Filed Pursuant to Rule 424(b)(5)
Registration No. 333-154922

Prospectus Supplement
(To the prospectus dated October 31, 2008)

 

17,500,000 Shares

 

 

CapitalSource Inc.

 

Common Stock

 

 

 

 

We are selling 17,500,000 shares of our common stock.

 

Our common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “CSE.” The last reported sale price on the New York Stock Exchange on July 14, 2009 was $4.30 per share.

 

We have granted the underwriters a 30-day option to purchase up to 2,625,000 additional shares of our common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

 

Investing in our common stock involves risks. See the “Risk Factors” beginning on page S-11 of this prospectus supplement and in our Annual Report on Form 10-K for the year ended December 31, 2008, which is incorporated by reference in this prospectus supplement and the accompanying prospectus.

 

 

Delivery of the shares of common stock will be made on or about July 20, 2009.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is July 14, 2009.

TABLE OF CONTENTS

 

 

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

 

Dealer Prospectus Delivery Obligation

 

Until August 8, 2009, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 

This document is in two parts. The first part is the prospectus supplement, which describes our common stock and certain other matters relating to our company. The second part, the base prospectus, gives more general information about securities we may offer from time to time, some of which does not apply to the offering. Generally, when we refer to the prospectus, we are referring to both parts of this document combined. If information contained in the prospectus supplement differs from the information in the base prospectus, the information in the prospectus supplement supersedes the description in the base prospectus.

 

This prospectus supplement, the accompanying prospectus and the documents incorporated by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to numerous assumptions, risks and uncertainties. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of invoking these safe harbor provisions. All statements, other than statements of historical facts included, or incorporated by reference, in this prospectus supplement, are intended to be covered by these safe harbor provisions, including certain plans, expectations, goals, projections and statements about each of the following:

 

 

All statements contained in this prospectus supplement that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “expect,” “estimate,” “plan,” “will,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors, including without limitation:

 

 

 

All forward-looking statements included in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference are based on information available at the time the statement is made. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The information contained in this section should be read in conjunction with our consolidated financial statements and related notes incorporated by reference into this prospectus supplement and the accompanying prospectus.

 

SUMMARY

	•	Direct Origination Model.  We operate a large-scale, broad-based lending platform through which we offer a range of asset-based loans, cash flow loans, mortgage loans and real estate lease financing. In addition to the advantages we realize from the breadth of our product offerings, we believe we compete based on effective interaction between the clients’ decision-makers and our experienced professionals, our flexible approach to structuring debt financings that meet our clients’ business and timing needs and our superior client service. We have created an integrated approach to our loan origination and underwriting approval process that effectively combines the skills of these diverse professionals with our proprietary information systems. This process allows us to move efficiently and quickly from our initial contact with a prospective client to the closing of our loan transaction while maintaining our underwriting standards. Along the way, a large number of our professionals become involved in the analysis and decision-making with respect to each potential lending opportunity. Many of our professionals are certified public accountants or have attained advanced degrees in business or law, and all of them specialize in particular industry sectors or product types. We believe this human capital allows us to minimize credit risk while delivering superior service to clients.
	•	Strategic Focus.  The financing needs of our target middle market clients are often specific to their particular business or situation. Because we believe specialized industry and sector knowledge is important to serve our client base successfully, we originate, underwrite and manage our financings by focusing on our areas of expertise: asset-based healthcare lending, commercial real estate lending, lender finance and cash flow lending.
	•	Well-Capitalized Depository Platform with Excess Liquidity. Our wholly owned bank subsidiary, CapitalSource Bank, has access to a significant base of deposits. We believe CapitalSource Bank enhances our liquidity profile and improves our capital efficiency, as the deposit market provides a more stable and lower cost source of funds than the capital markets generally offer. Our ability to

		access this funding source positions us for future growth, as it allows us to take advantage of the attractive lending opportunities we believe are now available, and separates us from many competitors that are capital-constrained and unable to make new loans. As of March 31, 2009, CapitalSource Bank’s total risk-based capital ratio was 17.24%.

	•	Experienced Management Team.  Our senior management team averages 20 years experience in the commercial lending sector, and substantially all of the members of our senior management team have been employed by us since our initial public offering or earlier.
	•	Strong Shareholder Alignment.  Our management, directors and certain of their affiliates beneficially own approximately 25% of outstanding shares of our common stock and are strongly aligned with shareholders’ goals of maximizing long-term value of our business.

	•	Play Offense.  We believe the demand for debt funding remains strong and market conditions for lenders with available liquidity remain highly attractive. Nevertheless, we intend to proceed with caution and grow our commercial lending business inside CapitalSource Bank methodically, by originating high quality new loans while maintaining credit standards and a strong capital position. We also continue to explore alternatives for monetizing the value of our Healthcare Net Lease business, including debt financings, asset sales and corporate transactions. Our goals for our “play offense” strategy are (1) increase the percentage of commercial loans owned within CapitalSource Bank to drive higher returns, (2) redeploy low yielding assets into higher yielding loans to increase profitability and (3) manage the level of deposits and liquid assets within CapitalSource Bank to improve our net interest margin.
	•	Play Defense.  We are actively engaged in managing our legacy loan portfolio, held outside of CapitalSource Bank, by focusing on credit outcomes in a macroeconomic environment that we expect to remain difficult through 2010. We also have succeeded in renewing and extending our credit facilities and other indebtedness to better match the maturities of the legacy loan portfolio held outside of CapitalSource Bank. Finally, we intend to pay down the Parent Company debt with cash generated from the legacy portfolio.

	•	purchased or originated by CapitalSource Bank;
	•	pledged to our term debt securitizations and to our warehouse credit facilities; and
	•	pledged to our syndicated bank credit facility.

