granted purchase options to the charterers and lessees of certain of our assets. The market values of these assets may change from time to time depending on a number of factors, such as general economic and market conditions affecting the industries in which we operate, competition, cost of construction, governmental or other regulations, technological changes and prevailing levels of charter or lease rates from time to time. The purchase price under a purchase option may be less than the asset’s market value at the time the option may be exercised. In addition, we may not be able to obtain a replacement asset for the price at which the asset is sold. In such cases, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
We may not be able to renew or obtain new or favorable charters or leases, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
Our operating leases are subject to greater residual risk than direct finance leases because we will own the assets at the expiration of an operating lease term and we may be unable to renew existing charters or leases at favorable rates, or at all, or sell the leased or chartered assets, and the residual value of the asset may be lower than anticipated. In addition, our ability to renew existing charters or leases or obtain new charters or leases will also depend on prevailing market conditions, and upon expiration of the contracts governing the leasing or charter of the applicable assets, we may be exposed to increased volatility in terms of rates and contract provisions. For example, we do not currently have long-term charters for our construction support vessel and our ROV support vessel. Likewise, our customers may reduce their activity levels or seek to terminate or renegotiate their charters or leases with us. If we are not able to renew or obtain new charters or leases in direct continuation, or if new charters or leases are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to existing contractual terms, or if we are unable to sell assets for which we are unable to obtain new contracts or leases, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected.
Litigation to enforce our contracts and recover our assets has inherent uncertainties that are increased by the location of our assets in jurisdictions that have less developed legal systems.
While some of our contractual arrangements are governed by New York law and provide for the non-exclusive jurisdiction of the courts located in the state of New York, our ability to enforce our counterparties’ obligations under such contractual arrangements is subject to applicable laws in the jurisdiction in which enforcement is sought. While some of our existing assets are used in specific jurisdictions, aviation and offshore assets by their nature generally move throughout multiple jurisdictions in the ordinary course of business. As a result, it is not possible to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be commenced. Litigation and enforcement proceedings have inherent uncertainties in any jurisdiction and are expensive. These uncertainties are enhanced in countries that have less developed legal systems where the interpretation of laws and regulations is not consistent, may be influenced by factors other than legal merits and may be cumbersome, time-consuming and even more expensive. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and where the legal system is not as well developed. As a result, the remedies available and the relative success and expedience of collection and enforcement proceedings with respect to the owned assets in various jurisdictions cannot be predicted. To the extent more of our business shifts to areas outside of the United States and Europe, such as Asia and the Middle East, it may become more difficult and expensive to enforce our rights and recover our assets.
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Our international operations involve additional risks, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
We and our customers operate in various regions throughout the world. As a result, we may, directly or indirectly, be exposed to political and other uncertainties, including risks of:
terrorist acts, armed hostilities, war and civil disturbances;
acts of piracy;
potential cybersecurity attacks;
significant governmental influence over many aspects of local economies;
seizure, nationalization or expropriation of property or equipment;
repudiation, nullification, modification or renegotiation of contracts;
limitations on insurance coverage, such as war risk coverage, in certain areas;
political unrest;
foreign and U.S. monetary policy and foreign currency fluctuations and devaluations;
the inability to repatriate income or capital;
complications associated with repairing and replacing equipment in remote locations;
import-export quotas, wage and price controls, imposition of trade barriers;
U.S. and foreign sanctions or trade embargoes;
restrictions on the transfer of funds into or out of countries in which we operate;
compliance with U.S. Treasury sanctions regulations restricting doing business with certain nations or specially designated nationals;
regulatory or financial requirements to comply with foreign bureaucratic actions;
compliance with applicable anti-corruption laws and regulations;
changing taxation policies, including confiscatory taxation;
other forms of government regulation and economic conditions that are beyond our control; and
governmental corruption.
Any of these or other risks could adversely impact our customers’ international operations which could materially adversely impact our operating results and growth opportunities.
We may make acquisitions in emerging markets throughout the world, and investments in emerging markets are subject to greater risks than developed markets and could adversely affect our business, prospects, financial condition, results of operations and cash flows.
To the extent that we acquire assets in emerging markets-which we may do throughout the world-additional risks may be encountered that could adversely affect our business. Emerging market countries have less developed economies and infrastructure and are often more vulnerable to economic and geopolitical challenges and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. In addition, the currencies in which investments are denominated may be unstable, may be subject to significant depreciation and may not be freely convertible or may be subject to the imposition of other monetary or fiscal controls and restrictions.
Emerging markets are still in relatively early stages of their development and accordingly may not be highly or efficiently regulated. Moreover, emerging markets tend to be shallower and less liquid than more established markets which may adversely affect our ability to realize profits from our assets in emerging markets when we desire to do so or receive what we perceive to be their fair value in the event of a realization. In some cases, a market for realizing profits from an investment may not exist locally. In addition, issuers based in emerging markets are not generally
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subject to uniform accounting and financial reporting standards, practices and requirements comparable to those applicable to issuers based in more developed countries, thereby potentially increasing the risk of fraud and other deceptive practices. Settlement of transactions may be subject to greater delay and administrative uncertainties than in developed markets and less complete and reliable financial and other information may be available to investors in emerging markets than in developed markets. In addition, economic instability in emerging markets could adversely affect the value of our assets subject to leases or charters in such countries, or the ability of our lessees or charters, which operate in these markets, to meet their contractual obligations. As a result, lessees or charterers that operate in emerging market countries may be more likely to default under their contractual obligations than those that operate in developed countries. Liquidity and volatility limitations in these markets may also adversely affect our ability to dispose of our assets at the best price available or in a timely manner.
As we have and may continue to acquire assets located in emerging markets throughout the world, we may be exposed to any one or a combination of these risks, which could adversely affect our operating results.
We are actively evaluating potential acquisitions of assets and operating companies in other aviation and offshore energy sectors which could result in additional risks and uncertainties for our business and unexpected regulatory compliance costs.
While our existing portfolio consists of assets in the aviation and offshore sectors, we are actively evaluating potential acquisitions of assets and operating companies in other sectors of the aviation and offshore markets and we plan to be flexible as other attractive opportunities arise over time. To the extent we make acquisitions in other sectors, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and other resources and with combining or integrating operational and management systems and controls. Entry into certain lines of business may subject us to new laws and regulations and may lead to increased litigation and regulatory risk. Many types of transportation assets, including certain airport and seaport assets, are subject to registration requirements by U.S. governmental agencies, as well as foreign governments if such assets are to be used outside of the United States. Failing to register the assets, or losing such registration, could result in substantial penalties, forced liquidation of the assets and/or the inability to operate and, if applicable, lease the assets. We may need to incur significant costs to comply with the laws and regulations applicable to any such new acquisition. The failure to comply with these laws and regulations could cause us to incur significant costs, fines or penalties or require the assets to be removed from service for a period of time resulting in reduced income from these assets. In addition, if our acquisitions in other sectors produce insufficient revenues, or produce investment losses, or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our reputation and business may be harmed.
The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.
The agreements governing our indebtedness, including, but not limited to, the indentures governing our senior notes (the “Senior Notes”) and the amended and restated revolving credit facility entered into on December 2, 2021 (as amended by Amendment No. 1 dated as of April 28, 2022 and Amendment No. 2 dated as of September 20, 2022, the “Revolving Credit Facility”), contain covenants that place restrictions on us and our subsidiaries. The indentures governing our Senior Notes and the Revolving Credit Facility restrict among other things, our and certain of our subsidiaries’ ability to:
merge, consolidate or transfer all, or substantially all, of our assets;
incur additional debt or issue preferred shares;
make certain investments or acquisitions;
create liens on our or our subsidiaries’ assets;
sell assets;
make distributions on or repurchase our shares;
enter into transactions with affiliates; and
create dividend restrictions and other payment restrictions that affect our subsidiaries.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities, pay dividends on our ordinary and preferred shares or successfully compete. A breach of any of these
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covenants could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders or holders thereof could elect to declare all outstanding debt under such agreements to be immediately due and payable.
Terrorist attacks or other hostilities could negatively impact our operations and our profitability and may expose us to liability and reputational damage.
Terrorist attacks may negatively affect our operations. Such attacks have contributed to economic instability in the United States and elsewhere, and further acts of terrorism, violence or war could similarly affect world trade and the industries in which we and our customers operate. In addition, terrorist attacks or hostilities may directly impact airports or aircraft, or our physical facilities or those of our customers. In addition, it is also possible that our assets could be involved in a terrorist attack or other hostilities. The consequences of any terrorist attacks or hostilities are unpredictable, and we may not be able to foresee events that could have a material adverse effect on our operations. Although our lease and charter agreements generally require the counterparties to indemnify us against all damages arising out of the use of our assets, and we carry insurance to potentially offset any costs in the event that our customer indemnifications prove to be insufficient, our insurance does not cover certain types of terrorist attacks, and we may not be fully protected from liability or the reputational damage that could arise from a terrorist attack which utilizes our assets.
Our leases and charters require payments in U.S. dollars, but many of our customers operate in other currencies; if foreign currencies devalue against the U.S. dollar, our lessees or charterers may be unable to meet their payment obligations to us in a timely manner.
Our current leases and charters typically require that payments be made in U.S. dollars. If the currency that our lessees or charterers typically use in operating their businesses devalues against the U.S. dollar, our lessees or charterers could encounter difficulties in making payments to us in U.S. dollars. Furthermore, many foreign countries have currency and exchange laws regulating international payments that may impede or prevent payments from being paid to us in U.S. dollars. Future leases or charters may provide for payments to be made in euros or other foreign currencies. Any change in the currency exchange rate that reduces the amount of U.S. dollars obtained by us upon conversion of future lease payments denominated in euros or other foreign currencies, may, if not appropriately hedged by us, have a material adverse effect on us and increase the volatility of our earnings.
Our inability to obtain sufficient capital would constrain our ability to grow our portfolio and to increase our revenues.
Our business is capital intensive, and we have used and may continue to employ leverage to finance our operations. Accordingly, our ability to successfully execute our business strategy and maintain our operations depends on the availability and cost of debt and equity capital. Additionally, our ability to borrow against our assets is dependent, in part, on the appraised value of such assets. If the appraised value of such assets declines, we may be required to reduce the principal outstanding under our debt facilities or otherwise be unable to incur new borrowings.
We can give no assurance that the capital we need will be available to us on favorable terms, or at all. Our inability to obtain sufficient capital, or to renew or expand our credit facilities, could result in increased funding costs and would limit our ability to:
meet the terms and maturities of our existing and future debt facilities;
purchase new assets or refinance existing assets;
fund our working capital needs and maintain adequate liquidity; and
finance other growth initiatives.
In addition, we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). As such, certain forms of financing such as finance leases may not be available to us. Please see “Risks Related to the Company’s Business—If we are deemed an “investment company” under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
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The effects of various environmental regulations may negatively affect the industries in which we operate which could have a material adverse effect on our financial condition, results of operations and cash flows.
We are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and noise and emission levels and greenhouse gas emissions. Legislative and regulatory measures currently under consideration or being implemented by government authorities to address climate change could require reductions in our greenhouse gas or other emissions, establish a carbon tax or increase fuel or energy taxes. These legal requirements are expected to result in increased capital expenditures and compliance costs, and could result in higher costs and may require us to acquire emission credits or carbon offsets. These costs and restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our operations. The inconsistent international, regional and/or national requirements associated with climate change regulations also create economic and regulatory uncertainty.
Under some environmental laws in the United States and certain other countries, strict liability may be imposed on the owners or operators of assets, which could render us liable for environmental and natural resource damages without regard to negligence or fault on our part. We could incur substantial costs, including cleanup costs, fines and third-party claims for property damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessee’s or charterer’s current or historical operations, any of which could have a material adverse effect on our results of operations and financial condition. In addition, a variety of new legislation is being enacted, or considered for enactment, at the federal, state and local levels relating to greenhouse gas emissions and climate change. While there has historically been a lack of consistent climate change legislation, as climate change concerns continue to grow, further legislation and regulations are expected to continue in areas such as greenhouse gas emissions control, emission disclosure requirements and building codes or other infrastructure requirements that impose energy efficiency standards. Government mandates, standards or regulations intended to mitigate or reduce greenhouse gas emissions or projected climate change impacts could result in increased energy and transportation costs, and increased compliance expenses and other financial obligations to meet permitting or development requirements that we may be unable to fully recover (due to market conditions or other factors), any of which could result in reduced profits and adversely affect our results of operations. While we typically maintain liability insurance coverage and typically require our lessees to provide us with indemnity against certain losses, the insurance coverage is subject to large deductibles, limits on maximum coverage and significant exclusions and may not be sufficient or available to protect against any or all liabilities and such indemnities may not cover or be sufficient to protect us against losses arising from environmental damage. In addition, changes to environmental standards or regulations in the industries in which we operate could limit the economic life of the assets we acquire or reduce their value, and also require us to make significant additional investments in order to maintain compliance, which would negatively impact our cash flows and results of operations.
The discontinuation of the LIBOR benchmark interest rate may have an impact on our business.
On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021. On November 30, 2020, ICE Benchmark Administration, or the IBA, the administrator of LIBOR, with the support of the United States Federal Reserve and the FCA, announced plans to consult on ceasing publication of LIBOR on December 31, 2021, for only the one-week and two-month LIBOR tenors, and on June 30, 2023, for all other LIBOR tenors. The U.S. Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. The IBA ceased publication of one-week and two-month USD LIBOR settings after December 31, 2021, and intends to cease publishing the remaining USD LIBOR settings after June 30, 2023.
In the United States, the Alternative Reference Rate Committee (“ARRC”), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference rates to replace LIBOR. The Secured Overnight Finance Rate (“SOFR”) has emerged as the ARRC’s preferred alternative rate for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates.
After giving effect to the spin-off transaction, the Revolving Credit Facility, which had a total capacity of $225 million with $65 million of borrowing capacity left, had an interest rate based on floating-rate indices. There
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are significant differences between how LIBOR and SOFR are calculated, which could result in increased borrowing costs. We cannot predict to what extent the withdrawal and replacement of LIBOR will impact us. However, the implementation of alternative underlying floating-rate indices and reference rates may have an adverse impact on our business, results of operations or financial condition.
A cyberattack that bypasses our information technology (“IT”), security systems or the IT security systems of our third-party providers, causing an IT security breach, may lead to a disruption of our IT systems and the loss of business information which may hinder our ability to conduct our business effectively and may result in lost revenues and additional costs.
Parts of our business depend on the secure operation of our IT systems and the IT systems of our third-party providers to manage, process, store, and transmit information associated with aircraft leasing. We have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks. A cyberattack that bypasses our IT security systems or the IT security systems of our third-party providers, causing an IT security breach, could adversely impact our daily operations and lead to the loss of sensitive information, including our own proprietary information and that of our customers, suppliers and employees. Such losses could harm our reputation and result in competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liabilities. While we devote substantial resources to maintaining adequate levels of cyber-security, our resources and technical sophistication may not be adequate to prevent all types of cyberattacks.
