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Capmark Financial Group Files for Chapter 11 Bankruptcy Protection

One of the nation’s largest lenders, Horsham, Pa.-based Capmark Financial Group, has filed for Chapter 11 bankruptcy protection, saying it intends to restructure to reduce its corporate debt.

In July, Capmark ranked sixth on National Real Estate Investor’s list of the country’s top 25 direct lenders with $7.8 billion directly financed in 2008, and another $2.5 billion in arranged financing.

In the second quarter of 2009, the financial group suffered a loss of $1.6 billion. As of June 30, Capmark had $20.1 billion in assets and $21 billion in debt.

In a statement on Sunday, Capmark said that Capmark Bank, which recently received $600 million of new equity from Capmark Group, was not part of the bankruptcy filing. However, several other subsidiaries did file for court protection in Delaware from creditors along with the parent firm.

“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. By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses,” said Capmark president and CEO Jay Levine in a statement.

As of Friday, the financial group and its filing subsidiaries had more than $500 million in cash and cash equivalents, not counting the amount held by Capmark Bank. The company said it believes it has enough liquidity to satisfy financial obligations, such as employee salaries and benefits, loans and post-petition obligations following the bankruptcy filing.

Capmark has been negotiating with its primary creditors for months as it attempts to come to an agreement on an acceptable restructuring plan, said Mohsin Meghji, Capmark’s chief restructuring officer. The negotiation is expected to continue for several more months before a final agreement is reached. The goal in the Chapter 11 process is to allow Capmark to restructure its balance sheet while trying to maximize value for shareholders, Meghji said.

Real estate market compounds problems

Ongoing difficulties faced by the commercial real estate market have contributed to the company’s problems. Capmark is a commercial real estate finance company with three core business lines: lending and mortgage banking, investments and funds management, and servicing. Capmark has financed the development of hotels, office and retail space across the country as well as medical space and golf courses.

Capmark has offered permanent, interim and mezzanine loans, and relied on capital sources including Fannie Mae and Freddie Mac as well as insurance companies, institutional lenders and market tax credits. The financial group formerly served as GMAC LLC’s real estate division.

In May, Capmark hired Lazard and Beekman Advisors to market and sell its North American Servicing and Mortgage Banking business. They were sold in September to Warren Buffet’s Berkshire Hathaway and Leucadia National Corp. for $490 million.

Subsidiaries that filed for bankruptcy protection on Sunday included: Capmark Finance, Capmark Capital, Capmark Equity Investments, Mortgage Investments LLC, Net Lease Acquisition LLC, SJM Cap, LLC, Capmark Affordable Equity Holdings, Capmark REO Holding LLC, Summit Crest Ventures LLC, Capmark Affordable Equity, and 33 other Low Income Housing Tax Credit entities.

Besides Capmark Bank, subsidiaries that did not file for Chapter 11 include Capmark Investments LP, Capmark Securities and its Asian, Indian and European subsidiaries. However, the parent group warned that in the future some additional Capmark subsidiaries may file for bankruptcy protection.

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