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Commercial real estate company Capmark Financial filed for bankruptcy protection on Sunday, wiping out the investment of several private equity firms including Kohlberg Kravis Roberts & Co.
Capmark, which was created in March of 2006 through a leveraged buyout of the commercial real estate assets of General Motors' finance arm GMAC, had said earlier this year that it might file for bankruptcy.
The company said in a statement the move was due to conditions in the financial and commercial real estate markets and a lack of available capital.
Capmark said that it had been negotiating the terms of the bankruptcy with its creditors, which include banks Citigroup [C
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]and JPMorgan Chase [JPM
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] among others, but that it had not reached an agreement on a prearranged bankruptcy.
The company said its Utah-based bank, Capmark Bank, is not part of the filing. Capmark Investments, Capmark Securities and its Asian, Indian and European units are also not in the bankruptcy, it said.
A company spokeswoman was not immediately available for comment.
Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.
Capmark, which posted a $1.62 billion second-quarter loss, has been trying to raise cash through targeted sales and plans to sell its mortgage and loan servicing business. In September it signed a deal to sell that business to Berkshire Hathaway [BRK.A
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]and Leucadia National[LUK
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] for $490 million.
Under the terms of that deal, a sale will still take place in bankruptcy court with the Berkshire and Leucadia offer setting a floor price in an auction.
But only certain businesses are for sale, a source with direct knowledge of the bankruptcy said. There are no immediate plans to sell any assets like loans because they would have to be sold at a steep discount, he said.
By Capmark holding onto those securities, it removes the fear among some restructuring experts that the company would unload those assets at fire sale prices and force other companies to write down their own holdings.
The company said it had $500 million of cash and cash equivalents available for fund its operations as of Oct. 23. The source said it would not need any immediate additional financing for bankruptcy such as a debtor-in-possession loan.
Private Equity Owners
The bankruptcy is a red mark for private equity firms KKR, Goldman Sachs [GS
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]Group's Goldman Sachs Capital Partners and Five Mile Capital, which
bought Capmark for $1.5 billion in cash and more than $7 billion in debt.
According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent.
Employees and directors owned most of the remaining stock. Equity investors are typically left with nothing after a bankruptcy.
KKR, which wrote down its investment in Capmark to zero earlier this year, has had other failed equity investments this year, including its 2005 purchase of doormaker Masonite. It filed for bankruptcy in March and has since emerged from court.
The Horsham, Pennsylvania-based company has three main commercial real estate businesses; lending and mortgage banking, investments and funds management and servicing. It had more than $288 billion in commercial real estate loans as of June 30.
The company is being advised by law firms Dewey & LeBoeuf and Richards, Layton & Finger and Reed Smith; advisory firms Lazard Freres, Loughlin Meghji and Beekman Advisors; and accounting firm KPMG.
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