If we are deemed an “investment company” under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for certain privately offered investment vehicles set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We are a holding company that is not an investment company because we are engaged in the business of holding securities of our wholly-owned and majority-owned subsidiaries, which are engaged in transportation and related businesses which lease assets pursuant to operating leases and finance leases. The Investment Company Act may limit our and our subsidiaries’ ability to enter into financing leases and engage in other types of financial activity because less than 40% of the value of our and our subsidiaries’ total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis can consist of “investment securities.”
If we or any of our subsidiaries were required to register as an investment company under the Investment Company Act or similar laws and regulations of the Cayman Islands, the registered entity would become subject to substantial regulation that would significantly change our operations, and we would not be able to conduct our business as described in this report. We have not obtained a formal determination from the SEC as to our status under the Investment Company Act and, consequently, any violation of the Investment Company Act would subject us to material adverse consequences. Similarly, we have not obtained any formal determination from the Cayman Islands Monetary Authority or other government authority with respect to Cayman Islands laws and regulation.
Our assets are exposed to unplanned interruptions caused by events outside of our control which may disrupt our business and cause damage or losses that may not be adequately covered by insurance.
Aviation and offshore projects are exposed to unplanned interruptions caused by breakdown or failure of equipment, aging infrastructure, employee error or contractor or subcontractor failure, problems that delay or increase the cost of returning facilities to service after outages, limitations that may be imposed by equipment conditions or environmental, safety or other regulatory requirements, fuel supply or fuel transportation reductions or interruptions, labor disputes, difficulties with the implementation or operation of information systems, derailments, power outages, pipeline or electricity line ruptures, catastrophic events, such as hurricanes, cyclones, earthquakes, landslides, floods,
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explosions, fires, or other disasters. Any equipment or system outage or constraint can, among other things, reduce sales, increase costs and affect the ability to meet regulatory service metrics, customer expectations and regulatory reliability and security requirements. We have in the past experienced power outages at plants which disrupted their operations and negatively impacted our revenues. We cannot assure you that similar events may not occur in the future. Operational disruption, as well as supply disruption, and increased government oversight could adversely impact the cash flows available from these assets. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged interruption may result in temporary or permanent loss of customers, substantial litigation or penalties for regulatory or contractual non-compliance, and any loss from such events may not be recoverable under relevant insurance policies. Although we believe that we are adequately insured against these types of events, either indirectly through our lessees or charterers or through our own insurance policies, no assurance can be given that the occurrence of any such event will not materially adversely affect us. In addition, if a lessee or charterer is not obligated to maintain sufficient insurance, we may incur the costs of additional insurance coverage during the related lease or charter. We can give no assurance that such insurance will be available at commercially reasonable rates, if at all.
Risks Related to Our Manager
We are dependent on our Manager and other key personnel at Fortress and may not find suitable replacements if our Manager terminates the Management Agreement or if other key personnel depart.
Our officers and other individuals who perform services for us are employees of our Manager or other Fortress entities. We are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies to conduct our business as a holding and operating company in the transportation sector. We are subject to the risk that our Manager will terminate the Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost, or at all. Furthermore, we are dependent on the services of certain key employees of our Manager and certain key employees of Fortress entities whose compensation is partially or entirely dependent upon the amount of management fees earned by our Manager or the incentive payments to the Master GP and whose continued service is not guaranteed, and the loss of such personnel or services could materially adversely affect our operations. We do not have key man insurance for any of the personnel of the Manager or other Fortress entities that are key to us. An inability to find a suitable replacement for any departing employee of our Manager or Fortress entities on a timely basis could materially adversely affect our ability to operate and grow our business.
In addition, our Manager may assign our Management Agreement to an entity whose business and operations are managed or supervised by Mr. Wesley R. Edens, who is a principal, Co-Chief Executive Officer and a member of the board of directors of Fortress, an affiliate of our Manager, and a member of the management committee of Fortress since co-founding Fortress in May 1998. In the event of any such assignment to a non-affiliate of Fortress, the functions currently performed by our Manager’s current personnel may be performed by others. We can give you no assurance that such personnel would manage our operations in the same manner as our Manager currently does, and the failure by the personnel of any such entity to acquire assets generating attractive risk-adjusted returns could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In connection with the SoftBank Merger, Fortress operates within SoftBank as an independent business headquartered in New York.
There are conflicts of interest in our relationship with our Manager.
Our Management Agreement, the Services and Profit Sharing Agreement and our Articles were negotiated and among affiliated parties, and their terms, including fees and other amounts payable, may not be as favorable to us as if they had been negotiated with an unaffiliated third-party.
There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates invest in aviation and offshore assets and whose investment objectives overlap with our asset acquisition objectives. Certain opportunities appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our board of directors and employees of our Manager who are our officers also serve as officers and/or directors of these other entities. For example, some of our directors and officers are also directors or officers of FTAI Infrastructure. Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress, for certain target assets. From time to time, entities affiliated with or managed by our Manager or Fortress may focus on investments in assets with a similar profile as our target assets that we may seek
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to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. Fortress has multiple existing and planned funds focused on investing in one or more of our target sectors, each with significant current or expected capital commitments. We have previously purchased and may in the future purchase assets from these funds, and have previously co-invested and may in the future co-invest with these funds in aviation and offshore assets. Fortress funds generally have a fee structure similar to ours, but the fees actually paid will vary depending on the size, terms and performance of each fund.
Our Management Agreement generally does not limit or restrict our Manager or its affiliates from engaging in any business or managing other operating companies similar to us or pooled investment vehicles that invest in assets that meet our asset acquisition objectives. Our Manager has also engaged in additional transportation and infrastructure related management with FTAI Infrastructure in our recent spin-off of our infrastructure assets, and may be involved in other investment opportunities in the future, any of which may compete with us for investments or result in a change in our current investment strategy. In addition, our Articles provides that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our shareholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity; provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of the Company and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.
The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we may engage (subject to our strategy) in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, which may include, but are not limited to, certain acquisitions, financing arrangements, purchases of debt, co-investments, consumer loans, servicing advances and other assets that present an actual, potential or perceived conflict of interest. Our board of directors adopted a policy regarding the approval of any “related person transactions” pursuant to which certain of the material transactions described above may require disclosure to, and approval by, the independent members of our board of directors. Actual, potential or perceived conflicts have given, and may in the future give, rise to investor dissatisfaction, litigation or regulatory inquiries or enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.
The structure of our Manager’s and Master GP’s compensation arrangements may have unintended consequences for us. We have agreed to pay our Manager a management fee and Master GP is entitled to receive incentive payments from the Company or its subsidiaries that are each based on different measures of performance. Consequently, there may be conflicts in the incentives of our Manager to generate attractive risk-adjusted returns for us. In addition, because Master GP and our Manager are both affiliates of Fortress, the Income Incentive Payment paid to Master GP may cause our Manager to place undue emphasis on the maximization of earnings, including through the use of leverage, at the expense of other objectives, such as preservation of capital, to achieve higher incentive payments. Investments with higher yield potential are generally riskier or more speculative than investments with lower yield potential. This could result in increased risk to the value of our portfolio of assets and our ordinary shares.
In connection with the spin-off, we entered into a new Management Agreement with our Manager, the terms of which are substantially similar to our previous management agreement.
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The Management Agreement will remain in effect following the merger. In addition, prior to the merger, Master GP was entitled to certain incentive allocations (comprised of income incentive allocations and capital gains incentive allocations) pursuant to the partnership agreement for the Partnership which will be terminated in connection with the transaction. Following the closing of the merger, Master GP will be entitled to the same incentive allocations pursuant to the Services and Profit Sharing Agreement on substantially similar terms as the existing arrangements.
Our directors have approved a broad asset acquisition strategy for our Manager and will not approve each acquisition we make at the direction of our Manager. In addition, we may change our strategy without a shareholder vote, which may result in our acquiring assets that are different, riskier or less profitable than our current assets.
Our Manager is authorized to follow a broad asset acquisition strategy. We may pursue other types of acquisitions as market conditions evolve. Our Manager makes decisions about our investments in accordance with broad investment guidelines adopted by our board of directors. Accordingly, we may, without a shareholder vote, change our target sectors and acquire a variety of assets that differ from, and are possibly riskier than, our current asset portfolio. Consequently, our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in our existing portfolio. Our directors will periodically review our strategy and our portfolio of assets. However, our board will not review or pre-approve each proposed acquisition or our related financing arrangements. In addition, in conducting periodic reviews, the directors will rely primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to reverse by the time they are reviewed by the directors even if the transactions contravene the terms of the Management Agreement. In addition, we may change our asset acquisition strategy, including our target asset classes, without a shareholder vote.
Our asset acquisition strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets we target and our ability to finance such assets on a short or long-term basis. Opportunities that present unattractive risk-return profiles relative to other available opportunities under particular market conditions may become relatively attractive under changed market conditions and changes in market conditions may therefore result in changes in the assets we target. Decisions to make acquisitions in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce or eliminate our ability to pay dividends on our ordinary shares or have adverse effects on our liquidity or financial condition. A change in our asset acquisition strategy may also increase our exposure to interest rate, foreign currency or credit market fluctuations. In addition, a change in our asset acquisition strategy may increase our use of non-match-funded financing, increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.
Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our assets.
Pursuant to our Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our boards of directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, will not be liable to us or any of our subsidiaries, to our boards of directors, or our or any subsidiary’s shareholders or partners for any acts or omissions by our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, except liability to us, our shareholders, directors, officers and employees and persons controlling us, by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We will, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees, sub-advisers and each other person, if any, controlling our Manager harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.
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Our Manager’s due diligence of potential asset acquisitions or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.
Our Manager intends to conduct due diligence with respect to each asset acquisition opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the asset and will rely on information provided by the seller of the asset. In addition, if asset acquisition opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.
Risks Related to Taxation
We expect the Company to be a passive foreign investment company (“PFIC”) and it could be a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes, which may result in adverse tax considerations for U.S. shareholders.
We expect the Company to be treated as a PFIC and it could be treated as a CFC for U.S. federal income tax purposes. If you are a U.S. person and do not make a valid qualified electing fund (“QEF”) election with respect to us and each of our PFIC subsidiaries, then, unless we are a CFC and you own 10% or more of our shares (by vote or value), you would generally be subject to special deferred tax with respect to certain distributions on our shares, any gain realized on a disposition of our shares, and certain other events. The effect of this deferred tax could be materially adverse to you. Alternatively, if you are such a shareholder and make a valid QEF election for us and each of our PFIC subsidiaries, or if we are a CFC and you own 10% or more of our shares (by vote or value), you will generally not be subject to those taxes, but could recognize taxable income in a taxable year with respect to our shares in excess of any distributions that we make to you in that year, thus giving rise to so-called “phantom income” and to a potential out-of-pocket tax liability. No assurances can be given that any given shareholder will be able to make a valid QEF election with respect to us or our PFIC subsidiaries. See “U.S. Federal Income Tax Considerations—Considerations for U.S. Holders—PFIC Status and Related Tax Considerations.”
Assuming we are a PFIC, distributions made by us to a U.S. person will generally not be eligible for taxation at reduced tax rates generally applicable to “qualified dividends” paid by certain U.S. corporations and “qualified foreign corporations” to individuals. The more favorable rates applicable to other corporate dividends could cause individuals to perceive investment in our shares to be relatively less attractive than investment in the shares of other corporations, which could adversely affect the value of our shares.
Investors should consult their tax advisors regarding the potential impact of these rules on their investment in us.
To the extent we recognize income treated as effectively connected with a trade or business in the United States, we would be subject to U.S. federal income taxation on a net income basis, which could adversely affect our business and result in decreased cash available for distribution to our shareholders.
If we are treated as engaged in a trade or business in the United States, the portion of our net income, if any, that is “effectively connected” with such trade or business would be subject to U.S. federal income taxation at maximum corporate rates, currently 21%. In addition, we may be subject to an additional U.S. federal branch profits tax on our effectively connected earnings and profits at a rate of 30%. The imposition of such taxes could adversely affect our business and would result in decreased cash available for distribution to our shareholders. Although we (or one or more of our non-U.S. corporate subsidiaries) are expected to be treated as engaged in a U.S. trade or business, it is currently expected that only a small portion of our taxable income will be treated as effectively connected with such U.S. trade or business. However, no assurance can be given that the amount of effectively connected income will not be greater than currently expected, whether due to a change in our operations or otherwise.
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If there is not sufficient trading in our shares, or if 50% of our shares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S. federal income taxation on rental income from our aircraft or ships used in “international traffic” and could be subject to U.S. federal income taxation which would adversely affect our business and result in decreased cash available for distribution to our shareholders.
We expect that we will be eligible for an exemption under Section 883 of the Internal Revenue Code of 1986, as amended (the “Code”), which provides an exemption from U.S. federal income taxation with respect to rental income derived from aircraft and ships used in international traffic by certain foreign corporations. No assurances can be given that we will continue to be eligible for this exemption as changes in our ownership or the amount of our shares that are traded could cause us to cease to be eligible for such exemption. To qualify for this exemption in respect of rental income, the lessor of the aircraft or ships must be organized in a country that grants a comparable exemption to U.S. lessors. The Cayman Islands and the Marshall Islands grant such exemptions. Additionally, certain other requirements must be satisfied. We can satisfy these requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not collectively own more than 50% of our shares. Our shares will be considered to be primarily and regularly traded on a recognized exchange in any year if: (i) the number of trades in our shares effected on such recognized stock exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities markets; (ii) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during every calendar quarter in the year; and (iii) the aggregate number of our shares traded on such stock exchanges during the taxable year is at least 10% of the average number of our shares outstanding in that class during that year. If we were not eligible for the exemption under Section 883 of the Code, we expect that our U.S. source rental income would generally be subject to U.S. federal taxation, on a gross income basis, at a rate of not in excess of 4% as provided in Section 887 of the Code. If, contrary to expectations, we or certain of our non-U.S. subsidiaries did not comply with certain administrative guidelines of the U.S. Internal Revenue Service (the “IRS”), such that 90% or more of the U.S. source rental income of the Company or any of such subsidiaries were attributable to the activities of personnel based in the United States (in the case of bareboat leases), or from “regularly scheduled transportation” as defined in such administrative guidelines (in the case of time charter leases), our, or such subsidiary’s, U.S. source rental income would be treated as income effectively connected with the conduct of a trade or business in the United States. In such case, such U.S. source rental income would be subject to U.S. federal income taxation at the maximum corporate rate as well as state and local taxation. In addition, the Company or such subsidiary would be subject to the U.S. federal branch profits tax on its effectively connected earnings and profits at a rate of 30%. The imposition of such taxes could adversely affect our business and would result in decreased cash available for distribution to our shareholders.
