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October 27, 2009

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Home » Business » Real Estate

Capmark files for bankruptcy

CAPMARK Financial Group, one of the largest United States commercial real estate lenders, has filed for bankruptcy protection amid mounting bad debt, becoming the latest casualty in the still turbulent US real estate market.

Capmark has been hurt by rising losses on mortgage loans, and has had to foreclose on properties such as the Equitable Building in Atlanta because borrowers were not able to make loan payments. In its bankruptcy filing on Sunday in Delaware bankruptcy court, the company listed total debt of US$21 billion and assets of US$20.1 billion. It seeks to reorganize under court protection, reducing its debt while continuing to operate its businesses.

Many US banks and real estate investment trusts have been hurt by increasing losses on commercial real estate loans. With millions of jobs lost and office space remaining empty during the recession, developers have been forced to default on loans. Analysts predict that commercial real estate defaults will rise rapidly.

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

Last month, Pennsylvania-based Capmark posted a US$1.6 billion quarterly loss, as it set aside US$345.8 million to cover loan losses during the quarter ended June 30. The company had been in talks with lenders and bondholders to restructure its debt so that it could stay in business.

Capmark in September agreed to an option to sell its North American servicing and mortgage businesses to Berkadia III LLC - a joint venture of Warren Buffett's Berkshire Hathaway Inc and Leucadia National Corp.

Now that Capmark has been forced to file for bankruptcy protection, it will receive US$415 million in cash and a US$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 US$375 million in cash at the closing. Berkadia would have held US$40 million to cover indemnity claims and pay the US$75 million note.

Capmark was created in 2006 after a private equity group led by KKR & Co, Goldman Sachs Capital Partners and Five Mile Capital Partners bought the commercial real estate business of lender GMAC LLC for US$1.5 billion in cash. According to the bankruptcy filing, the group owns 75.4 percent of the company.


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