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Huge Commercial Mortgage Firm Bankrupt

Capmark Financial Group and some subsidiaries file Chapter 11

Oct. 26, 2009

By staff

Over the weekend, the third-biggest U.S. commercial mortgage servicer filed for bankruptcy.

Capmark Financial Group Inc. issued a press release Sunday indicating that it had filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.

The Horsham, Pa.-based firm said it plans to use bankruptcy to restructure and cut its corporate debt. It also hopes to maximize value for "stakeholders," though bankruptcy generally wipes out all shareholder equity.

The filing was no surprise; Capmark originally warned in April that it might be forced into bankruptcy.

While dozens of its subsidiaries also filed, Capmark Bank was not included in the filing. Capmark recently poured $600 million into the bank, and the bankruptcy is not expected to impact the bank or its existing lending commitments.

"Capmark Bank will continue to serve its customers," the statement said.

The rest of the organization is expected to continue conducting business during the bankruptcy process using more than $500 million in cash and liquid assets.

"We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies," Capmark President and Chief Executive Officer Jay Levine said in today's statement.

Capmark has been negotiating a restructuring plan with its primary creditor constituencies and expects to iron out a deal in the next few months.

Capmark subsidiary Capmark Finance Inc., which was listed among the subsidiaries that also filed, was ranked as the third biggest commercial mortgage servicer in the second quarter by the Mortgage Bankers Association. As of June 30, the unit serviced 32,357 loans for $248.7 billion.

Last month, Capmark announced that it had entered a deal to sell its mortgage banking and servicing operations in North America for $490 million to Berkadia III LLC -- a newly formed venture between Berkshire Hathaway and Leucadia National Corp. The agreement involved an "asset put agreement" that gives it the right to sell its mortgage banking and servicing operations in North America for $490 million. Also included in a potential sale would be all assets tied to the mortgage business.

In the event of a bankruptcy sale, the cash sale price would drop to $415 million.

"If Capmark is in a chapter 11 proceeding, exercise of the put option would be incorporated into a Bankruptcy Code section 363 sale process in which Capmark would seek court authorization to exercise the put option and close on the sale," last month's statement said. "In a section 363 sale process, the agreement would serve as a baseline or floor bid price for the mortgage business."

Today's announcement highlighted that Capmark has 60 days from the date of the bankruptcy filing to exercise the put option.

Capmark said in plans to seek court approval to complete the sale if it doesn't get any better offers.

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