We or our subsidiaries may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Some of our subsidiaries are subject to income, withholding or other taxes in certain non-U.S. jurisdictions by reason of their jurisdiction of incorporation, activities and operations, where their assets are used or where the lessees of their assets (or others in possession of their assets) are located, and it is also possible that taxing authorities in any such jurisdictions could assert that we or our subsidiaries are subject to greater taxation than we currently anticipate. Further, the Organisation for Economic Co operation and Development (the “OECD”) is conducting a project focused on base erosion and profit shifting in international structures, which seeks to establish certain international standards for taxing the worldwide income of multinational companies. In addition, the OECD is working on a “BEPS 2.0” initiative, which is aimed at (i) shifting taxing rights to the jurisdiction of the consumer and (ii) ensuring all companies pay a global minimum tax. On October 8, 2021, the OECD announced an agreement among over 140 countries delineating an implementation plan, and on December 20, 2021, the OECD released model rules for the domestic implementation of a 15% global minimum tax. As a result of these developments, the tax laws of certain countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and therefore could harm our business, cash flows, results of operations and financial position. In addition, a portion of certain of our or our non-U.S. corporate subsidiaries’ income is treated as effectively connected with a U.S. trade or business and is accordingly subject to U.S. federal income tax or may be subject to gross-basis U.S. withholding tax. It is possible that the IRS could assert that a greater portion of our or any such non-U.S. subsidiaries’ income is effectively connected income that should be subject to U.S. federal income tax or subject to withholding tax.
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Risks Related to the Company’s Shares
The market price and trading volume of our ordinary and preferred shares may be volatile, which could result in rapid and substantial losses for our shareholders.
The market price of our ordinary and preferred shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our ordinary and preferred shares may fluctuate and cause significant price variations to occur. If the market price of our ordinary or preferred shares declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our ordinary and preferred shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our shares include:
a shift in our investor base;
our quarterly or annual earnings, or those of other comparable companies;
actual or anticipated fluctuations in our operating results;
changes in accounting standards, policies, guidance, interpretations or principles;
announcements by us or our competitors of significant investments, acquisitions or dispositions;
the failure of securities analysts to cover our ordinary shares;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and share price performance of other comparable companies;
prevailing interest rates or rates of return being paid by other comparable companies and the market for securities similar to our preferred shares;
additional issuances of preferred shares;
whether we declare distributions on our preferred shares;
overall market fluctuations;
general economic conditions; and
developments in the markets and market sectors in which we participate.
Stock markets in the United States have experienced extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as acts of terrorism, prolonged economic uncertainty, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our ordinary and preferred shares.
An increase in market interest rates may have an adverse effect on the market price of our shares.
One of the factors that investors may consider in deciding whether to buy or sell our shares is our distribution rate as a percentage of our share price relative to market interest rates. If the market price of our shares is based primarily on the earnings and return that we derive from our investments and income with respect to our investments and our related distributions to shareholders, and not from the market value of the investments themselves, then interest rate fluctuations and capital market conditions will likely affect the market price of our shares. For instance, if market interest rates rise without an increase in our distribution rate, the market price of our shares could decrease, as potential investors may require a higher distribution yield on our shares or seek other securities paying higher distributions or interest. In addition, rising interest rates would result in increased interest expense on our outstanding and future (variable and fixed) rate debt, thereby adversely affecting cash flows and our ability to service our indebtedness and pay distributions.
We are required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls, and the outcome of that effort may adversely affect our results of operations, financial condition and liquidity. Because we are no longer an emerging growth company, we are subject to heightened disclosure obligations, which may impact our share price.
As a public company, we are required to comply with Section 404 (“Section 404”) of the Sarbanes-Oxley Act. Section 404 requires that we evaluate the effectiveness of our internal control over financial reporting at the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial
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reporting in our Annual Report on Form 10-K for that fiscal year. Section 404 also requires an independent registered public accounting firm to attest to, and report on, management’s assessment of our internal controls over financial reporting. The outcome of our review and the report of our independent registered public accounting firm may adversely affect our results of operations, financial condition and liquidity. During the course of our review, we may identify control deficiencies of varying degrees of severity, and we may incur significant costs to remediate those deficiencies or otherwise improve our internal controls. As a public company, we are required to report control deficiencies that constitute a “material weakness” in our internal control over financial reporting. If we discover a material weakness in our internal control over financial reporting, our share price could decline and our ability to raise capital could be impaired.
Your percentage ownership in us may be diluted in the future.
Your percentage ownership in us may be diluted in the future because of equity awards granted and may be granted to our Manager pursuant to the Management Agreement and the Nonqualified Shares Option and Incentive Award Plan (“Incentive Plan”). Since 2015, we granted our Manager an option to acquire 3,903,010 common shares in connection with equity offerings. In the future, upon the successful completion of additional offerings of our ordinary shares or other equity securities (including securities issued as consideration in an acquisition), we will grant to our Manager options to purchase ordinary shares in an amount equal to 10% of the number of ordinary shares being sold in such offerings (or if the issuance relates to equity securities other than our ordinary shares, options to purchase a number of ordinary shares equal to 10% of the gross capital raised in the equity issuance divided by the fair market value of an ordinary share as of the date of the issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of an ordinary share as of the date of the equity issuance if it relates to equity securities other than our ordinary shares), and any such offering or the exercise of the option in connection with such offering would cause dilution.
Our board of directors has adopted the Incentive Plan, which provides for the grant of equity-based awards, including restricted shares, stock options, stock appreciation rights, performance awards, restricted share units, tandem awards and other equity-based and non-equity based awards, in each case to our Manager, to the directors, officers, employees, service providers, consultants and advisors of our Manager who perform services for us, and to our directors, officers, employees, service providers, consultants and advisors. We have initially reserved 30,000,000 ordinary shares for issuance under the Incentive Plan. As of June 30, 2022, rights relating to 29.8 million of our ordinary shares were outstanding under the Incentive Plan. In the future on the date of any equity issuance by us during the remaining portion of the ten-year term of the Incentive Plan (including in respect of securities issued as consideration in an acquisition), the maximum number of shares available for issuance under the Incentive Plan will be increased to include an additional number of ordinary shares equal to ten percent (10%) of either (i) the total number of ordinary shares newly issued by us in such equity issuance or (ii) if such equity issuance relates to equity securities other than our ordinary shares, a number of our ordinary shares equal to 10% of (A) the gross capital raised in an equity issuance of equity securities other than ordinary shares during the remaining portion of the ten-year term of the Incentive Plan, divided by (B) the fair market value of an ordinary share as of the date of such equity issuance.
Sales or issuances of our ordinary shares could adversely affect the market price of our ordinary shares.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that such sales might occur, could adversely affect the market price of our ordinary shares. The issuance of our ordinary shares in connection with property, portfolio or business acquisitions or the exercise of outstanding options or otherwise could also have an adverse effect on the market price of our ordinary shares.
The incurrence or issuance of debt, which ranks senior to our ordinary shares upon our liquidation, and future issuances of equity or equity-related securities, which would dilute the holdings of our existing ordinary shareholders and may be senior to our ordinary shares for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our ordinary shares.
We have incurred and may in the future incur or issue debt or issue equity or equity-related securities to finance our operations, acquisitions or investments. Upon our liquidation, lenders and holders of our debt and holders of our preferred shares (if any) would receive a distribution of our available assets before ordinary shareholders. Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash flows. We are not required to offer any additional equity securities to existing ordinary shareholders on a
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preemptive basis. Therefore, additional issuances of ordinary shares, directly or through convertible or exchangeable securities (including limited partnership interests in our operating partnership), warrants or options, will dilute the holdings of our existing ordinary shareholders and such issuances, or the perception of such issuances, may reduce the market price of our ordinary shares. Any preferred shares issued by us would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to ordinary shareholders. Because our decision to incur or issue debt or issue equity or equity-related securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, ordinary shareholders bear the risk that our future incurrence or issuance of debt or issuance of equity or equity-related securities will adversely affect the market price of our ordinary shares.
Our determination of how much leverage to use to finance our acquisitions may adversely affect our return on our assets and may reduce funds available for distribution.
We utilize leverage to finance many of our asset acquisitions, which entitles certain lenders to cash flows prior to retaining a return on our assets. While our Manager targets using only what we believe to be reasonable leverage, our strategy does not limit the amount of leverage we may incur with respect to any specific asset. The return we are able to earn on our assets and funds available for distribution to our shareholders may be significantly reduced due to changes in market conditions, which may cause the cost of our financing to increase relative to the income that can be derived from our assets.
While we currently intend to pay regular quarterly dividends to our shareholders, we may change our dividend policy at any time.
Although we currently intend to pay regular quarterly dividends to holders of our ordinary shares, we may change our dividend policy at any time. Furthermore, in light of the recent spin-off of FTAI Infrastructure, we expect that the amount of our quarterly dividends will be reduced to give effect to the spin-off (see “Description of Company Securities —Dividends” for information regarding historical dividends). Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. The declaration and payment of dividends to holders of our ordinary shares will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including actual results of operations, liquidity and financial condition, net cash provided by operating activities, restrictions imposed by applicable law, our taxable income, our operating expenses and other factors our board of directors deem relevant. In addition, while any Company Series A Preferred Shares, Company Series B Preferred Shares or Company Series C Preferred Shares remain outstanding, unless the full cumulative distributions on past distribution periods for such shares have been or contemporaneously are declared and paid in full or declared and a sum sufficient for the payment of those dividends set aside, we are generally prohibited from declaring or paying or setting aside any dividends on our ordinary shares. Our long-term goal is to maintain a payout ratio of between 50-60% of funds available for distribution, with remaining amounts used primarily to fund our future acquisitions and opportunities. There can be no assurance that we will continue to pay dividends in amounts or on a basis consistent with prior distributions to our investors, if at all. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries and our ability to receive distributions from our subsidiaries may be limited by the financing agreements to which they are subject. In addition, our existing indebtedness does, and our future indebtedness may, limit our ability to pay dividends on our ordinary and preferred shares. Moreover, pursuant to the Services and Profit Sharing Agreement, Master GP will be entitled to receive incentive payments before any amounts are distributed by us based both on our consolidated net income and capital gains income in each fiscal quarter and for each fiscal year, respectively. Furthermore, the terms of our Series A preferred shares generally prevent us from declaring or paying dividends on or repurchasing our ordinary shares or other junior capital unless all accrued distributions on such preferred shares have been paid in full.
Anti-takeover provisions in our Articles could delay or prevent a change in control.
Provisions in our Articles may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our Articles provide for a staggered board, requires advance notice for proposals by shareholders and nominations, places limitations on convening shareholder meetings, and authorizes the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. The market price of our shares could be adversely affected to the extent that provisions of our Articles discourage potential takeover attempts that our shareholders may favor.
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If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our ordinary shares, our share price and trading volume could decline.
The trading market for our ordinary shares are influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our ordinary units or publishes inaccurate or unfavorable research about our business, our ordinary share price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our ordinary share price or trading volume to decline and our ordinary shares to be less liquid.
Risks Related to the Company’s Preferred Shares
The preferred shares are equity securities and are subordinated to our existing and future indebtedness.
The preferred shares are our equity interests and do not constitute indebtedness. This means that the preferred shares will rank junior to all of our indebtedness and to other non-equity claims on us and our assets available to satisfy claims on us, including claims in our liquidation.
As at June 30, 2022, after giving effect to the spin-off transaction, we had approximately $2,056.9 million of indebtedness ranking senior to the preferred shares (excluding intercompany indebtedness), and we have the ability to incur additional indebtedness under our credit facilities and other existing or future debt arrangements.
Further, the preferred shares will place no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the limited voting rights referred to below under “Risks Related to the Company’s Preferred Shares- Holders of the preferred shares will have limited voting rights.”
We conduct substantially all of our operations through our subsidiaries, and substantially all of our operating assets are held directly by our subsidiaries. As a result, our cash flow and our ability to pay distributions on the shares will be dependent upon dividends or other intercompany transfers of funds from these subsidiaries.
The terms of our existing and future indebtedness may restrict our ability to make distributions on the preferred shares or to redeem the preferred shares.
Distributions on the preferred shares will only be paid if the distribution is not restricted or prohibited by law or the terms of any of our senior equity securities or indebtedness. Certain of our existing debt instruments do, and our future debt instruments may, restrict our ability to make distributions on the preferred shares and to redeem the preferred shares. The preferred shares place no restrictions on our ability to incur indebtedness with such restrictive covenants.
We will issue Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, and we may issue additional Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and/or additional series and classes of preferred shares that rank equally with the preferred shares as to dividend rights, rights upon liquidation or voting rights.
Following the recapitalization, we will have 4,180,000 Series A Preferred Shares outstanding, 4,940,000 Series B Preferred Shares outstanding and 4,200,000 Series C Preferred Shares outstanding, and each such series ranks equally as to dividend rights and rights upon our liquidation, dissolution or winding up of our affairs.
Subject to limited exceptions as set forth in the Series A, Series B and Series C Preferred Share designations of the Articles set forth as Annex B hereto, the Company will be allowed to issue additional Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and/or additional series and classes of preferred shares that would rank equally with the preferred shares as to dividend rights and rights upon our liquidation, dissolution or winding up of our affairs without any vote of the holders of the preferred shares. The issuance of additional Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and additional series and classes of parity securities could have the effect of reducing the amounts available to the holders of the preferred shares upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the preferred shares issued if we do not have sufficient funds to pay dividends on all preferred shares outstanding and other classes of our capital stock with equal priority with respect to dividends.
In addition, although holders of the preferred shares are entitled to limited voting rights, as described under the caption “Description of Company SecuritiesSeries A Preferred Shares, Series B Preferred Shares and Series C Preferred SharesVoting Rights,” with respect to such matters, the preferred shares will vote together as a single class along with all other series and classes of our parity securities that we have issued or may issue upon which like
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voting rights have been conferred and are exercisable. As a result, the voting rights of holders of the preferred shares may be significantly diluted, and the holders of such other series and classes of preferred shares that we have issued or may issue may be able to control or significantly influence the outcome of any vote.
Future issuances and sales of parity securities, or the perception that such issuances and sales could occur, may cause prevailing market prices for the preferred shares to decline, and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
The terms of the preferred shares do not limit our ability to incur indebtedness or other liabilities and, under certain circumstances, we may issue equity securities that rank senior to the preferred shares.