	•	100% are senior secured loans;

	•	approximately 34% of these loans are asset-based revolving loans, 31% are cash flow term loans and 35% are real estate term loans;
	•	approximately 50% bear interest based on a spread over one-month LIBOR, 20% bear interest based on a spread over the applicable prime rate, and 28% bear interest based on a spread over a combination of prime and one-month LIBOR; and
	•	approximately 18% are scheduled to mature within 12 months, 37% are scheduled to mature within 24 months and 58% are scheduled to mature within 36 months.

	•	approximately 86% are senior secured loans;
	•	approximately 29% of these loans are asset-based revolving loans, 41% are cash flow term loans and 30% are real estate term loans;
	•	approximately 33% bear interest based on a spread over one-month LIBOR, 27% bear interest based on a spread over the applicable prime rate, and 32% bear interest based on a spread over a combination of prime and one-month LIBOR; and
	•	approximately 27% are scheduled to mature within 12 months, 42% within 24 months and 64% within 36 months.

	•	approximately 72% are senior secured loans;
	•	approximately 19% are asset-based revolving loans, 35% are cash flow term loans and 46% are real estate term loans;
	•	approximately 56% bear interest based on a spread over one-month LIBOR, 28% bear interest based on a spread over the applicable prime rate, and 7% bear interest based on a spread over a combination of prime and one-month LIBOR; and
	•	approximately 26% are scheduled to mature within 12 months, 47% within 24 months and 63% within 36 months.

	Level 1	“Investment Grade” (Based on Structure, Collateral or Credit)
	Level 2	Very High Quality Credit in All Respects, Supported by a Combination of Strong Collateral and Cash Flow
	Level 3	Strong Credit or Collateral Position
	Level 4	Acceptable Collateral or Credit Position with Enhanced Monitoring
	Level 5	Problem Loan with a Limited Credit Risk; Actively Out-Placing the Credit
	Level 6	Active Work Out; Expectation of Credit Loss

CapitalSource Bank						%				Securitizations & Credit Facilities						%				Syndicated Bank Credit Facility Collateral						%
Collateral Size		$	2,940.1							Collateral Size		$	5,062.3							Collateral Size		$	1,351.6
Number of Loans			265							Number of Loans			575							Number of Loans			289
Yield			6.59							Yield			7.19							Yield			6.63
Collateral Distribution										Collateral Distribution										Collateral Distribution
Asset-Based		$	996.4				34	%		Asset-Based		$	1,440.2				29	%		Asset-Based		$	252.1				19	%
Cash Flow			908.6				31	%		Cash Flow			2,095.5				41	%		Cash Flow			478.2				35	%
Real Estate			1,035.1				35	%		Real Estate			1,526.6				30	%		Real Estate			621.3				46	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Lien										Lien										Lien
Senior		$	2,940.1				100	%		Senior		$	4,350.4				86	%		Senior		$	967.6				72	%
Subordinated			—				0	%		Subordinated			665.4				13	%		Subordinated			356.6				26	%
Unsecured			—				0	%		Unsecured			46.5				1	%		Unsecured			27.4				2	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Industry Codes										Industry Codes										Industry Codes
Traveler Accommodation		$	910.7				31	%		Nursing Care Facilities		$	637.1				12	%		Nursing Care Facilities		$	317.0				23	%
Nursing Care Facilities			392.0				13	%		Nondepository Credit Intermediation			498.0				10	%		Nondepository Credit Intermediation			133.6				10	%
Land Subdivision			235.9				8	%		Traveler Accommodation			486.2				10	%		Residential Building Construction			117.0				9	%
Nondepository Credit Intermediation			203.9				7	%		Land Subdivision			305.0				6	%		Activities Related to Real Estate			63.5				5	%
Lessors of Real Estate			97.5				3	%		Investigation and Security Services			298.6				6	%		Nonresidential Building Construction			60.4				4	%
Software Publishers			88.2				3	%		Software Publishers			203.3				4	%		Newspaper, Periodical, Book, Publishers			55.3				4	%
Investigation and Security Services			63.1				2	%		Lessors of Real Estate			203.0				4	%		Vending Machine Operators			55.0				4	%
Nonresidential Building Construction			53.7				2	%		Residential Building Construction			148.2				3	%		Clothing Stores			44.9				3	%

