Also This Week: Under Federal Scrutiny, TierOne and Integra Bank Agree to Asset Sales
A Warren Buffet-led group has struck a deal to acquire Capmark Financial Group Inc.'s mortgage banking business - a deal that has two potential prices based on whether the commercial real estate finance company seeks bankruptcy reorganization or not.
A newly formed entity owned by Buffet's Berkshire Hathaway Inc. and Leucadia National Corp. was given a put option to purchase Capmark's North American servicing and mortgage banking businesses. The $40 million put option also includes rights to acquire all of assets primarily used in or related to the mortgage business.
If the put option is exercised, Berkshire Hathaway/Leucadia would pay $490 million in total for the business outside of bankruptcy court. But the deal contemplates the potential that Capmark could end up in Chapter 11 bankruptcy reorganization and if that occurs, the buyers would pay $415 million.
Capmark operates three core business lines: lending and mortgage banking, investments and funds management, and servicing.
Upon the news of the deal, Standard & Poor's Ratings Services lowered its credit rating on Capmark to 'CC' from 'B-'.
"We expect Capmark either to enter Chapter 11 bankruptcy proceedings or to negotiate a distressed exchange outside of bankruptcy, which most likely would affect most of its debt. We will consider either of these events to be a default," said Standard & Poor's credit analyst Jeffrey Zaun. S&P said it expects Capmark to default in the coming months.
By selling its servicing and originations businesses, the firm should be able to preserve its value. But the consideration received in the sale would not enable Capmark to meet its debt obligations, S&P said.
Although S&P's lowered credit rating has changed the financial position associated with S&P's servicer rankings to "insufficient" from "sufficient," Capmark's servicer entities remain on S&P's Select Servicer List. However, S&P said it would conduct additional reviews of those servicing operations.
Capmark announced that it lost $1.6 billion in second-quarter 2009.
Meanwhile, Capmark Financial Group's Salt Lake City, UT-based bank, Capmark Bank, continues to experience troubles of its own. Capmark Bank reported a loss of $261.3 million in the second quarter, following a $31.5 million loss in the previous quarter.
Capmark Bank's nonperforming loans and foreclosed property assets increased by nearly $240 million from the first quarter to the second quarter and now totals nearly $631 million. About 78% of those assets are related to commercial real estate.
Under Federal Scrutiny, TierOne and Integra Bank Agree to Asset Sales
TierOne Corp. and its subsidiary bank, TierOne Bank in Lincoln, NE, entered into a definitive agreement to sell deposits, selected loans and other assets associated with 32 of its branches to Great Western Bank, a South Dakota-based subsidiary of National Australia Bank. The transaction, which is subject to regulatory approval and other customary closing conditions, is expected to be completed as soon as late 2009.
Great Western Bank will assume approximately $1.1 billion in deposits. TierOne will transfer or sell to Great Western Bank approximately $800 million in loans, $20 million in real estate and other assets and the balance in cash or securities less a $55 million deposit premium paid.
The branches involved are in Broken Bow, Burwell, Callaway, Columbus (2), Gothenburg, Grand Island (2), Holdrege (2), Lexington (3), McCook, North Platte (2), O'Neill, Omaha (9), Ord, Papillion and St. Paul, NE; and three offices in Council Bluffs, IA. Many of the offices being sold were acquired by TierOne in its 2004 acquisition of United Nebraska Bank. The remaining branches consist of other facilities the bank has built or acquired.
"After the branch office sale, TierOne Bank will return to its historic community bank footprint and will enhance its capital position," said Gilbert G. Lundstrom, chairman and CEO. "Completion of the transaction will fortify the bank's capital levels. This additional capital will strengthen our ability to continue to address selected asset quality issues and improve our capacity to manage through this challenging economic period. As we have in the past, we will continue to evaluate our loan portfolio and take necessary action to manage our balance sheet."
TierOne Corp. reported a net loss of $16.1 million for the second quarter. During the 12 months ended June 30, the bank reduced its net residential construction portfolio by 46.2% to $143.6 million, which is its lowest level since 2003.
Nonperforming assets, including nonperforming loans (90 days or more past due) and other real estate owned and repossessed assets, totaled $275.9 million. These nonperforming loans primarily consisted of a condominium project in suburban Las Vegas and a 220-unit, multi-phase condominium development in the suburbs of Kansas City, MO. Its OREO properties included five land development projects, three in Las Vegas and one each in South Carolina and Nebraska.
Separately, Integra Bank, an Evansville, IN-based subsidiary of Integra Bank Corp., working under federal agreements to reduce its "criticized assets" and improve earnings within designated timeframe, has agreed to sell some Kentucky branches, commercial loans and other assets to The Bank of Kentucky, a subsidiary of The Bank of Kentucky Financial Corp. in Crestview Hills, KY.
The Bank of Kentucky agreed to purchase three banking offices of Integra Bank in Crittenden, Dry Ridge and Warsaw. In addition, The Bank of Kentucky also agreed to acquire certain deposit liabilities and assets of Integra Bank's banking offices in Union and Florence. Integra Bank intends to close the Union and Florence banking offices following the completion of this transaction and seek a buyer for the real estate.
In addition, The Bank of Kentucky has agreed to purchase a portfolio of commercial loans originated by Integra Bank's Covington loan production office and could purchase more when it closes on the branch purchases at the end of this month.
Bank of Kentucky will pay a 6.5% deposit premium for the deposit liabilities, while the loans were acquired at book value.
"We've been pleased with the strong growth we have experienced in the Northern Kentucky market," said Michael J. Alley, chairman and CEO of Integra. "However, this divestiture will enhance the capital strength of Integra and allow us to focus on our core community banking values in markets where we have a stronger market presence."
Integra Bank Corp. reported a net loss for the second quarter of 2009 of $43.9 million and $28.5 million in the first quarter.
For the second quarter, Integra's allowance for total loans increased 26 basis points, while the allowance to non-performing loans increased from 42% to 45%. Non-performing loans decreased $6.8 million to $182.4 million, or 7.76% of total loans, compared to $189.2 million, or 7.80% of total loans at March 31, 2009. Other real estate owned increased $9.4 million to $29.3 million during the second quarter of 2009, bringing total non-performing assets to $211.7 million.
Of its nonperforming loans, $44.8 million was identified as for commercial real estate properties and its foreclosed amount was $1.3 million.
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