The terms of the preferred shares will not limit our ability to incur indebtedness or other liabilities. As a result, we and our subsidiaries may incur indebtedness or other liabilities that will rank senior to the preferred shares. See “Risks Related to the Company’s Preferred SharesThe preferred shares are equity securities and are subordinated to our existing and future indebtedness.” In addition, although we do not currently have any outstanding equity securities that rank senior to the preferred shares, we may issue additional equity securities that, with the approval of the holders of the preferred shares, acting as a single class, as described under “Description of Company Securities—Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares—Voting Rights,” rank senior to the preferred shares. The incurrence of indebtedness or other liabilities that will rank senior to the preferred shares and the issuance of securities ranking senior to the preferred shares may reduce the amount available for distributions and the amount recoverable by holders of the preferred shares in the event of our liquidation, dissolution or winding-up.
The historical five-year treasury rates are not an indication of future five-year treasury rates.
In the past, U.S. Treasury rates have experienced significant fluctuations. You should note that historical levels, fluctuations and trends of U.S. Treasury rates are not necessarily indicative of future levels. Any historical upward or downward trend in U.S. Treasury rates is not an indication that U.S. Treasury rates are more or less likely to increase or decrease at any time during any reset period, and you should not take the historical U.S. Treasury rates as an indication of future rates.
The preferred shares have not been rated.
We have not sought to obtain a rating for the preferred shares and the preferred shares may never be rated. It is possible, however, that one or more rating agencies might independently determine to issue such ratings or that such ratings, if issued, would materially and adversely affect the market price of such securities. In addition, we may elect in the future to obtain a rating for any preferred shares, which could materially and adversely affect the market price of such securities. Ratings only reflect the views of the rating agency or agencies issuing the ratings and such ratings could be revised downward, placed on a watch list or negative outlook or withdrawn entirely at the discretion of the issuing rating agency if in its judgment circumstances so warrant. Any such downward revision, placing on a watch list or withdrawal of a rating could have a material adverse effect on the market price of the preferred shares. In addition, ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of any preferred shares may not reflect all risks related to us and our business, or the structure or market price of the preferred shares.
Holders of the preferred shares will have limited voting rights.
Holders of the preferred shares will generally have no voting rights, meaning that they generally do not have the voting rights given to holders of our ordinary shares, except that holders of the preferred shares will be entitled to certain limited voting rights described in “Description of Company SecuritiesSeries A Preferred Shares, Series B Preferred Shares and Series C Preferred SharesVoting Rights.”
Redemption of the preferred shares may adversely affect your return on the preferred shares.
At any time or from time to time on or after September 15, 2024, in the case of the Series A Preferred Shares, December 15, 2024, in the case of the Series B Preferred Shares and June 15, 2026, in the case of the Series C Preferred Shares, we may, at our option, redeem such shares, in whole or in part, at a redemption price of $25.00 per share, plus an amount equal to all accumulated and unpaid distributions thereon, if any, to, but excluding, the date of redemption, whether or not declared. In addition, prior to September 15, 2024, in the case of the Series A Preferred Shares, December 15, 2024, in the case of the Series B Preferred Shares and June 15, 2026, in the case of the Series
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C Preferred Shares, we may, at our option, redeem such shares, in whole but not in part, after the occurrence of (i) a “Rating Event” (as defined in the Articles), at a price of $25.50 per share, (ii) a “Change of Control” (as defined in the Articles), at a price of $25.25 per share and (iii) a “Tax Redemption Event” (as defined in the Articles), at a price of $25.25 per share, in each case plus an amount equal to all accumulated and unpaid distributions thereon, if any, to, but excluding, the date of redemption, whether or not declared, each as defined in the Series A, Series B and Series C Preferred Share designations of the Articles set forth as Annex B hereto. If we redeem your shares, in whole or in part, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the distribution rate of the applicable shares redeemed.
We are not required to redeem the preferred shares, and we only expect to do so if it is in our best interest as determined by our board of directors in its sole discretion.
The preferred shares are a perpetual equity security. This means that they have no maturity or mandatory redemption date and are not redeemable at the option of investors. The preferred shares may be redeemed by us at our option on or after September 15, 2024, in the case of the Series A Preferred Shares, December 15, 2024, in the case of the Series B Preferred Shares and June 15, 2026, in the case of the Series C Preferred Shares, either in whole or in part. In addition, prior to September 15, 2024, in the case of the Series A Preferred Shares, December 15, 2024, in the case of the Series B Preferred Shares and June 15, 2026, in the case of the Series C Preferred Shares, after the occurrence of a Change of Control, a Rating Event or a Tax Redemption Event, we may, but are not required to, redeem the shares in whole but not in part. Any decision we may make at any time to redeem the shares will be determined by our board of directors in its sole discretion and depend upon, among other things, an evaluation of our capital position, the composition of our shareholders’ equity, our outstanding senior debt and general market conditions at that time.
We are not required to redeem the preferred shares upon a Change of Control, and we may not be able to redeem the preferred shares even if we should decide to. If we do not redeem the preferred shares upon a Change of Control, we may not be able to pay the increased distribution rate and, even if we are, the increase in the distribution rate may not sufficiently compensate holders for the impact of the Change of Control.
We are not required to redeem the preferred shares upon a Change of Control. Even if we should decide to redeem the preferred shares in connection with a change of control, we may not have sufficient financial resources available to effect the redemption. If we do not redeem the preferred shares upon a change of control, we may not have sufficient financial resources available to pay the increased distribution rate described under “Description of Company SecuritiesSeries C Preferred SharesDistribution Right.” In addition, even if we are able to pay the increased distribution rate, increasing the per annum distribution rate by 5.00% may not be sufficient to compensate holders for the impact of the change of control on the market price of the preferred shares.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This registration statement on Form S-4, of which this proxy statement/prospectus forms a part, and the documents to which FTAI and the Company refer you in this registration statement, as well as oral statements made or to be made by FTAI and the Company contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead are based on our present beliefs and assumptions and on information currently available to us. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this registration statement are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, that the future plans, estimates or expectations contemplated by us will be achieved.
Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. The following is a summary of the principal risk factors that make investing in our securities risky and may materially adversely affect our business, financial condition, results of operations and cash flows. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section entitled “Risk Factors” beginning on page 19 and in other SEC filings incorporated by reference into this proxy statement/prospectus. We believe that these factors include, but are not limited to:
changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy, including, but not limited to, the Russia-Ukraine conflict, the ongoing COVID-19 pandemic and other public health crises, and any related responses or actions by businesses and governments;
reductions in cash flows received from our assets, as well as contractual limitations on the use of our assets to secure debt for borrowed money;
our ability to take advantage of acquisition opportunities at favorable prices;
changes in our asset composition, investment strategy and liquidity as a result of the recently completed spin-off of our infrastructure business or other factors;
a lack of liquidity surrounding our assets, which could impede our ability to vary our portfolio in an appropriate manner;
the relative spreads between the yield on the assets we acquire and the cost of financing;
adverse changes in the financing markets we access affecting our ability to finance our acquisitions;
customer defaults on their obligations;
our ability to renew existing contracts and enter into new contracts with existing or potential customers;
the availability and cost of capital for future acquisitions;
concentration of a particular type of asset or in a particular sector;
competition within the aviation and offshore energy sectors;
the competitive market for acquisition opportunities;
risks related to operating through joint ventures, partnerships, consortium arrangements or other collaborations with third parties;
our ability to successfully integrate acquired businesses;
obsolescence of our assets or our ability to sell, re-lease or re-charter our assets;
exposure to uninsurable losses and force majeure events;
the legislative/regulatory environment and exposure to increased economic regulation;
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exposure to the oil and gas industry’s volatile oil and gas prices;
difficulties in obtaining effective legal redress in jurisdictions in which we operate with less developed legal systems;
our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the fact that maintaining such exemption imposes limits on our operations;
our ability to successfully utilize leverage in connection with our investments;
foreign currency risk and risk management activities;
effectiveness of our internal control over financial reporting;
exposure to environmental risks, including natural disasters, increasing environmental legislation and the broader impacts of climate change;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;
our dependence on our Manager and its professionals and actual, potential or perceived conflicts of interest in our relationship with our Manager;
effects of the merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;
volatility in the market price of our shares;
the inability to pay dividends to our shareholders in the future; and
other risks described in the “Risk Factors” section of this registration statement, of which this proxy statement/prospectus forms a part.
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included or incorporated by reference in this registration statement. The forward-looking statements made or incorporated by reference in this registration statement, of which this proxy statement/prospectus forms a part, relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
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SPECIAL MEETING OF FTAI SHAREHOLDERS
General
FTAI is furnishing this proxy statement/prospectus to FTAI’s shareholders as part of the solicitation of proxies by FTAI’s board of directors for use at the special meeting of FTAI shareholders to be held on November 9, 2022, and at any adjournment or postponement thereof. This proxy statement/prospectus is first being furnished to FTAI’s shareholders on or about October 11, 2022 in connection with the vote on the merger proposal and, if presented, the adjournment proposal. This proxy statement/prospectus provides FTAI’s shareholders with information they need to know to be able to vote or instruct their vote to be cast at the special meeting.
Date, Time and Place
The special meeting of shareholders will be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, New York 10001 on November 9, 2022 at 8:00 a.m., local time.
Purpose of the FTAI Special Meeting
At the special meeting, FTAI is asking holders of FTAI common shares:
to consider and vote upon a proposal to approve and adopt the merger agreement and to approve the merger and other matters contemplated by such agreement — we refer to this proposal as the “merger proposal”; and
to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, FTAI is not authorized to consummate the merger — we refer to this proposal as the “adjournment proposal.”
Recommendation of FTAI Board of Directors
FTAI’s board of directors has unanimously determined that the merger proposal and, if presented, the adjournment proposal, are fair to and in the best interests of FTAI and its shareholders and has unanimously approved the merger proposal. FTAI’s board of directors unanimously recommends that shareholders vote “FOR” the merger proposal and “FOR” the adjournment proposal, if presented at the special meeting.
Record Date; Who is Entitled to Vote
FTAI has fixed the close of business on October 6, 2022 as the “record date” for determining FTAI shareholders entitled to notice of and to attend and vote at the special meeting. As of the close of business on the record date, there were 99,378,771 common shares of FTAI outstanding and entitled to vote. Each common share of FTAI is entitled to one vote per share at the special meeting.
Quorum
The presence, in person or by proxy, of a majority of all the outstanding common shares of FTAI entitled to vote constitutes a quorum at the special meeting.
Abstentions and Broker Non-Votes
Abstentions will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but broker non-votes will not be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe all the proposals presented to the shareholders will be considered non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction.
If you do not provide voting instructions to your broker on a particular proposal on which your broker does not have discretionary authority to vote, your shares will not be voted on that proposal. This is called a “broker non-vote.” Broker non-votes will not count as votes cast at the special meeting and will have the same effect as a vote against the merger proposal and will have no effect on the adjournment proposal.
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At the special meeting of shareholders, FTAI will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, an abstention or failure to vote will have the same effect as a vote against the merger proposal and will have no effect on the adjournment proposal.
Vote Required
The proposals presented at the special meeting will require the following votes:
The approval of the merger proposal at the special meeting will require the affirmative vote for the proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon.
The approval of the adjournment proposal, if presented, will require the affirmative vote of the holders of a majority of the votes cast by holders present in person or represented by proxy at the meeting and entitled to vote thereon. Notwithstanding the outcome of a shareholder vote on the adjournment proposal, if presented, the chairperson of the special meeting may adjourn the special meeting to another place or time, without regard to the presence of a quorum, pursuant to FTAI’s limited liability company agreement.
Abstentions will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but broker non-votes will not be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Abstentions and broker non-votes are not counted as votes cast.
Voting Your Shares
Each common share of FTAI that you own in your name entitles you to one vote. Your proxy card shows the number of common shares of FTAI that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.
There are three ways to vote your common shares of FTAI at the special meeting:
You Can Vote By Telephone or By The Internet. You can also vote by telephone or by the Internet by following the instructions provided on the proxy card.
You Can Vote By Signing and Returning the Enclosed Proxy Card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by FTAI’s board “FOR” the merger proposal and “FOR” the adjournment proposal, if presented. Votes received after a matter has been voted upon at the special meeting will not be counted.
You Can Attend the Special Meeting and Vote In Person. You will receive a ballot electronically. However, if your shares are held in the name of your broker, bank or another nominee, you must get a legal proxy from the broker, bank or other nominee. That is the only way FTAI can be sure that the broker, bank or nominee has not already voted your shares. You must also contact our Investor Relations department to obtain an admission card, and present this admission card, alongside an acceptable form of photo identification (such as a driver's license) to the inspector of elections.
FTAI shareholders who hold common shares of FTAI in “street name” who wish to vote at the special meeting should follow the instructions on the voting instruction form sent to them by their bank, broker or other nominee. In order to vote their shares in person at the special meeting, FTAI shareholders whose shares are held in “street name” must contact their bank, broker or other nominee and request a document called a “legal proxy.” Requesting a legal proxy will automatically cancel any voting directions previously given to such bank, broker or other nominee.
Revoking Your Proxy
If you are a shareholder and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
you may send another proxy card with a later date; or
you may notify Kevin Krieger, FTAI’s Secretary, in writing before the special meeting that you have revoked your proxy; or you may attend the special meeting and vote in person or revoke your proxy in person, although your attendance alone will not revoke any proxy that you have previously given.
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If you are a beneficial owner of FTAI common shares held in “street name,” you may submit new voting instructions by contacting your broker, bank or other nominee.
Who Can Answer Your Questions About Voting Your Shares
If you are a shareholder and have any questions about how to vote or direct a vote in respect of your common shares of FTAI, you may contact Alan Andreini, Investor Relations of FTAI at (212) 798-6128 or via email at aandreini@fortress.com.
Appraisal Rights
FTAI shareholders are not entitled to appraisal of their shares or dissenters’ rights under Delaware law in connection with the merger.
Proxy Solicitation Costs
FTAI is soliciting proxies on behalf of its board of directors. This solicitation is being made by mail but also may be made by telephone or in person. FTAI and its directors, officers and employees may also solicit proxies by telephone or by other electronic means. FTAI will bear the cost of the solicitation.
FTAI will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. FTAI will reimburse them for their reasonable expenses.
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THE MERGER PROPOSAL
The following description sets forth the principal terms of the merger agreement, which is attached as Annex A and is incorporated by reference into this proxy statement/prospectus. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this description, which is summary by nature. This description does not purport to be complete and is qualified in its entirety by reference to the complete text of the merger agreement. You are encouraged to read the merger agreement carefully and in its entirety, as well as this proxy statement/prospectus and any documents incorporated by reference herein, before making any decisions regarding any of the proposals described in this proxy statement/prospectus. This section is intended to provide you with information regarding the terms of the merger agreement. Accordingly, the terms in the merger agreement should not be read alone, and you should read the information provided elsewhere in this proxy statement/prospectus and in the public filings the Company and FTAI make with the SEC, as described in the section entitled “Where You Can Find More Information About FTAI and the Company” beginning on page 155.
Structure of the Transaction
Pursuant to the merger agreement, Merger Sub will be merged with and into FTAI with FTAI surviving as a wholly-owned subsidiary of the Company, and (i) each FTAI common share will be exchanged for one ordinary share of the Company, (ii) each outstanding FTAI Series A Preferred Share will be exchanged for one Company Series A Preferred Share; (iii) each outstanding FTAI Series B Preferred Share will be exchanged for one Company Series B Preferred Share and (iv) each outstanding FTAI Series C Preferred Share will be exchanged for one Company Series C Preferred Share, with such preferred shares having substantially equivalent rights as compared to the rights of such FTAI preferred share immediately prior to closing. The Company will become the public company after the merger.
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The following diagram illustrates the ownership structure of FTAI, Merger Sub and the Company prior to and following the merger.