CapitalSource Bank						%				Securitizations & Credit Facilities						%				Syndicated Bank Credit Facility Collateral						%
Foundries			45.0				2	%		Activities Related to Real Estate			130.0				3	%		Radio and Television Broadcasting			39.7				3	%
Miscellaneous Durable Goods			42.6				2	%		Mangt., Scientific, and Tech. Consulting Svcs.			117.5				2	%		Lessors of Real Estate			38.2				3	%
Sub Total Top 10			2,132.6							Sub Total Top 10			3,026.9							Sub Total Top 10			924.6
Other			807.5				27	%		Other			2,035.4				40	%		Other			427.0				32	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Loans by State										Loans by State										Loans by State
FL		$	622.5				22	%		FL		$	741.6				15	%		PA		$	307.9				23	%
CO			270.7				9	%		NY			617.8				12	%		International			148.0				11	%
NY			264.2				9	%		CA			471.8				9	%		CA			145.6				11	%
CA			241.6				8	%		International			368.6				7	%		FL			122.6				9	%
TX			183.3				6	%		CO			285.3				6	%		NY			79.3				6	%
MA			158.2				5	%		PA			277.1				5	%		TX			75.0				6	%
DC			123.2				4	%		GA			253.1				5	%		MA			59.0				4	%
IL			111.2				4	%		TX			241.5				5	%		NJ			50.7				4	%
NC			101.0				3	%		MA			180.2				4	%		VA			44.5				3	%
PA			97.4				3	%		IL			169.2				3	%		AZ			33.9				3	%
			2,173.3										3,606.2										1,066.5
Other			766.8				27	%		Other			1,456.1				29	%		Other			285.1				20	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Rate Index										Rate Index										Rate Index
Libor		$	1,473.7				50	%		Libor		$	1,657.7				33	%		Libor		$	750.7				56	%
Prime			600.7				20	%		Prime			1,384.0				27	%		Prime			374.4				28	%
Blended			823.1				28	%		Blended			1,635.3				32	%		Blended			100.1				7	%
Fixed			24.0				1	%		Fixed			311.0				6	%		Fixed			121.2				9	%
Euribor			—				0	%		Euribor			74.3				2	%		Euribor			5.2				0	%
Canadian Prime			18.6				1	%		Canadian Prime			—				0	%		Canadian Prime			—				0	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Floor										Floor										Floor
Yes		$	1,824.3				62	%		Yes		$	2,486.4				49	%		Yes		$	393.9				29	%
No			1,115.8				38	%		No			2,575.9				51	%		No			957.7				71	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6
Scheduled Maturities										Scheduled Maturities										Scheduled Maturities
Matured			—							Matured		$	146.8				2	%		Matured		$	130.7				10	%
<= 12 months		$	533.0				18	%		<= 12 months			1,253.2				25	%		<= 12 months			211.2				16	%
12-24			567.8				19	%		12-24			739.3				15	%		12-24			289.0				21	%
24-36			606.1				21	%		24-36			1,110.1				22	%		24-36			217.1				16	%
36-48			488.5				17	%		36-48			889.3				18	%		36-48			405.1				30	%
48+			744.7				25	%		48+			923.6				18	%		48+			98.5				7	%
Total		$	2,940.1							Total		$	5,062.3							Total		$	1,351.6

CapitalSource Bank						%				Securitizations & Credit Facilities						%				Syndicated Bank Credit Facility Collateral						%
Risk Ratings										Risk Ratings										Risk Ratings
2		$	1,025.5				35	%		2		$	1,123.8				22	%		2		$	105.6				8	%
3			1,515.4				52	%		3			2,780.8				55	%		3			570.0				42	%
4			320.5				11	%		4			797.5				15	%		4			238.3				18	%
5			66.2				2	%		5			279.2				6	%		5			107.7				8	%
6			12.5				0	%		6			81.0				2	%		6			330.0				24	%
Total		$	2,940.1							Collateral Size		$	5,062.3							Total		$	1,351.6

	•	The maturity date for $778 million in principal amount borrowed under the facility will be extended until March 31, 2012 upon satisfaction of certain payment conditions as described below;
	•	The extending lenders will receive, in aggregate, a $200 million payment unless they are required to share their collateral with a new financing source, such as the concurrent notes offering discussed herein, in which event they will receive a $300 million payment;
	•	Non-extending lenders will not receive any portion of the payments mentioned above and all amounts owing to them will continue to be due, subject to the mandatory commitment reductions, by the current maturity date of the facility — March 13, 2010; and
	•	The facility covenants have been amended to be more consistent with the asset-based structure of the facility.

		Three Months Ended
		March 31,								Year Ended December 31,
		2009				2008				2008				2007				2006				2005				2004
		($ in thousands, except per share data)
		(Unaudited)
Results of operations:
Interest income		$	221,687			$	308,325			$	1,108,561			$	1,277,903			$	1,016,533			$	514,652			$	313,827
Fee income			31,396				33,641				133,146				162,395				170,485				130,638				86,324
Total interest and fee income			253,083				341,966				1,241,707				1,440,298				1,187,018				645,290				400,151
Operating lease income			27,880				27,690				107,748				97,013				30,742				—				—
Total investment income			280,963				369,656				1,349,455				1,537,311				1,217,760				645,290				400,151
Interest expense			131,035				190,472				699,043				864,239				621,666				199,805				87,819
Net investment income			149,928				179,184				650,412				673,072				596,094				445,485				312,332
Provision for loan losses			155,267				5,659				593,046				78,641				81,562				65,680				25,710
Net investment (loss) income after provision for loan losses			(5,339	)			173,525				57,366				594,431				514,532				379,805				286,622
Depreciation of direct real estate investments			8,964				8,916				35,889				32,004				11,468				—				—
Other operating expenses			69,315				58,593				255,306				235,987				204,584				143,836				107,748
Total other (expense) income			(74,127	)			(96,399	)			(174,083	)			(74,650	)			37,328				19,233				17,781
Net (loss) income before income taxes and cumulative effect of accounting change			(157,745	)			9,617				(407,912	)			251,790				335,808				255,202				196,655
Income tax (benefit) expense(1)			(53,425	)			3,076				(189,235	)			87,563				37,177				98,332				77,097
Net (loss) income before cumulative effect of accounting change			(104,320	)			6,541				(218,677	)			164,227				298,631				156,870				119,558
Cumulative effect of accounting change, net of taxes			—				—				—				—				370				—				—
Net (loss) income			(104,320	)			6,541				(218,677	)			164,227				299,001				156,870				119,558
Net (loss) income attributable to non-controlling interest			(16	)			1,297				1,426				4,938				4,711				—				—
Net (loss) income attributable to CapitalSource Inc.		$	(104,304	)		$	5,244			$	(220,103	)		$	159,289			$	294,290			$	156,870			$	119,558
Net income (loss) per share:
Basic		$	(0.36	)		$	0.02			$	(0.88	)		$	0.83			$	1.77			$	1.30			$	1.03
Diluted		$	(0.36	)		$	0.02			$	(0.88	)		$	0.82			$	1.74			$	1.27			$	1.02
Average shares outstanding:
Basic			290,098,800				220,085,148				251,213,699				191,697,254				166,273,730				120,976,558				116,217,650
Diluted			290,098,800				221,493,514				251,213,699				193,282,656				169,220,007				123,433,645				117,600,676
Cash dividends declared per share		$	0.01			$	0.60			$	1.30			$	2.38			$	2.02			$	0.50			$	—
Dividend Payout Ratio			(0.03	)			30.00				(1.48	)			2.87				1.14				0.38				—

