X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

NEWYORK CITY-Moody’s on Friday downgraded the senior unsecured ratings of Capmark Financial Group to C from Caa1 following Capmark’s announcement of its potential $490-million sale of its North American servicing and mortgage banking businesses, its announcement of a $1.6-billion loss in the second quarter and its indicating that it could file for a Chapter 11 reorganization. The ratings agency had cut Capmark’s rating to Caa1 last April.

In a release from Moody’s, the agency says a sale of Capmark’s servicing and mortgage banking businesses “would remove key sources of income needed to service and repay unsecured debt obligations, while impairing the value of its franchise and remaining businesses.”

Moody’s says the downgraded rating also stems from “the material deterioration in asset quality, the diminished size of its unencumbered asset portfolio, and the potential for additional required support–possibly in cash and/or assets–to bolster Capmark Bank,” Capmark’s industrial banking unit headquartered in Salt Lake City. “As a result, Moody’s believes that the unsecured lenders and bondholders, either in a default or a restructuring scenario, would experience substantial losses. The C rating reflects the potential loss severity.”

In its release, the ratings agency explains that its revised rating for Capmark was derived “by evaluating factors we believe are relevant to the credit profile of the issuer.” These include: the business risk and competitive position of the company versus others within its industry, the capital structure and financial risk of the company, the projected performance of the company over the near to intermediate term and Capmark management’s track record and tolerance for risk. “These attributes were compared against other issuers both within and outside of Capmark’s core industry and the company’s ratings are believed to be comparable to those of other issuers of similar credit risk,” according to Moody’s.

In a Capmark release, the lender says its Q2 results were affected by continued adverse market conditions that resulted in increased losses on loans, investments and real estate; an increased provision for loan losses and downward valuation adjustments on its mortgage servicing rights. As of June 30, 2009, Capmark`s stockholders’ deficit was $1.1 billion and its total assets were $20.1 billion.

“As previously reported, Capmark has been in discussions with its lenders and the representatives of a number of senior noteholders regarding a restructuring of its primary debt obligations,” according to Capmark’s release. The banker entered into a $1.5-billion term facility credit and guaranty agreement on May 29.

Further, Capmark says it’s been exploring strategic alternatives for all of its businesses, specifically a sale of its mortgage business. The outcome was an asset put agreement giving Capmark the right to sell the mortgage unit. Along with a possible Chapter 11 filing,Capmark may sell additional businesses and inject a material contribution of cash and/or assets into Capmark Bank.

As GlobeSt.com reported last week, Horsham, PA-based Capmark is entertaining an offer from Berkadia III, a joint venture between Warren Buffett’s Berkshire Hathaway and holding company Leucadia National Corp.

“We haven’t really experienced the full extent of the distress,” Sam Chandan, chief economist at property research firm Real Estate Econometrics LLC in New York City, told Bloomberg on Friday. “When you look at community banks and some smaller regional banks, they tend to have a far greater concentration in terms of their exposure to commercial real estate.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.