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Prior to the consummation of the merger, the Partnership will convert into a Delaware limited liability company and merge with and into the Company, with the Company surviving the merger and being renamed “FTAI Aviation Ltd.,” and the equityholders of the Partnership, being FTAI and Master GP, receiving ordinary shares of the Company in exchange for their interests of the Partnership.
In connection with the Holdco Merger, each of FTAI’s 99.9% interest and the Master GP’s 0.01% interest in the Partnership will be exchanged pro rata for Company ordinary shares and the number of ordinary shares of the Company owned by FTAI will correspond to the equivalent number of common shares of FTAI owned by FTAI’s public common shareholders. Prior to the merger of FTAI and Merger Sub, the Company’s shares will be recapitalized (i) to authorize and designate Company preferred shares consisting of Company Series A Preferred Shares, Company Series B Preferred Shares and Company Series C Preferred shares, with such series of preferred shares having substantially equivalent rights as compared to the rights of the equivalent classes of FTAI preferred shares immediately prior to closing (and pursuant to the merger, (a) each FTAI common share will be exchanged for one ordinary share of the Company, (b) each outstanding FTAI Series A Preferred Share will be exchanged for one Company Series A Preferred Share; (c) each outstanding FTAI Series B Preferred Share will be exchanged for one Company Series B Preferred Share and (d) each outstanding FTAI Series C Preferred Share will be exchanged for one Company Series C Preferred Share) and (ii) FTAI’s 99.9% interest and the Master GP’s 0.01% interest in the Company prior to the recapitalization is maintained (the “recapitalization”). Following the Holdco Merger and recapitalization, (i) FTAI will hold one ordinary share of the Company and for each common FTAI share held by FTAI’s public common shareholders and (ii) the Master GP will hold 0.01% of the outstanding ordinary shares of the Company.
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Closing and Effective Time of the Merger
The closing of the merger will take place no later than the second business day following the satisfaction or waiver of the conditions described below under the subsection entitled “— Conditions to Closing of the Merger,” unless FTAI, the Company and Merger Sub agree to another time. The merger is expected to be consummated as soon as practicable after the special meeting of FTAI’s shareholders described in this proxy statement/prospectus.
Conditions to Closing of the Merger
Each party’s obligation to effect the merger is subject to the satisfaction at closing or waiver at or before closing of each of the following conditions:
that there is no legal prohibition and no order or pending lawsuit by any governmental authority against consummation of the transactions;
that the Company’s ordinary shares be approved for listing on Nasdaq subject only to official notice of issuance thereof;
the approval and adoption of the merger agreement and approval of the merger at the special meeting by the affirmative vote for the merger proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon; and
the SEC will have declared the registration statement effective under the Securities Act, no stop order or similar restraining order by the SEC suspending the effectiveness of the registration statement will be in effect and no proceedings for that purpose will be pending before the SEC.
Termination
The merger agreement may be terminated at any time, but not later than the closing, by mutual written agreement of FTAI and the Company.
Amendments
The merger agreement may be amended or modified at any time by the parties thereto, but only pursuant to an instrument in writing signed by the parties in accordance with applicable provisions of the laws of the State of Delaware.
Governing Law
This merger agreement is construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflict of laws.
Management of the Company Following the Merger
Upon completion of the merger, the directors of the Company will be Messrs. Adams, Goodwin, Ms. Hannaway, Messrs. Levison, Nicholson, Robinson and Tuchman and its executive officers will be Messrs. Adams and Ms. Nam. The number of directors of the Company board of directors will be fixed at seven and divided into three classes. The member of each class will serve staggered three-year terms as follows:
Class
Term Expiration
Director
Age
Class I
2025
Paul R. Goodwin
79
 