(1)		As a result of our decision to elect REIT status beginning with the tax year ended December 31, 2006, we provided for income taxes for the years ended December 31, 2008, 2007 and 2006, based on effective tax rates of 36.5%, 39.4% and 39.9%, respectively, for the income earned by our taxable REIT subsidiaries. We did not provide for any income taxes for the income earned by our qualified REIT subsidiaries for the years ended December 31, 2008, 2007 and 2006. We provided for income tax (benefit) expense on the consolidated loss incurred or income earned based on effective tax rates of 46.4%, 34.8%, 11.1%, 38.5% and 39.2% in 2008, 2007, 2006, 2005 and 2004, respectively. We provided for income tax (benefit) expense on the consolidated loss incurred or income earned based on effective tax rates of 33.9% and

		32.0% for the three month periods ended March 31, 2009 and 2008, respectively. We revoked our REIT election effective January 1, 2009 and recognized the deferred tax effects in our December 31, 2008 consolidated financial statements. The change in this election resulted in a significantly higher tax rate for 2008, than in the prior periods.

		As of March 31,								As of December 31,
		2009				2008				2008				2007				2006				2005				2004
		($ in thousands)
		(Unaudited)
Balance sheet data:
Investments and mortgage-backed securities(1)		$	1,100,505			$	3,310,176			$	2,146,394			$	4,030,180			$	3,476,424			$	322,027			$	—
Mortgage-related receivables, net			1,738,382				1,978,852				1,801,535				2,033,296				2,286,083				39,438				—
Commercial real estate “A” Participation Interest, net			1,077,968				—				1,396,611				—				—				—				—
Total loans, net(2)			8,688,498				9,531,286				8,807,133				9,525,454				7,563,718				5,737,430				4,104,214
Direct real estate investments, net			974,890				1,016,972				989,716				1,017,604				722,303				—				—
Total assets			15,791,808				17,700,538				18,419,632				18,039,364				15,209,295				6,955,325				4,698,436
Deposits			4,726,690				—				5,043,695				—				—				—				—
Repurchase agreements			—				3,427,856				1,595,750				3,910,027				3,510,768				358,423				—
Credit facilities			1,399,398				2,373,106				1,445,062				2,207,063				2,251,658				2,450,452				964,843
Term debt			5,061,502				7,021,686				5,338,456				7,146,437				5,766,370				1,774,475				2,162,321
Other borrowings			1,444,943				1,576,599				1,573,813				1,679,374				1,269,687				714,579				486,885
Total borrowings			7,905,843				14,399,247				9,953,081				14,942,901				12,798,483				5,297,929				3,614,049
Total shareholders’ equity			2,818,358				2,695,705				2,830,720				2,651,466				2,210,314				1,245,848				1,000,103

(1)		Includes investments and mortgage-backed securities, available-for-sale, investments and mortgage-backed securities, held-to-maturity, and mortgage-backed securities pledged, trading.
(2)		Includes loans held for sale and loans, net of deferred loan fees and discounts and allowance for loan losses.

 

THE OFFERING

Issuer		CapitalSource Inc.
Common stock offered to the public		17,500,000 shares
Shares subject to the over-allotment option		2,625,000 shares
Common stock to be outstanding after this offering		320,806,840 shares (1)
Use of Proceeds		We estimate that we will receive gross proceeds from this offering of approximately $71.8 million, assuming a public offering price per share of common stock sold of $4.10. After deducting estimated underwriting discounts and commissions and the estimated expenses of this offering, we estimate the net proceeds to us will be approximately $67.7 million. We intend to use the net proceeds from this offering and the concurrent notes offering, along with cash on-hand, to repay $300 million principal amount of indebtedness under our existing syndicated bank credit facility. To the extent not applied as described above, we intend to use the net proceeds from this offering for general corporate purposes, which may include the payment of other indebtedness. Pending such use, we intend to invest the net proceeds in interest-bearing, short-term investment grade securities or money-market accounts.
NYSE Symbol		CSE
Settlement Date		Delivery of shares of our common stock will be made against payment therefore on or about July 20, 2009, which will be the third business day after pricing of the offered shares.
Risk Factors		For other information you should consider before buying shares of our common stock, see the “Risk Factors” section below and in our Annual Report on Form 10-K for the year ended December 31, 2008 as well as the other documents incorporated by reference into this prospectus supplement.

(1)		The number of shares of our common stock to be outstanding after this offering is based on 303,306,840 shares outstanding as of June 30, 2009 and assumes no exercise of the underwriters’ over-allotment option. If the underwriters’ over-allotment option is exercised in full, the number of shares of our common stock outstanding upon completion of this offering will be 323,431,840.

 

An investment in our common stock involves risks. You should carefully consider the following risk factors, as well as those incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2008, before making an investment decision. The risks and uncertainties are not the only ones facing our company. The U.S. economy is currently in an economic recession which has had, and we expect to continue to have, a significant adverse impact on our business and operations, including, without limitation, the credit quality of our loan portfolio, our liquidity and our earnings. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. If any of these risks actually occurs, our business, consolidated financial condition or results of operations could be materially and adversely affected. In that case, the trading prices of our common stock could decline substantially.

