Capmark Financial Group Inc. - Commercial

Update - 2009-11-30: After several extensions of the bid deadline and talks that ran into the weekend, Warren Buffet's venture company Berkadia III LLC won out against PNC Financial Services Group in its bid last week for the purchase of Capmark's North American mortgage banking and servicing businesses.

As noted in the Philadelphia Business Journal, PNC's Midland Loan Services had reportedly made an offer for "significantly more money" earlier in November, but that did not include the entire servicing portfolio of $288.6 billion in commercial and multifamily residential loans... or the two units' 1,000 staff.

According to Bloomberg, Berkadia came out on top of the deal and gained the court's approval by agreeing instead to buy the whole portfolio and both units, retaining all the employees. Buffet's group also raised their initial bid:

"Berkadia raised its offer by $25 million and converted a $75 million note to cash, adding $100 million in cash to the deal."

Original Listing - 2009-10-26: Capmark Financial Group, formerly the commercial lending unit of GMAC LLC, filed Chapter 11 bankruptcy on 2009-10-25 seeking to reorganize. The proposed sale of its commercial mortgage servicing and mortgage banking business assets now awaits formal approval by the Court. From an AP report:

"Now that Capmark has been forced to file for bankruptcy protection, it will receive $415 million in cash and a $75 million note in the deal, minus any losses on a portfolio of mortgages. Had the transaction been completed outside of bankruptcy court, Capmark would have received $375 million in cash at the closing. Berkadia would have held $40 million to cover indemnity claims and pay the $75 million note."

In its filing regarding the sale of its mortgage businesses, Capmark Financial Group states that it is the "largest fee-for-services provider, third largest master and primary servicer, and fifth largest special servicer" for commercial real estate in the U.S., with a servicing portfolio of $260 billion. It is also a leading originator of commercial mortgages, and reported doing $30 billion in commercial loans in both 2006 and 2007.

Capmark is hoping for a "quick sale," and told the Court there were "substantial price adjustments for each day the Sale is not closed past October 1, 2009." The company wants to avoid any further competitive bidding processes to expedite the deal.

Original Ailing Posting - 2009-09-03: The mortgage lending and servicing units of Capmark Financial Group Inc. will likely be sold off according to recent reports. The only question, it seems, is whether or not it will occur before or after the company enters into a bankruptcy restructuring.

Yesterday, the company announced it had entered into an "Asset Put Agreement" giving potential purchaser Berkadia III, LLC the option to purchase the commercial lender's North American mortgage banking and servicing businesses for $490 million. Berkadia is a partnership newly formed by Warren Buffet's Berkshire Hathaway Inc. and Leucadia National Corporation. Subject to a number of terms and conditions the deal must close in 120 days allowing short-term extensions only to obtain licensing and/or consents from the appropriate government agencies and get any state licenses required for Berkadia to operate the mortgage business.

Formerly the commercial lending unit of GMAC LLC, the business was renamed Capmark Financial Group Inc. in 2006 when GMAC sold off 78% of its interest for $1.5 billion to an investment group which included Goldman Sachs Capital Partners and private equity group KKR. From Bloomberg:

"Capmark is one of the largest U.S. commercial real estate finance companies, with more than $10 billion in originations, according to Moody's Investors Service. The company services more than $360 billion of debt.

Capmark's mortgage assets have been deteriorating since mid-2007, Moody's said in a May 5 report, as the economy entered the longest recession since the 1930s. Provisions against bad loans contributed to the second-quarter deficit."

Capmark posted a staggering $1.6 billion loss for the three months ending 2009-06-31, for year-to-date total losses of $2.3 billion. The company had been shedding assets and ceased certain lending and investment operations in Europe and Asia earlier in 2009. According to the company's 2009 Second Quarter Earnings Report, market conditions had prompted the company to cease "proprietary loan originations" and shift to "those activities where financing has been available, such as lending activities through programs established with the GSEs, funding of HUD-insured mortgage loans, the pre-sale of Ginnie Mae mortgage-backed securities that we issue, and third party loan originations through our correspondent lending relationships." Originations for the first six months of 2009 were $1.9 billion, down from $5.5 billion in the same time period last year. But the company claims those lending activities are now threatened:

"As a result of our current financial condition, our unsecured corporate credit ratings were reduced to below investment grade by each of the major national credit rating agencies during the first quarter of 2009. These downgrades have had multiple negative effects on our business, including increasing borrowing costs under our bridge loan, senior credit facility and senior notes; requiring us to post collateral to third parties to secure our contractual obligations; and subjecting us to potential termination by Fannie Mae of Capmark Finance Inc.'s status as an approved DUS^TM seller/servicer."

Capmark Financial Group reported that it had 1600 employees in 37 offices worldwide as of 2009-06-30. On its web site, the Mortgage Banking and Lending divisions list approximately 110 salespersons and 21 offices in the U.S. Manta.com indicates 350 employees work at the Horsham, PA headquarters.

Stay tuned as this story continues to develop. As always, your comments are welcome below or you can email us directly with additional details.