Car Czar Consulting says: Small business lenders and commercial-real-estate lenders are on the brink.
CIT Warns of Big Losses if Investors Reject Plan
NYTimes, October 23, 2009, The CIT Group, the troubled middle-market lender, said on Friday that bondholders would receive only 6 to 37 cents for every $1 invested if they rejected the latest management-sponsored restructuring plan. The move comes as the investor Carl C. Icahn continued to urge bondholders to reject the plan.
“Without an approved restructuring plan, the company will likely file for bankruptcy without the benefit of a plan of reorganization and stakeholders will lose significant value,” CIT said in its restructuring presentation filed with the Securities and Exchange Commission.
The CIT plan consists of an exchange offer and a solicitation of acceptances of a prepackaged reorganization. Bondholders would exchange their current bonds for new ones at a discount and some would receive preferred stock in the new company. The level of the discount and amount of stock would vary, based when the bond was set to mature, with those bonds closer to the present receiving more value.
“Impacts include: Substantial damage to the franchise; Inability to insulate valuable operating businesses from the proceedings; Increased risk of seizure of CIT Bank; Uncertainty and constraints with respect to liquidity; Significant bankruptcy related expenses,” CIT said.
Mr. Icahn, who says he is the largest holder of CIT bonds, urged fellow bondholders in a letter to reject the reorganization plan and to go with his proposal, which calls for the company to take a $6 billion loan and gradually wind down.
“CIT’s balance sheet is comprised of a diversified pool of loans and assets which will generate huge cash inflows over the next few years,” Mr. Icahn said in his letter after the presentation by management. “If these assets are ‘run off’ in a controlled way, we believe our bonds are worth par and in no event less than 80-85 percent of par value.”
CIT is also in talks with Goldman Sachs over the terms of a $3 billion loan that the investment bank provided last year. Under the terms of the Goldman financing, extended to CIT in June 2008, the bank would be owed $1 billion if the loan facility were terminated. That would be likely if CIT filed for bankruptcy.
People briefed on the matter said that talks were continuing and that a resolution could be reached within days. That would be crucial because those talks are weighing on separate discussions CIT is holding with its bondholders over a financing package potentially as large as $6 billion.
That loan, which is being arranged by Bank of America Merrill Lynch, could be used as debtor-in-possession financing should CIT be forced to file for a prearranged bankruptcy, in which the company would quickly proceed through Chapter 11. That seems increasingly likely given investors’ coolness to the debt swap.
The people briefed on the matter said that figures described in previous news reports were preliminary and might change by the time an agreement is reached.
Michael DuVally, a spokesman for Goldman, said in a statement: “Goldman Sachs is continuing to work constructively with CIT and its creditors to provide the company with a sound and workable financing facility.”
Capmark Said Ready to File for Bankruptcy
WSJ, Oct. 24, 2009, Capmark Financial Group Inc., one of the nation’s largest commercial-real-estate lenders, plans to file for bankruptcy as soon as this weekend, a person familiar with the situation said.
The much-expected move underscores the deep problems in the business-property market. After suffering from the collapse in residential mortgages, U.S. banks face steep losses from commercial real-estate loans. Capmark has originated more than $10 billion in commercial real-estate loans, according to Moody’s Investors Service.
It also represents a blow to the company’s private-equity owners. In 2006, a group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners acquired the lender GMAC LLC’s commercial-real estate business and renamed it Capmark. As of March 31, the investor group owned about 75% of the company, with GMAC and its employees owning the balance.
The Horsham, Pa., company recently reported a $1.6 billion second-quarter loss and warned it might be forced to seek Chapter 11 bankruptcy protection. KKR has already written down its investment in Capmark to zero.
Capmark recently entered an agreement to sell its North American servicing and mortgage-banking operations to a new company owned by Warren Buffet’s Berkshire Hathaway and Leucadia National Corp. for as much as $490 million. Under the deal’s terms, the sale could occur while Capmark is in bankruptcy, but would require a bigger cash payment.
Adding to Capmark’s pressures, the Federal Deposit Insurance Corp. had notified the company that it must raise capital and boost liquidity at its Utah bank, which has roughly $10 billion in assets.
The bank would not be part of Capmark’s bankruptcy filing, a person familiar with the situation said.
KKR declined to comment. Capmark didn’t respond to a request for comment.
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