 

Some statements in this prospectus supplement, including within the risk factors below and those which are incorporated by reference, are forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Our ability to operate our business depends on our ability to maintain our external financing, which is extremely challenging in the existing economic environment.

 

We require a substantial amount of money to make new loans, repay indebtedness, fund obligations to existing clients and otherwise operate our business. To date, we have obtained this money through issuing equity, convertible debentures and subordinated debt, by borrowing money under our credit facilities, securitization transactions, which we refer to as “term debt,” and repurchase agreements, and through deposits at CapitalSource Bank. Our access to these and other types of external funding depends on a number of factors, including general market and deposit raising conditions, the markets’ and our lenders’ perceptions of our business, our current and potential future earnings and the market price of our common stock. The capital and credit markets have been experiencing extreme and unprecedented volatility and disruption for more than 12 months. These market forces have, in turn, put significant constraints on our ability to access and maintain prudent levels of liquidity through the sources described above. Our available cash and cash equivalents are down from the levels we have historically maintained. The markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. In addition, the economy is experiencing a recession with wide-ranging impacts. We anticipate generating some liquidity by utilizing means we have not regularly used in the past, including sales of loans, loan participations, real estate investments and owned real estate. These sale activities are highly speculative because they are dependent on and subject to market and economic conditions and the willingness of able buyers to enter into transactions with us. Furthermore, due to current market conditions, if we are able to consummate any asset sales we expect them to be at prices discounted to our current carrying value. If the current recession and levels of capital markets disruption and volatility continue or worsen, it is not certain that sufficient funding and capital will be available to us on acceptable terms or at all. Without sufficient funding, we would not be able to continue to operate our business.

 

We are unable to access funds held by CapitalSource Bank to supplement our constrained liquidity position.

 

We have made a significant investment in establishing CapitalSource Bank as a well-capitalized depository institution. Despite this investment, for regulatory reasons, CapitalSource Bank and the Parent Company are required to be operated independently of each other, and transactions between CapitalSource Bank and the Parent Company are restricted. For example, the Parent Company may not sell any more loans to CapitalSource Bank. Furthermore, as a de novo bank, CapitalSource Bank is prohibited from paying dividends to the Parent Company for its first three years of operation. Consequently, while CapitalSource Bank may have more than adequate liquidity, the Parent Company is unable to directly benefit from that liquidity to fund its significant obligations and operations and must rely to a large extent on external sources of financing which, as described above, are extremely limited.

If we are not able to raise sufficient funds that, together with our unrestricted cash, are sufficient to satisfy the extension payment conditions specified in our syndicated bank credit facility before September 30, 2009, we will be in default under that facility, which could have adverse effects on our liquidity position.

 

As described under “Summary — Recent Developments — Amendment of Syndicated Bank Credit Facility,” lenders holding $778 million of indebtedness agreed to extend the maturity date for such amount of indebtedness until March 31, 2012 on the condition that they receive from us on or before September 30, 2009 a payment of $200 million or, if they are required to share collateral with a new financing source, such as the notes being concurrently offered, a payment of $300 million. There is no guarantee that we will be able to complete the concurrent notes offering on terms currently contemplated, or at all. If we do not raise through this offering and the concurrent notes offering sufficient funds that, together with our unrestricted cash (which approximated $257.8 million as of March 31, 2009), enable us to satisfy the extension payment conditions, we may be required to raise additional capital prior to September 30, 2009. We cannot assure you that we will be able to raise sufficient additional capital for this purpose on commercially reasonable terms, or at all. Our inability to extend the maturity of our syndicated bank credit facility or to make required payments thereunder will trigger an event of default, requiring us to obtain a waiver from our lenders, which may not be available on commercially reasonable terms or at all. An event of default which we do not cure or for which we do not obtain a waiver could have material adverse consequences on our financial condition and our ability to continue to operate our business.

 

Required commitment reductions in our syndicated bank credit facility as well as mandatory redemptions of our outstanding convertible debentures may limit our ability to maintain sufficient liquidity.

 

The commitments under our syndicated bank credit facility will reduce (and we will be required to make payments as necessary to prevent outstanding borrowings from exceeding such commitments) in $25.0 million increments based on a portion of proceeds realized from specified events, including:

 

 

In addition to these reduction obligations, following the amendment of our syndicated bank credit facility on July 10, 2009, to the extent not earlier reduced by the events described above, the commitments of the lenders not extending the maturity of their loans to us under the facility (approximately $122 million) will automatically be reduced to approximately $94.9 million on December 31, 2009, and to $0 on March 13, 2010. In addition, to the extent not earlier reduced by the events described above, the commitments of the lenders extending the maturity of their loans to us under the facility (approximately $478 million, assuming the concurrent notes offering is completed as contemplated, and we pay to the extending lenders $300 million of proceeds) will automatically be reduced in monthly installments of approximately $20 million commencing on April 30, 2010, with such commitments terminating entirely on March 31, 2012.

 

In addition, the terms of certain of our warehouse credit facilities and securitization trusts that reduce the amount of outstanding obligations under our syndicated bank credit facilities would need to be proportionately prepaid. In certain circumstances, we could be permitted to instead make a lower prepayment in order to reduce the effective advance rate under the warehouse credit facility as opposed to making the full proportionate prepayment.

 

In addition, the terms of our outstanding convertible debentures require us to make offers to repurchase them in 2011 and 2012. The principal amounts of convertible debentures that we may be required to purchase in those years are $330.0 million in 2011 and $250.0 million in 2012.

If we are unable to sell sufficient assets, raise new capital or restructure these payment obligations, we may not have sufficient liquidity to make these required prepayments by these dates. Consequently, we could default on these payment obligations, which would trigger cross-defaults under our other debt and could result in accelerated maturity of all of our debt, including the notes offered in the concurrent notes offering. In such circumstances, our business, liquidity and operations would be materially adversely affected, and we would not be able to continue operating.