 
Ray M. Robinson
74
Class II
2023
Joseph P. Adams, Jr.
65
 
 
Judith A. Hannaway
70
 
 
Martin Tuchman
81
Class III
2024
A. Andrew Levinson
66
 
 
Kenneth J. Nicholson
51
Background of the Merger
As part of FTAI’s ongoing strategic planning process, the FTAI board of directors and senior management regularly review and assess FTAI’s long-term goals and opportunities, industry trends, competitive environment, and short-and long-term performance in light of FTAI’s strategic plan, with the goal of maximizing shareholder value. In
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connection with these activities, the FTAI board of directors and senior management meet from time to time in the ordinary course of business to consider and evaluate various courses of action, including business combinations, acquisitions, dispositions, stock buybacks, special dividends, internal restructurings, capital raising, debt financings or refinancings, spin-offs and other transactions, and FTAI engaged Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor. As part of this review, the FTAI board of directors directed FTAI management to begin exploring a potential spin-off transaction in April 2021. The FTAI board of directors considered the merits of a spin-off transaction in light of feedback that management had received from FTAI’s shareholders that had indicated that it was difficult to assess the value of FTAI against peer companies given its (i) combined aviation and infrastructure businesses, (ii) corporate structure as a Delaware limited liability company and (iii) tax status as a partnership. As a result, the FTAI board of directors determined to explore the spin-off transaction, because the spin-off transaction, together with the merger, would address the shareholder feedback described above. On December 15, 2021, the FTAI board of directors formed a special committee comprised solely of independent and disinterested board members and delegated to the special committee the full power and responsibility to, among other things, (x) review, evaluate and negotiate certain terms relating to the management agreements, the treatment of certain income incentive allocations and capital gains incentive allocations and the treatment of certain outstanding options held by FTAI’s manager and the non-employee directors of FTAI (collectively, the “Specified Matters”) and (y) act with respect to the Specified Matters.
The material terms of the ancillary agreements providing for the spin-off transaction were initially determined by FTAI by making the material terms of the agreements of FTAI Infrastructure Inc., a Delaware corporation (“FTAI Infrastructure”), substantially consistent with the terms in place at FTAI prior to the spin-off, to the extent applicable, and reviewing the terms of comparable transactions and taking into account structuring considerations. The terms of the internal reorganization of FTAI Infrastructure and the merger were determined by FTAI to separate FTAI’s assets into the aviation business and the infrastructure business in accordance with contractual, regulatory and tax considerations and to effectuate the purposes of the transaction. The terms of the transactions are being negotiated with third-parties.
The material terms of the spin-off were proposed by FTAI for consideration by the special committee. The special committee hired Fried, Frank, Harris, Shriver & Jacobson LLP as its outside legal counsel to assist it in considering the terms of the proposed spin-off. The special committee reviewed with its outside legal counsel the terms of the definitive transaction agreements providing for the spin-off transaction. The special committee also received a review from an outside financial advisory firm, Houlihan Lokey, of publicly available information regarding stock options that were adjusted in selected spin-off transactions and publicly available information regarding selected external management agreements. The special committee considered other transactions and considerations as part of the full FTAI board process, including not proceeding with the spin-off transaction, as well as discussed the agreements related to the spin-off, and determined that the terms were substantially consistent with the terms in place prior to the spin-off, and agreed to approve the Specified Matters on this basis. The special committee agreed that the transaction would likely increase shareholder value and make it easier to determine each business’ separate valuation. Following the determination of the special committee, the board of directors of FTAI unanimously approved the spin-off transactions, subject to the board of directors declaring the distribution prior to the closing of the spin-off. On July 12, 2022, the FTAI board of directors declared the distribution, and on August 1, 2022, FTAI completed the spin-off of FTAI Infrastructure.
Following the completion of the spin-off transaction, FTAI and the Company prepared the merger agreement and related agreements providing for the transactions in order for the public company to become a Cayman Islands exempted company to address the shareholder feedback described above. On August 11, 2022, the board of directors of each of FTAI and the Company and the sole member of Merger Sub approved the merger agreement and the transactions contemplated thereby. On August 12, 2022, FTAI, the Company and Merger Sub entered into the merger agreement.
Upon completion of the merger, the Fortress Transportation and Infrastructure Investors LLC Nonqualified Stock Option and Incentive Award Plan (the “FTAI Plan”) will be assumed by the Company as the Company Nonqualified Stock Option and Incentive Award Plan (the “Company Plan”). In connection with the assumption by the Company, each FTAI common share reserved for issuance under the FTAI Plan will be converted into an ordinary share of the Company on a one-for-one basis, and each outstanding FTAI option will be converted into a Company option on the same terms and conditions applicable to the corresponding FTAI option as of the completion of the merger. The number of ordinary shares of the Company reserved for issuance under the Company Plan will not be
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increased in connection with the assumption by the Company of the Company Plan, and there will not be any (i) material increase in the benefits to the participants in the Company Plan in connection with such assumption (including that there will be no extension to the term of the Company Plan in connection with such assumption), (ii) expansion in the class of participants eligible to participate in the Company Plan or in the types of award provided under the Company Plan in connection with such assumption or (iii) any other material amendment to the terms of the Company Plan in connection with such assumption. The conversion of the outstanding FTAI options into Company options upon completion of the merger will not further reduce the number of ordinary shares of the Company reserved and available for future issuance under the Company Plan.
FTAI’s Board of Directors’ Reasons for Approval of the Merger
FTAI’s board of directors carefully evaluated the agreements relating to the proposed merger and reviewed industry and financial data in order to determine that the transaction terms were reasonable and that the merger was in the best interests of FTAI’s shareholders. The following is a summary of the material factors that the FTAI board of directors considered:
after a thorough review of other restructuring transaction structures reasonably available to FTAI and the Company, the proposed merger represents the best potential restructuring transaction structure for FTAI and the most attractive opportunity for FTAI’s management to accelerate its business plan;
the management of FTAI supports the restructuring transaction;
the merger is generally not expected to be a taxable event to many of FTAI’s shareholders for U.S. federal income tax purposes; and
feedback that management had received from FTAI’s shareholders that had indicated that it was difficult to assess the value of FTAI against peer companies given its tax status as a partnership.
Adverse Factors Considered by FTAI
FTAI’s board also evaluated several adverse factors in its consideration of the merger. These included:
the costs of effecting the merger, including the legal and accounting costs that FTAI will incur in connection with implementing the merger;
the risk that holders of FTAI common shares may fail to provide the votes necessary to effect the merger;
the fact that completion of the merger is conditioned on satisfaction of certain closing conditions that are not within FTAI’s and the Company’s control;
various other risk factors associated with the business of FTAI, as described in the section entitled “Risk Factors”; and
the potential tax liabilities that could arise as a result of the merger to certain of FTAI’s shareholders.
Interests of FTAI’s Directors and Officers in the Merger
In considering the recommendation of the board of directors of FTAI to vote in favor of approval of the merger proposal and, if presented, the adjournment proposal, shareholders should keep in mind that FTAI’s directors and executive officers have interests in the merger proposal that are different from, or in addition to, those of FTAI shareholders generally. These interests include, among other things:
The transactions contemplated by the merger agreement provide that each of Messrs. Adams, Goodwin, Ms. Hannaway, Messrs. Levison, Nicholson, Robinson and Tuchman will be directors of the Company after the closing of the merger. As such, in the future each non-employee director will receive any cash fees, shares options or shares awards that the Company board of directors determines to pay to its non-employee directors.The total annual compensation generally payable by FTAI to its non-employee directors is $150,000. In addition, FTAI pays an annual fee to the chairperson of the Audit Committee of $10,000. See “Executive Compensation – Compensation of Directors” for a more detailed discussion of FTAI’s current director compensation program.
Pursuant to the terms of the Company’s Management Agreement, the Company will be managed by its Manager, FIG LLC, which is an affiliate of Fortress. The Manager will receive a management fee pursuant to the Company’s Management Agreement. Following the closing of the merger, the existing arrangements with Master GP will be
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terminated, and we will enter into the Services and Profit Sharing Agreement, pursuant to which Master GP will also receive incentive payments. Certain directors and officers of the Company are senior employees of Fortress and, as such, have an interest in the Manager’s and Master GP’s receipt of the management fee and the incentive payments, respectively. Prior to the merger, Master GP was entitled to certain incentive allocations (comprised of income incentive allocations and capital gains incentive allocations) pursuant to the partnership agreement for the Partnership which will be terminated in connection with the transaction. Following the closing of the merger, Master GP will be entitled to the same incentive allocations pursuant to the Services and Profit Sharing Agreement on substantially similar terms as the existing arrangements. For the year ended December 31, 2021 and the six months ended June 30, 2022, the Manager received management fees of $16,322,000 and $7,226,000, respectively. The Manager did not receive any incentive allocations during those periods. See “Business of the Company – Management Agreement; Services and Profit Sharing Agreement” for a more detailed description of the management fee and incentive compensation payments.
FTAI has granted stock options to acquire FTAI common shares to its Manager, who may in turn assign a portion of the options to its employees, including our officers and directors. Any such “tandem options” assigned to employees of the Manager, including our officers and directors, correspond on a one-to-one basis with the options granted to the Manager, such that exercise by an employee or director of the tandem options would result in the corresponding option held by our Manager being cancelled.
The Manager (or its affiliate) holds 3,122,410 options, all of which are fully vested as of the date of grant;
FTAI’s chief executive officer, Mr. Adams, holds 307,666 tandem options in various stages of vesting;
FTAI has granted stock options to acquire FTAI common shares to each of its non-employee directors, and each of the non-employee directors holds 5,000 fully vested director options; and
The affiliated director, Mr. Nicholson, holds 307,666 tandem options in various stages of vesting.
Upon completion of the merger, each outstanding stock option to acquire FTAI common shares, whether held by the Manager, FTAI’s chief executive officer, or by FTAI’s affiliated or non-employee directors, will be converted on a one-for-one basis into a stock option to acquire ordinary shares of the Company on the same terms and conditions applicable to the corresponding FTAI option as of the completion of the merger.
Additionally, following the merger, the Master GP will hold 0.01% of the outstanding ordinary shares of the Company.
The discussion herein of the information and factors considered by the FTAI board of directors is not meant to be exhaustive, but includes the material information and factors considered by the FTAI board of directors.
U.S. Federal Income Tax Considerations
The following discussion is a summary of the U.S. federal income tax considerations generally applicable to an investment in Company shares following the merger. This summary is based upon the Code, Treasury Regulations, rulings, and other administrative pronouncements issued by the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect.
The information in this summary is based on the Code; current regulations promulgated by the Treasury Regulations; the legislative history of the Code; current administrative interpretations and practices of the IRS; and court decisions; all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax considerations described below. The summary is also based upon the assumption that the Company and its respective subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents or partnership agreements. This summary is for general information only and is not legal or tax advice. Moreover, this summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:
financial institutions;
insurance companies;
broker-dealers;
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regulated investment companies;
partnerships and trusts;
expatriates or former long-term residents of the United States;
persons who receive Company shares through the exercise of employee stock options or otherwise as compensation;
persons holding Company shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;
persons who hold (actually or constructively) 10% or more of the vote or value of the Company;
tax-exempt organizations; and
foreign investors.
This summary assumes that investors hold their Company shares as capital assets, which generally means property held for investment.
For purposes of this discussion under this heading “U.S. Federal Income Tax Considerations,” a “U.S. Holder” is a Company shareholder that is for U.S. federal income tax purposes:
a citizen or resident of the United States;
a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;
an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or
a trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person.
If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, holds FTAI shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax considerations of the merger and the Restructuring Transactions.
Taxation of the Company
Under current U.S. federal income tax law, a corporation is generally considered a tax resident in the jurisdiction of its organization or incorporation. Thus, as a company incorporated under the laws of the Cayman Islands, the Company is expected to be treated as a foreign corporation (and therefore as a non-U.S. tax resident) for U.S. federal income tax purposes. In certain circumstances, however, an entity organized outside the United States will be treated as a U.S. corporation (and, therefore, as a U.S. tax resident) under Section 7874 of the Code. Based on the rules in effect at the time of the Restructuring Transactions, the Company does not expect to be treated as a U.S. corporation for U.S. federal income tax purposes by virtue of Section 7874 of the Code. Nevertheless, because the Section 7874 rules and exceptions are complex and subject to factual and legal uncertainties, there can be no assurance that the Company will not be treated as a U.S. corporation for U.S. federal income tax purposes. The remainder of this discussion assumes that the Company is not treated as a U.S. corporation for U.S. federal income tax purposes.
If the Company is treated as engaged in a trade or business in the United States, then, unless exempted by an applicable income tax treaty or Section 883 or Section 887 of the Code (as described below), the portion of its net income, if any, that was “effectively connected” with such trade or business would be subject to U.S. federal income taxation at maximum corporate rates, currently 21%. In addition, the Company may be subject to an additional U.S. federal branch profits tax on its effectively connected earnings and profits at a rate of 30%. Although the Company (or one or more of its non-U.S. corporate subsidiaries) is expected to be treated as engaged in a U.S. trade or business, it is currently expected that only a small portion of the Company's taxable income will be treated as effectively connected with such U.S. trade or business. However, no assurance can be given that the amount of effectively
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connected income will not be greater than currently expected, whether due to a change in the Company's operations or otherwise. In addition, the Company expects to earn certain income through subsidiaries treated as U.S. corporations for U.S. federal income tax purposes, which subsidiaries would be subject to regular corporate U.S. federal income tax.
Section 883 of the Code provides an exemption from U.S. federal income taxation with respect to rental income derived from aircraft or ships used in international traffic by certain foreign corporations. The Company believes that it and its subsidiaries have been and currently remain currently eligible for this exemption with respect to aircraft and ships used in international traffic. No assurances can be given that the Company or its subsidiaries will continue to be eligible for this exemption as changes in its ownership or the amount of Company shares that are traded could cause the Company and its subsidiaries to cease to be eligible for such exemption. To qualify for this exemption in respect of rental income, the lessor of the aircraft or ships must be organized in a country that grants a comparable exemption to U.S. lessors (including the Cayman Islands and the Marshall Islands), and certain other requirements must be satisfied. The Company and its subsidiaries can satisfy these requirements if the shares of the Company are primarily and regularly traded on a recognized exchange and, for more than half the days of such year, certain shareholders, each of whom owns 5% or more of its shares (applying certain attribution rules), do not collectively own more than 50% of its shares. Company's shares will be considered to be primarily and regularly traded on a recognized exchange in any year if: (i) the number of trades in its shares effected on such recognized stock exchange exceed the number of Company shares (or direct interests in Company shares) that are traded during the year on all securities markets; (ii) trades in its shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during the year; and (iii) the aggregate number of its shares traded on such stock exchanges during the taxable year is at least 10% of the average number of Company shares issued and outstanding in that class during that year. Although we expect Company shares to be considered to be primarily and regularly traded on a recognized exchange, there can be no assurance in this regard. If Company shares cease to satisfy these requirements, then the Company and its subsidiaries may no longer be eligible for the Section 883 exemption with respect to income earned by aircraft or ships used in international traffic.
