The big US commercial real state lender Capmark Financial filed for bankruptcy protection on Sunday, thanks to a combination of falling property values and high debt taken on in the 2006 buyout by private equity groups, led by KKR.
The filing came a day after the US regulators closed a total of seven small local banks in the US (mostly due to dud property loans): that took the total of failures so far this year to 106, the highest since 1992.
And we may also know later this week if another large commercial funder, CIT Financial, goes belly up when the results of a last attempt to raise more money will be known.
It will be another multi-billion dollar failure if that happens.
Capmark listed just over $US20 billion in assets and more than $21 billion in liabilities.
It lost $US1.6 billion in the June quarter. It had hinted in the quarterly report that it might file for bankruptcy.
It said it had $500 million in cash and didn’t need any debtor in possession finance.
From that we can assume that the holders of the debt will take a big haircut.
More importantly its website revealed $US7.5 billion in managed funds and a huge managed loan portfolio of more than $US288 billion (as of June 30, 2009) for clients around the world.
It had said that it was negotiating with lenders, bondholders and the Federal Deposit Insurance Corp (The key bank regulator). Those talks failed.
Creditors include banks Citigroup and JPMorgan Chase.
The failure of Capmark wipes out the private equity investments of Kohlberg Kravis Roberts & Co, Goldman Sachs Group’s Goldman Sachs Capital Partners and Five Mile Capital, which bought Capmark for $US1.5 billion and more than $US7 billion in debt in 2006 from GMAC, the GM finance arm then controlled by the Cerberus private equity Group and GM.
According to the bankruptcy filing, the group owned 75.4% while GMAC, owned 21.3% and the remainder was held by management and staff. All face losing all their investment.
Capmark’s problems (and those at CIT in some respects) are confirmation that the commercial real-estate market is now struggling as much as the residential side.
Capmark Financial Group Inc has been one of America’s largest commercial real estate lenders; its problems, though anticipated in some sectors, could set off a chain reaction among smaller banks, developers and builders.
Capmark is selling its mortgage banking and servicing operation to Berkshire Hathaway and Leucadia National Corp. A small bank in Utah (which needs more capital as well) is not part of the bankruptcy filing.