 

We must comply with various covenants and obligations under our indebtedness and our failure to do so could adversely affect our ability to operate our business, manage our portfolio or pursue certain opportunities.

 

The Parent Company is required to comply with financial and non-financial covenants and obligations under our indebtedness, including, without limitation, with respect to interest coverage, minimum tangible net worth, leverage, maximum delinquent and charged-off loans and servicing standards. If we were to default under our indebtedness by violating these covenants or otherwise, our lenders’ remedies would include the ability to, among other things, transfer servicing to another servicer, accelerate payment of all amounts payable under such indebtedness and/or terminate their commitments under such indebtedness. A default under our recourse indebtedness could trigger cross-default provisions in our other debt facilities, and a default under some of our non-recourse indebtedness would trigger cross-default provisions in other of our non-recourse debt. We have received waivers to potential breaches of some of these provisions and may have difficulty complying with some of these provisions if the economic recession continues or worsens. We recently amended our largest syndicated bank credit facility to adjust some of these covenants to levels we believe we can meet. Nevertheless, we may need to obtain additional waivers or amendments again in the future if we cannot satisfy all of the covenants and obligations under our debt. There can be no assurance that we will be able to obtain such waivers or amendments in the future. A default under our indebtedness could have a material adverse affect on our business, financial condition, liquidity position and our ability to continue to operate our business.

 

In addition, upon the occurrence of specified servicer defaults, our lenders under our credit facilities and the holders of the asset-backed notes issued in our term debt may elect to terminate us as servicer of the loans under the applicable facility or term debt and appoint a successor servicer or replace us as cash manager for our secured facilities and term debt. If we were terminated as servicer, we would no longer receive our servicing fee. In addition, because there can be no assurance that any successor servicer would be able to service the loans according to our standards, the performance of our loans could be materially adversely affected and our income generated from those loans significantly reduced.

 

Substantially all of the assets of the Parent Company are pledged or otherwise encumbered by liens we have granted or will grant in favor of our lenders, including holders of the notes. Our syndicated bank credit facility and the indenture relating to the notes also contain customary operating and financial restrictions that may impair our ability to operate our business, including, among other things, covenants limiting our ability to:

 

 

These restrictions may, among other things, reduce our flexibility in planning for, or reacting to, changes in our business, the economy and/or markets and thereby may negatively impact our financial condition and results of operations.

The restrictive covenants in the indenture, the syndicated bank credit facility and the documents governing our other debt will reduce our flexibility in conducting our operations and will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with these restrictive covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, including the notes offered in the concurrent notes offering.

 

Our significant level of debt and interest payment obligations may limit our ability to compete, expose us to interest rate risk to the extent of our variable-rate debt and prevent us from meeting our obligations under the notes.

 

As of March 31, 2009, after giving effect to the offering of the notes and our use of the net proceeds, the Parent Company would have had approximately $7.9 billion of indebtedness outstanding. This substantial level of indebtedness could have important consequences. For example, it may:

 

 

Additional Risks

 

For a discussion of additional risks to consider before you make an investment decision, you should carefully review the following risks, which are captioned below and set forth in their entirety under the heading entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008 and are incorporated by reference herein:

 

Risks Impacting Funding Our Operations

 

 

 

Risks Related to Our Operations

 

 

Risks Related to Our Lending Activities

 

 

 

 

Risks Related to Our Direct Real Estate Investments

 

 

We will receive gross proceeds from this offering of approximately $71.8 million. After deducting estimated underwriting discounts and commissions and the estimated expenses of this offering, we estimate the net proceeds to us will be approximately $67.7 million.

 

We will use these net proceeds, together with cash on-hand, to repay indebtedness under our syndicated bank credit facility. We estimate that we will receive net proceeds of approximately $292.2 million from the concurrent notes offering if it is consummated on terms currently proposed. We will use these net proceeds, together with cash on-hand or a portion of the net proceeds from this offering, to repay an aggregate of $300 million principal amount of indebtedness under our syndicated bank credit facility. To the extent the net proceeds from this offering and the concurrent notes offering exceed $300 million, we intend to use the excess net proceeds for general corporate purposes, which may include the payment of other indebtedness. Pending such use, we intend to invest the net proceeds in interest-bearing, short-term investment grade securities or money-market accounts.

 

After giving effect to the amendment described under “Summary — Recent Developments — Amendment of Syndicated Bank Credit Facility” and the use of proceeds as described above, the final maturity in respect of $478.0 million of the commitments under our syndicated bank credit facility will occur in March 2012, while only $122.0 million of the commitments will be due in March 2010, in each case without giving effect to intervening mandatory payments. Borrowings under our syndicated bank credit facility accrue interest at variable rates. The interest rate was LIBOR + 4.50%, EURIBOR + 4.50% or GBP LIBOR + 4.50% at March 31, 2009. For additional information about this facility, please refer to our reports filed with the SEC.

 

The following table sets forth our consolidated capitalization as of March 31, 2009:

 

 

The information set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the unaudited consolidated financial information as of and for the three months ended March 31, 2009, presented under “Summary — Selected Consolidated Historical Financial Data” and our consolidated financial statements and notes thereto in our Current Report on Form 8-K, dated July 1, 2009 and our unaudited consolidated financial statements and the related notes thereto contained in our Quarterly Report on Form 10-Q for the quarter ended on March 31, 2009 filed with the SEC and incorporated by reference in this prospectus supplement.