Under these rules and based on current practices, we expect that the Company and such subsidiaries will generally not be subject to U.S. federal income taxation with respect to aircraft or ships used in international traffic. No assurances can be given, however, that the Company and its subsidiaries will continue to be eligible for the exemption under Section 883 of the Code. If the Company or its subsidiaries were not eligible for the exemption under Section 883 of the Code, we expect that the U.S. source rental income of the Company and its subsidiaries would generally be subject to U.S. federal taxation, on a gross income basis, at a rate of not in excess of 4% as provided in Section 887 of the Code. If, contrary to expectations, either the Company or one of its subsidiaries did not comply with certain administrative guidelines of the IRS, such that 90% or more of the U.S. source rental income of the Company or one of its subsidiaries were attributable to the activities of personnel based in the United States (in the case of bareboat leases) or from “regularly scheduled transportation” as defined in such administrative guidelines (in the case of time-charter leases), Section 887 would not apply and such U.S. source rental income would instead be treated as income effectively connected with the conduct of a trade or business in the United States, taxed as described above.
Considerations for U.S. Holders
Dividends
Distributions of cash or property that the Company pays in respect of its shares will constitute dividends for U.S. federal income tax purposes to the extent paid out of the Company's current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) and, subject to the passive foreign investment company (“PFIC”) rules discussed below, will be includible in a U.S. Holder's gross income as ordinary income upon receipt. Subject to the PFIC rules, distributions to a U.S. Holder in excess of the Company's earnings and profits will be treated first as a return of capital (with a corresponding reduction in such U.S. Holder's tax basis in the shares) to the extent of such U.S. Holder's tax basis in the shares on which the distribution was made (determined separately for each share), and then as gain from the sale or exchange of such shares. Because the Company is expected to be treated as a PFIC, the Company's distributions are not expected to be eligible for any dividends-received deduction generally allowed for corporate U.S. Holders or for the reduced rate applicable to “qualified dividend income” (which is taxable at the rates generally applicable to long-term capital gains) for non-corporate U.S. Holders.
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Sale, Exchange or Other Taxable Disposition of Shares
Upon the sale, exchange or other taxable disposition of shares, a U.S. Holder will generally recognize gain or loss equal to the difference, if any, between the amount realized on such sale, exchange or taxable disposition of Company shares and such U.S. Holder's tax basis in the shares sold. Subject to the PFIC rules discussed below, such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder's holding period with respect to such shares is more than one year at the time of its disposition. The deductibility of capital losses is subject to limitations.
PFIC Status and Related Tax Considerations
Under the Code, the Company will be a “passive foreign investment company” (a “PFIC”) for any taxable year in which either (i) 75% or more of the Company’s gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of the Company’s assets consists of assets that produce, or are held for the production of, “passive income.” For purposes of the above calculations, the Company will be treated as if it holds its proportionate share of the assets of, and receives directly its proportionate share of the income of, any other corporation in which it directly or indirectly owns at least 25%, by value, of the shares of such corporation. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive assets. As noted above, the Company is expected to be a PFIC for its 2022 taxable year and may continue to be a PFIC in the future, although there can be no assurances in this regard. If the Company is a PFIC for any taxable year during which a U.S. Holder holds the Company shares (assuming such U.S. Holder has not made a timely QEF election or mark-to-market election, as described below), gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of the Company shares would be allocated ratably over the U.S. Holder’s holding period for the Company shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an additional tax based on the interest charge generally applicable to underpayments of tax would be imposed on the amount allocated to that taxable year. Further, to the extent that any distribution received by a U.S. Holder on its Company shares exceeds 125% of the average of the annual distributions on the Company shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above.
If the Company is a PFIC for any taxable year during which a U.S. Holder holds its shares and any of the Company’s non-U.S. subsidiaries are also PFICs, the holder will be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified as a PFIC for purposes of the application of these rules and thus would be subject to the rules described above on income or gain recognized indirectly by the holder with respect to such subsidiaries. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to the Company and any of its subsidiaries.
A U.S. Holder can avoid certain of the adverse rules described above by making a QEF election with respect to such PFIC, if the PFIC provides the information necessary for such election to be made. If a U.S. person makes a QEF election with respect to a PFIC, the U.S. person will be currently taxable on its pro rata share of the PFIC’s ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified as a PFIC and will not be required to include such amounts in income when actually distributed by the PFIC. For each year that the Company is a PFIC, we expect to provide information necessary for U.S. Holders to make a QEF election by annually posting a “PFIC Annual Information Statement” on the Company's website. However, no assurance can be given that we will be able to provide such information for each taxable year.
The rules described above with respect to a QEF election generally apply only if the U.S. Holder has made a QEF election for the first taxable year in its holding period (a “pedigreed QEF election”). If, instead, a holder of PFIC shares makes a QEF election in any taxable year after the first taxable year in its holding period, such holder generally remains subject to the standard regime described above with respect to such PFIC shares unless such shareholder elects to recognize certain gain or income with respect to the PFIC shares. Under the general PFIC attribution rules, each holder of FTAI shares would generally be treated as owning its proportionate share of the shares of the Company and the other PFIC subsidiaries of FTAI. However, under currently enacted Treasury Regulations, such holders are not permitted to make a QEF election with respect to the Company or such other subsidiaries for so long as they are owned indirectly through FTAI and the Partnership rather than directly. Moreover,
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because the Company and its PFIC subsidiaries have been treated as CFCs in the Partnership's hands, the Partnership and FTAI have not previously been able to make a QEF election with respect to the Company or any of its subsidiaries. Accordingly, under the Treasury Regulations, it is not clear that a QEF election made by a shareholder for the taxable year of the merger will be a pedigreed QEF election if such holder owned FTAI shares in any prior taxable year. Proposed Treasury Regulations would provide that a U.S. Holder would be able to make a pedigreed QEF election in the taxable year of the merger with respect to FTAI's subsidiaries (including the Company). However, no assurance can be given as to when these proposed Treasury Regulations will be finalized or if they will be finalized in their current form.
If a U.S. Holder owns Company shares during any year in which the Company is a PFIC, the U.S. Holder must file annual reports, containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to the Company, with the U.S. Holder’s federal income tax return for that year, unless otherwise specified in the instructions with respect to such form.
In lieu of making a QEF election, a U.S. Holder can avoid certain of the adverse rules described above by making a mark-to-market election with respect to its Company shares; provided that Company shares are “marketable.” Company shares will be marketable if they are traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a “qualified exchange” or other market within the meaning of applicable Treasury Regulations. We expect that Company shares will be listed on Nasdaq, which is a qualified exchange for these purposes, but no assurances may be given in this regard. Consequently, assuming that Company shares are regularly traded, if a U.S. Holder holds Company shares, it is expected that the mark-to-market election would be available to such holder. However, because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such holder’s indirect interest in any investments held by the Company that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
If a U.S. Holder makes the mark-to-market election, it will recognize as ordinary income any excess of the fair market value of the Company shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the Company shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the Company shares will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition of Company shares in a year when the Company is a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes such a mark-to-market election, tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by the Company (except that the lower applicable capital gains rate for qualified dividend income would not apply). If a U.S. Holder makes a valid mark-to-market election, and the Company subsequently ceases to be classified as a PFIC, such U.S. Holder will not be required to take into account the mark-to-market income or loss described above during any period that the Company is not classified as a PFIC.
U.S. Holders should consult their tax advisers concerning the Company's PFIC status and the application of the PFIC rules (including the proposed Treasury Regulations) to their Company shares and the Company's subsidiaries.
Redemption of Preferred Stock
Subject to the PFIC rules described above, the treatment of a redemption of Company Preferred Shares will depend on whether the redemption qualifies as a sale of shares under Section 302 of the Code. If the redemption so qualifies, a U.S. Holder of Company Preferred Shares would be treated as described above under the section titled “Sale, Exchange or Other Taxable Disposition of Shares.” If the redemption does not so qualify, such U.S. Holder would be treated as described above under the section titled “Dividends.” Whether a redemption of Company Preferred Shares qualifies for sale treatment under Section 302 will depend on a number of factors, as determined at the time of such redemption. Each holder of Company Preferred Shares is urged to consult with its tax advisors as to the tax considerations of any redemption of Company Preferred Shares.
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF THE POTENTIAL TAX CONSIDERATIONS APPLICABLE TO THE OWNERSHIP AND DISPOSITION OF COMPANY SHARES. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A HOLDER DEPENDING
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UPON THE HOLDER’S PARTICULAR SITUATION. EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF THE OWNERSHIP AND DISPOSITION OF COMPANY SHARES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, ESTATE, FOREIGN AND OTHER TAX LAWS AND TAX TREATIES AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. OR OTHER TAX LAWS. NOTHING IN THIS SUMMARY IS INTENDED TO BE, OR SHOULD BE CONSTRUED AS, TAX ADVICE.
Regulatory Matters
The merger and the transactions contemplated by the merger agreement are not subject to any federal or state regulatory requirement or approval, except for filings with the State of Delaware necessary to effectuate the merger.
Required Vote
The approval of the merger proposal will require the affirmative vote for the proposal by the holders of a majority of the issued and outstanding common shares of FTAI entitled to vote thereon. Holders of preferred shares of FTAI are not entitled to vote on the approval of the merger proposal.
The current officers and directors of FTAI have indicated their intention to vote in favor of the matters presented at the special meeting.
The approval of the merger proposal is a condition to the consummation of the merger.
THE FTAI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
FTAI COMMON SHARES VOTE “FOR” THE APPROVAL OF THE MERGER PROPOSAL.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements have been prepared to illustrate the effect of the merger detailed in the section entitled “The Merger Proposal” and included elsewhere in this proxy statement/prospectus. As used herein, the term “Company” means FTAI Finance Holdco Ltd. (or “our”), the term “Corporate” refers to FTAI’s debt, preferred equity and unallocated general and administrative expenses to be assumed by the aviation business, and the term “Offshore Energy” means FTAI’s offshore energy business that consists of vessels and equipment that support offshore oil and gas drilling and production. The unaudited pro forma consolidated financial statements have been derived from our historical unaudited consolidated financial statements for the six months ended June 30, 2022, and our historical audited consolidated financial statements for the years ended December 31, 2021, December 31, 2020 and December 31, 2019.
The unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of the SEC’s Regulation S-X. The unaudited pro forma consolidated financial statements consist of an unaudited pro forma consolidated balance sheet as of June 30, 2022, and unaudited pro forma consolidated statements of operations for the six months ended June 30, 2022, and years ended December 31, 2021, December 31, 2020 and December 31, 2019. The unaudited pro forma consolidated financial statements below should be read in conjunction with our historical audited and unaudited consolidated financial statements and the related notes of FTAI Finance Holdco Ltd., and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy statement/prospectus, the historical audited and unaudited consolidated financial statements and the related notes of FTAI included in the Form 10-K for the year ended December 31, 2021 and in the Form 10-Q for the period ended June 30, 2022, and FTAI’s Form 8-K filed on August 5, 2022, including the unaudited pro forma consolidated financial statements illustrating the effects of the spin-off of FTAI Infrastructure Inc. from FTAI.
The unaudited pro forma consolidated statements of operations for the six months ended June 30, 2022, and the years ended December 31, 2021, December 31, 2020 and December 31, 2019, give effect to the related transactions described below as if they had occurred on January 1, 2019. The unaudited pro forma consolidated balance sheet as of June 30, 2022, gives effect to the following transactions as if they had occurred on such date:
FTAI contributes the infrastructure business to FTAI Infrastructure Inc., which comprises of, among other things the (i) Jefferson Terminal business, a multi-modal crude oil and refined products terminal in Beaumont, Texas, (ii) Repauno business, a deep-water port located along the Delaware River with an underground storage cavern and multiple industrial development opportunities, (iii) Long Ridge investment, an equity method investment in a multi-modal terminal located along the Ohio River with multiple industrial development opportunities, including a power plant in operation, and (iv) Transtar business, five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities. This contribution also included all related project-level debt of the infrastructure entities (the “Separation and Distribution”). Subsequent to the Separation and Distribution, FTAI primarily holds Offshore Energy and Corporate, and all the aviation assets through its ownership of FTAI Finance Holdco Ltd.
FTAI receives a cash dividend of $730.3 million from FTAI Infrastructure Inc. (the “Dividend”). The cash proceeds used for the Dividend were raised by FTAI Infrastructure Inc. through issuances of debt and preferred equity.
FTAI uses the proceeds of the Dividend from FTAI Infrastructure to pay down third-party debt.
The completion of a reverse merger of FTAI into FTAI Finance Holdco Ltd. (the “Merger”).
In management’s opinion, the unaudited pro forma consolidated financial statements reflect adjustments necessary to present fairly FTAI Finance Holdco Ltd.’s pro forma results and financial position as of and for the periods indicated. Such adjustments include pro forma adjustments. These pro forma adjustments are based on currently available information and assumptions management believes are, given the information available at this time, reasonable and reflect changes necessary to reflect the transactions detailed above. Actual adjustments may differ materially from the information presented herein.
The unaudited pro forma consolidated financial statements include all revenues and costs directly attributable to FTAI Finance Holdco Ltd. as well as an allocation of expenses related to facilities, corporate overhead, professional fees, personnel costs, and other related expenses for services provided by FTAI’s Manager in accordance
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with the management agreement. The charges reflected have either been specifically identified or allocated based on an estimate of time spent on FTAI Finance Holdco Ltd.’s business. These allocated costs are included within the historical FTAI Finance Holdco Ltd.’s consolidated statement of operations.
Our unaudited pro forma consolidated financial statements are for illustrative and informational purposes only and are not intended to represent what our results of operations or financial position would have been had the transactions above occurred on the dates assumed. These unaudited pro forma consolidated financial statements also should not be considered indicative of our future results of operations or financial position.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2022

