Capmark Negotiating Mortgage Unit Sale to Stave Bankruptcy

Capmark Financial Group said it is taking steps to restructure its businesses, including commercial real estate financing and servicing, to avoid a potential Chapter 11 bankruptcy filing. After losing $1.6bn in Q209, Capmark acknowledged “the outcomes of such restructuring may include reorganization under chapter 11 of the US Bankruptcy Code.” In that vein, Capmark is in negotiations to sell its North American servicing and mortgage banking businesses to Berkadia III, a joint entity owned by billionaire investor Warren Buffet’s Berkshire Hathaway (BRKA) and Leucadia National Corporation (LUK). The negotiations were secured with a $40m cash option paid to Capmark. If the sale goes through, Capmark will receive up to an additional $490m in cash and other considerations. If the sale is completed outside of a bankruptcy proceeding, Capmark said it will receive $375m in cash, the joint venture will spend $40m to cover indemnity claims and up to $75m to cover losses in Capmark’s Fannie Mae (FNM) delegated underwriting and servicing (DUS) portfolio. If the sale is completed in a bankruptcy proceeding, the joint venture will make a $415m cash payment for the business unit, but Capmark also has the option to pursue other sellers. The sale option expires 60 days from the launch of the agreement unless Capmark files for bankruptcy before then, which triggers a 60-day extension. Capmark for several months has faced difficulty in its mortgage business operations. In June, the Department of Justice filed suit against Capmark alleging the Capmark Finance unit made false statements on applications for federal mortgage insurance covering residential nursing homes. Write to Austin Kilgore.