 

 

 

 

We are offering shares of our common stock described in this prospectus supplement through a number of underwriters. Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Wells Fargo Securities, LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus supplement, the number of shares of our common stock listed next to its name in the following table:

 

 

The underwriters are committed to purchase all the shares of our common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

 

The underwriters propose to offer the shares of our common stock directly to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at that price less a concession not in excess of $0.1353 per share. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters.

 

The underwriters have an option to buy up to 2,625,000 additional shares of our common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus supplement to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of our common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

 

The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of our common stock. The underwriting fee is 5.5% of the aggregate proceeds of this offering. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

 

 

We estimate that the total expenses of this offering will be approximately $150,000.

 

A prospectus supplement in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

 

We have agreed, subject to certain limited exceptions, that we will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract

to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, in each case without the prior written consent of Credit Suisse Securities (USA) LLC on behalf of the underwriters for a period of 90 days after the date of this prospectus supplement. Notwithstanding the foregoing, if (1) during the last 17 days of the 90-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 90-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

 

Our directors and certain executive officers have agreed, subject to certain limited exceptions, that they will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or act to cause us to file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, in each case without the prior written consent of Credit Suisse Securities (USA) LLC on behalf of the underwriters for a period of 60 days after the date of this prospectus supplement. Notwithstanding the foregoing, if (1) during the last 17 days of the 60-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 60-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 60-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), the initial purchaser represents and agrees that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of Securities to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Securities to the public in that Relevant Member State at any time,

 

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the manager for any such offer; or

 

(d) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of Securities to the public” in relation to any Securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Securities to be offered so as to enable an investor to decide to purchase or subscribe the Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

 

Each of the underwriters severally represents, warrants and agrees that:

 

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

 

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of our common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of our common stock than they are required to purchase in this offering, and purchasing shares of our common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ over-allotment option referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

 

The underwriters have advised us that, pursuant to Regulation M of the Securities Act they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

 

These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise.

 

Certain of the underwriters and their affiliates have performed investment banking, financial advisory and lending services for us and our affiliates from time to time, for which they have received customary compensation, and they may continue to do so in the future. Affiliates of the underwriters, including, but not limited to, Credit Suisse, Cayman Islands Branch, JPMorgan Chase Bank, N.A., Citibank, N.A., Wachovia

Bank, National Association and Wells Fargo Securities, LLC, are acting as agents and/or lenders under our syndicated bank credit facility and receive customary compensation in connection therewith. In addition, certain of the underwriters and/or their affiliates may hold positions in our debt and equity securities. Moreover, a managing partner of an affiliate of Wells Fargo Securities, LLC currently serves as one of our directors. We intend to use the net proceeds from this offering to repay indebtedness owed by us to such affiliates and certain of the other lenders on our syndicated bank credit facility.

 

The validity of the shares offered by means of this prospectus supplement and certain U.S. federal income tax matters will be passed upon for us by Hogan & Hartson LLP. Certain legal matters regarding the shares will be passed upon for the underwriters by Clifford Chance US LLP, New York, New York.

 

The consolidated financial statements of CapitalSource Inc. appearing in CapitalSource Inc.’s Current Report on Form 8-K dated July 1, 2009, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information on file with the SEC at the SEC’s public reference room located at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from commercial document retrieval services and through the Internet website maintained by the SEC, at www.sec.gov.

 

We have filed with the SEC a registration statement under the Securities Act that registers the distribution of these securities. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and the securities. This prospectus supplement and the accompanying prospectus do not contain all of the information set forth in the registration statement. This prospectus supplement incorporates by reference the documents set forth below that have been previously filed with the SEC. These documents contain important information about us and our financial condition.

 

 

We also incorporate by reference into this prospectus supplement additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act between the date of this prospectus supplement and the completion of the offering; provided, that we are not incorporating any information furnished under either Item 2.02 or Item 7.01 of any current report on Form 8-K except to the extent identified in any such report. These documents include periodic reports such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.

 

You can obtain any of the documents incorporated by reference from us as described below, through the SEC or through the SEC’s Internet website as described above. Documents incorporated by reference are available without charge, excluding all exhibits unless an exhibit has been specifically incorporated by reference into this prospectus supplement. Investors may obtain documents incorporated by reference into this prospectus supplement by requesting them in writing, by telephone or via the Internet from the company at the following address:

CapitalSource Inc.

4445 Willard Avenue, 12th Floor

Chevy Chase, Maryland 20815

(800) 370-9431

Attn: Investor Relations

Internet Website: www.capitalsource.com

 

THE INFORMATION CONTAINED ON OUR WEBSITE DOES NOT CONSTITUTE A PART OF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.

 

PROSPECTUS

 

Debt Securities, Common Stock, Preferred Stock,
Depositary Shares, Warrants, Purchase Contracts and Units

 

 

We may offer the securities listed above, including units consisting of any two or more of such securities, from time to time. In addition, this prospectus may be used to offer securities for the account of other persons.

 

This prospectus describes some of the general terms that may apply to these securities. The specific terms of any securities to be offered will be described in one or more supplements to this prospectus, one or more post-effective amendments to the registration statement of which this prospectus is a part or in documents incorporated by reference into this prospectus. You should read both this prospectus and the applicable prospectus supplement before you invest in these securities.

 

We or any selling securityholders may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis.

 

Our common stock is listed on the New York Stock Exchange under the symbol “CSE.”

 

Investing in our securities involves risks. See “Risk Factors” on page 4 and, if applicable, any risk factors described in any accompanying prospectus supplement or in our Securities and Exchange Commission filings that are incorporated by reference into this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is October 31, 2008.

