Capmark Financial Group Inc. and some of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. Capmark intends to use the reorganization process to implement a restructuring that reduces its corporate debt.
Capmark Bank, its wholly owned Utah-based industrial bank subsidiary, is not part of the filing. Capmark Financial recently injected $600 million of new equity into the bank. However Capmark Financial was proposing to inject another $600 million into the bank by the end of the year. That contribution now will be subject bankruptcy reorganization proceedings.
Capmark Bank agreed to a cease-and-desist order with each of the Federal Deposit Insurance Corp. (FDIC) and the Utah Department of Financial Institutions last month. The orders require Capmark Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of at least 10%. Under terms of the company's proposed debt restructuring, it is seeking to re-capitalize Capmark Bank through a contribution in an amount up to $1.4 billion and avoid potential actions by the FDIC.
As of this month prior to the filing, Capmark Bank had forecast base and stress case expected losses in its loan portfolio through 2013 and based on those projections estimated it would need from $1.2 billion to $1.4 billion to maintain appropriate ratios and to ensure sufficient liquidity and viability.
Also as of this month, Capmark Bank had assets of $11.1 billion and held a diversified portfolio of more than 650 commercial real estate loans. The portfolio consists primarily of 2006 to 2007 vintage loans, the majority of which were repositioning strategies, which are experiencing significant credit deterioration, according to Capmark Financial.
"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," said Jay Levine, president and CEO of Capmark Financial. "By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses."
Last month, Capmark entered into an Asset Put Agreement with Berkadia Commercial Mortgage LLC, a newly formed entity owned by Warren Buffet's Berkshire Hathaway Inc. and Leucadia National Corp. Capmark has the right to sell to its North American servicing and mortgage banking businesses to Berkadia and has 60 days from the date of the Chapter 11 filing to exercise the put option. Capmark said intends to pursue court approval to complete the sale, subject to the receipt of any higher and better offers.
On Oct. 16, two Capmark subsidiaries agreed to sell its military housing business to a third party. Capmark said it also intends to pursue court approval to complete that sale, subject to the receipt of any higher and better offers.
Capmark Financial is also seeking to cancel five leases as part of its bankruptcy reorganization.
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