October 27, 2009
Capmark Financial files for bankruptcy
Lender posts Q2 loss of US$1.6b; chalks up consolidated debt of US$21b
(WILMINGTON, Delaware) Capmark Financial Group Inc, the lender owned by companies including Goldman Sachs Group Inc and KKR & Co, filed for bankruptcy protection after posting a second-quarter loss of about US$1.6 billion.
The company listed consolidated debt of US$21 billion and consolidated assets of US$20.1 billion as of June 30, according to Chapter 11 documents filed on Sunday in US Bankruptcy Court in Wilmington, Delaware. Some 43 affiliates also sought protection.
Capmark, based in Horsham, Pennsylvania, is one of the largest US commercial property finance companies, with more than US$10 billion in originations, according to Moody's Investors Service.
The company, formerly known as GMAC Commercial Holding Corp, services more than US$360 billion of debt. It has struggled as the default rate on commercial mortgages held by US banks more than doubled to the highest since 1994.
'All the businesses will be saved and continue with Capmark or will be sold as going concerns for full value,' attorney Martin Bienenstock, a partner at Dewey & LeBoeuf LLC in New York, which is handling the bankruptcy case, said in an e-mail.
Capmark asked a bankruptcy judge to approve the sale of its loan-servicing and mortgage business to Warren Buffett's Berkshire Hathaway Inc and Leucadia National Corp for as much as US$490 million. Higher bids would be sought at an auction. The deal was announced on Sept 2, the same day Capmark said that it might filed for bankruptcy.
Capmark and its units owe US$7.1 billion to the 30 largest creditors without collateral backing their claims, according to the filed court documents.
The three biggest are Citibank NA, as administrative agent under the US$5.5 billion credit agreement, with a claim of US$4.6 billion; Deutsche Bank Trust Co Americas, as trustee for the 5.875 per cent senior notes and the floating senior notes due 2010, with claims of US$1.2 billion and US$637.5 million, respectively; and Wilmington Trust FSB, as successor trustee for the 6.3 per cent senior notes due 2017, with a claim of US$500 million, according to court papers.
Commercial property values in the US have plunged since 2007 as employers cut jobs and the recession reduced demand for offices, retail space and rental apartments. The Moody's/Real Commercial Property Price Indices fell 3 per cent in August from July, bringing the decline to almost 41 per cent since October 2007, Moody's Investors Service said last Monday.
US office vacancies are at a five-year high, apartment vacancies are at a 23-year record, and retail centres are showing the greatest share of empty store-fronts since 1992, according to property research firm Reis Inc. All that unleased space makes it harder for landlords to pay their mortgages to lenders such as Capmark.
Property investors including New York developer Harry Macklowe, whose trophies included Manhattan's General Motors Building, and Tishman Speyer Properties LP, which controls the Chrysler Building and Rockefeller Center, are being affected by plunging values and a dearth of credit.
Losses from commercial property lending pose the biggest threat to US banks as the loans deteriorate, leaders of Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and Office of Thrift Supervision told the Senate Banking Committee earlier this month.
Capmark had its senior unsecured ratings lowered to C from Caa1 by Moody's Investors Service Inc after the announcement of the potential sale, release of the operating results and restructuring efforts, according to a Sept 9 credit opinion published by Moody's.
'Unsecured lenders and bondholders, either in a default or restructuring scenario, would experience substantial losses,' Moody's said.
KKR, the New York-based private-equity company run by Henry Kravis and George Roberts, wrote the investment in Capmark down to zero as of March 31 of this year, according to data provided by KKR's publicly traded investment vehicle.
Martin Koh/ Sherry Tang