 

TABLE OF CONTENTS

 

 

You should rely only on the information provided in this prospectus and in any prospectus supplement, including the information incorporated by reference. We have not authorized anyone to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated on the cover page of these documents. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

This prospectus is part of an automatic shelf registration statement that we filed with the Securities and Exchange Commission, or the SEC, in accordance with General Instruction I.D. of Form S-3, using a “shelf” registration process for the delayed offering and sale of securities pursuant to Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. Under the shelf process, we may, from time to time, sell the offered securities described in this prospectus in one or more offerings. This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement containing specific information about the terms of the securities being offered and the specific manner in which they will be offered. The prospectus supplement may also add, update or change information contained in this prospectus.

 

This prospectus and any accompanying prospectus supplement do not contain all of the information included in the registration statement. We have omitted parts of the registration statement in accordance with the rules and regulations of the SEC. For further information, we refer you to the registration statement on Form S-3 of which this prospectus is a part, including its exhibits. Statements contained in this prospectus and any accompanying prospectus supplement about the provisions or contents of any agreement or other document are not necessarily complete. If the SEC’s rules and regulations require that an agreement or document be filed as an exhibit to the registration statement, please see that agreement or document for a complete description of these matters.

 

You should read this prospectus together with any additional information you may need to make your investment decision. You should also read and carefully consider the information in the documents we have referred you to in “Available Information” below. Information incorporated by reference after the date of this prospectus may add, update or change information contained in this prospectus. Any information in such subsequent filings that is inconsistent with this prospectus will supersede the information in this prospectus or any earlier prospectus supplement.

 

References in this prospectus to “CapitalSource,” “we,” “us” and “our” are to CapitalSource Inc. In this prospectus, we sometimes refer to the debt securities, common stock, preferred stock, depositary shares, purchase contracts, units and warrants collectively as “offered securities.”

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Because our common stock trades on the New York Stock Exchange under the symbol “CSE,” those materials can also be inspected and copied at the offices of that organization. Here are ways you can review and obtain copies of this information:

 

 

We have filed with the SEC a registration statement on Form S-3 under the Securities Act relating to the securities covered by this prospectus. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and the offered securities. This prospectus does not contain all of the information set forth in the registration statement. Whenever a reference is made in this prospectus to a contract or other document, the reference is only a summary and you should refer to the exhibits that

form a part of the registration statement for a copy of the contract or other document. You can get a copy of the registration statement, at prescribed rates, from the sources listed above. The registration statement and the documents referred to below under “Incorporation of Certain Documents by Reference” are also available on our Internet website, www.capitalsource.com, under “Investor Relations — SEC Filings.” You can also obtain these documents from us, without charge (other than exhibits, unless the exhibits are specifically incorporated by reference), by requesting them in writing or by telephone at the following address:

 

CapitalSource Inc.
4445 Willard Avenue, 12th Floor
Chevy Chase, Maryland 20815
(800) 370-9431
Attn: Investor Relations
Internet Website: www.capitalsource.com

 

THE INFORMATION CONTAINED ON OUR WEBSITE DOES NOT
CONSTITUTE A PART OF THIS PROSPECTUS.

 

The SEC allows us to “incorporate by reference” information into this prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this prospectus, except for any information that is superseded by other information that is included in or incorporated by reference into this document.

 

This prospectus incorporates by reference the documents listed below that we have previously filed with the SEC (File No. 001-31753). These documents contain important information about us:

 

 

We also incorporate by reference any additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (other than those “furnished” pursuant to Item 2.02 or Item 7.01 of Form 8-K or other information “furnished” to the SEC), from the date of the registration statement of which this prospectus is part until the termination of the offering of the securities. These documents may include annual, quarterly and current reports, as well as proxy statements. Any material that we later file with the SEC will automatically update and replace the information previously filed with the SEC.

 

For purposes of this registration statement, any statement contained in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated herein by reference modifies or supersedes such statement in such document.

 

Investing in our securities involves risks. We urge you to carefully consider the risk factors described in our SEC filings that are incorporated by reference in this prospectus and, if applicable, in any accompanying prospectus supplement used in connection with an offering of our securities before making an investment decision. Additional risks, including those that relate to any particular securities we offer, may be included in the applicable prospectus supplement or free writing prospectus which we have authorized, or which may be incorporated by reference into this prospectus or such prospectus supplement. These risks could adversely affect our business, financial condition, results of operations or prospects and could cause the market or trading price of our securities to decline.

 

This prospectus and the documents incorporated by reference in this prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are subject to numerous assumptions, risks, and uncertainties. All statements contained in this prospectus and the documents incorporated by reference in this prospectus that are not clearly historical in nature are forward-looking, and the words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “assumes,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of these terms or other similar expressions, are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such statements for a variety of factors. The sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Business” in our disclosures included or incorporated by reference into this prospectus discuss some of the factors that could contribute to these differences.

 

All forward-looking statements included in this prospectus and the documents incorporated by reference are based on information available at the time the statements are made. We undertake no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking information should be read in conjunction with our consolidated financial statements and related notes incorporated by reference into this prospectus.

 

Our principal executive office is located at 4445 Willard Avenue, 12th floor, Chevy Chase, Maryland 20815, and our telephone number is (301) 841-2700. We maintain a website at www.capitalsource.com on which we post all reports we file with the SEC under Section 13(a) of the Exchange Act. We also post on this site our key corporate governance documents, including our board committee charters, our ethics policy and our principles of corporate governance.

 

Unless we specify another use in the applicable prospectus supplement, we will use the net proceeds from the sale of any securities offered by us for general corporate purposes, which may include repayment of indebtedness or acquisitions. We will not receive proceeds from sales of securities by selling securityholders except as may otherwise be stated in an applicable prospectus supplement.

 

We may issue, from time to time, debt securities in one or more series that may consist of either senior debt securities or subordinated debt securities. We will issue these securities under one or more indentures that will be subject to and governed by the Trust Indenture Act of 1939, as amended.