(in thousands, except per share amounts)
 
FTAI
Finance
Holdco Ltd.
(historical)
Merger of
FTAI
(a)
Pro Forma
Adjustments
Notes
Pro Forma
Results
Revenues
193,956
9,799
 
203,755
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
69,039
11,765
 
80,804
Cost of sales
24,191
 
24,191
General and administrative
5,771
2,696
 
8,467
Acquisition and transaction expenses
2,601
2,891
 
5,492
Management fees and incentive allocation to affiliate
4,153
(4,153)
462
(c)
462
Depreciation and amortization
73,690
6,918
 
80,608
Asset impairment
123,676
 
123,676
Interest expense
1,266
90,760
(20,221)
(b)
71,805
Total expenses
304,387
110,877
(19,759)
 
395,505
 
 
 
 
 
 
Other income
 
 
 
 
 
Equity in earnings of unconsolidated entities
233
 
233
Gain on sale of assets, net
79,933
 
79,933
Interest income
203
1,043
 
1,246
Total other income
80,369
1,043
 
81,412
Losses before income taxes
(30,062)
(100,035)
19,759
 
(110,338)
Provision for (benefit from) income taxes
3,434
(266)
 
3,168
Net loss
(33,496)
(99,769)
19,759
 
(113,506)
Less: Dividends on preferred shares
13,582
 
13,582
Net loss attributable to shareholders
(33,496)
(113,351)
19,759
 
(127,088)
 
 
 
 
 
 
Loss per share:
 
 
 
 
 
Basic
(326.47)
 
 
 
(1.28)
Diluted
(326.47)
 
 
 
(1.28)
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
102,600
 
 
 
99,367,597
Diluted
102,600
 
 
 
99,367,597
See Notes to Unaudited Pro Forma Consolidated Financial Statements
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2021

(in thousands, except per share amounts)
 
FTAI
Finance
Holdco Ltd.
(historical)
Merger of
FTAI
(a)
Pro Forma
Adjustments
Notes
Pro Forma
Results
Revenues
321,422
14,161
 
335,583
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
42,310
17,305
 
59,615
Cost of sales
14,308
 
14,308
General and administrative
9,555
3,893
 
13,448
Acquisition and transaction expenses
4,933
12,978
 
17,911
Management fees and incentive allocation to affiliate
9,162
(8,478)
239
(c)
923
Depreciation and amortization
142,121
5,619
 
147,740
Asset impairment
10,463
 
10,463
Interest expense
2,318
152,699
(14,267)
(b)
140,750
Total expenses
235,170
184,016
(14,028)
 
405,158
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
Equity in losses of unconsolidated entities
(1,403)
 
(1,403)
Gain on sale of assets, net
49,015
 
49,015
Loss on extinguishment of debt
(3,254)
 
(3,254)
Interest income
1,153
240
 
1,393
Other expense
(1,680)
 
(1,680)
Total other income (expense)
47,085
(3,014)
 
44,071
Income (losses) before income taxes
133,337
(172,869)
14,028
 
(25,504)
Provision for (benefit from) income taxes
3,466
(340)
 
3,126
Net income (loss)
129,871
(172,529)
14,028
 
(28,630)
Less: Dividends on preferred shares
24,758
 
24,758
Net income (loss) attributable to shareholders
129,871
(197,287)
14,028
 
(53,388)
 
 
 
 
 
 
Earnings (loss) per share
 
 
 
 
 
Basic
1,298.71
 
 
 
(0.59)
Diluted
1,298.71
 
 
 
(0.59)
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
100,000
 
 
 
89,922,088
Diluted
100,000
 
 
 
89,922,088
See Notes to Unaudited Pro Forma Consolidated Financial Statements
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2020

(in thousands, except per share amounts)
 
FTAI
Finance
Holdco Ltd.
(historical)
Merger of
FTAI
(a)
Pro Forma
Adjustments
Notes
Pro Forma
Results
Revenues
281,756
16,178
 
297,934
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
20,963
18,958
 
39,921
Cost of sales
200
 
200
General and administrative
10,123
3,983
 
14,106
Acquisition and transaction expenses
8,491
1,377
 
9,868
Management fees and incentive allocation to affiliate
11,549
(6,103)
 
5,446
Depreciation and amortization
134,723
6,563
 
141,286
Asset impairment
33,978
 
33,978
Interest expense
2,110
85,332
(13,832)
(b)
73,610
Total expenses
222,137
110,110
(13,832)
 
318,415
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
Equity in losses of unconsolidated entities
(1,932)
 
(1,932)
Loss on sale of assets, net
(300)
 
(300)
Loss on extinguishment of debt
(6,943)
 
(6,943)
Interest income
94
46
 
140
Total other expense
(2,138)
(6,897)
 
(9,035)
Income (loss) before income taxes
57,481
(100,829)
13,832
 
(29,516)
(Benefit from) provision for income taxes
(4,674)
331
 
(4,343)
Net income (loss) from continuing operations
62,155
(101,160)
13,832
 
(25,173)
Net income from discontinued operations, net of income taxes
1,331
 
1,331
Net income (loss)
62,155
(99,829)
13,832
 
(23,842)
Less: Dividends on preferred shares
17,869
 
17,869
Net income (loss) attributable to shareholders
62,155
(117,698)
13,832
 
(41,711)
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
Basic
 
 
 
 
 
Continuing operations
621.55
 
 
 
(0.50)
Discontinued operations
 
 
 
0.02
Diluted
 
 
 
 
 
Continuing operations
621.55
 
 
 
(0.50)
Discontinued operations
 
 
 
0.02
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
100,000
 
 
 
86,015,702
Diluted
100,000
 
 
 
86,015,702
See Notes to Unaudited Pro Forma Consolidated Financial Statements
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2019

(in thousands, except per share amounts)
 
FTAI
Finance
Holdco Ltd.
(historical)