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Capmark Financial’s unsecured bondholders discussed plans to oust Deutsche Bank as Indenture Trustee during a conference call last week, a source familiar with the matter and two bond holders told Debtwire.
The investors and their advisors – Kasowitz Benson and Houlihan Lokey – also talked over a potential litigation against Deutsche and Capmark that could give them leverage to kickstart restructuring talks, the source and one of the bond holders said.
Capmark must address by 15 April the maturity of its USD 637.5m L+265 senior unsecured notes due May 2010 or its USD 1.5bn secured credit facility and USD 1.1bn unsecured credit facility will accelerate, according to SEC filings. Most investors anticipate that an exchange offer will be announced by 1 November, as previously reported by Debtwire.
That’s when Capmark’s put option to sell its mortgage servicing unit to Berkadia for up to USD 490m expires. The put option deadline precedes three 10 November bond coupon payments that amount to USD 60m.
The bond holder group believes that the liens granted to lenders of a new USD 1.5bn secured facility in May 2009 violated covenants in the bond indenture. The group will argue that Deutsche should be removed because of the conflict of interest posed by its status as a secured lender in May when it signed off on the amendment to the bonds allowing the secured liens.
The group represents more than 50% of Capmark bonds outstanding, said the source familiar. That would give the bond holders the authority to replace the trustee, according to SEC regulations. Calls to Capmark, Kasowitz Benson, Houlihan Lokey and Deutsche Bank were not returned
A seat at the table
Attacking the liens is part of a larger attempt by unsecured bondholders to have input into Capmark’s restructuring plans, said the source familiar and several bond holders. The company already submitted a plan to secured lenders in late August with guidelines to redeem or restructure the senior unsecured notes due in May.
The threat of litigation could be an avenue to pursue a more global, consensual restructuring, one bond holder speculated. Under that scenario, bond holders would make the security backing their notes equal and ratable with the credit facility’s collateral, said the source familiar. Doing so would prime Capmark’s USD 4bn in unsecured loans.
Even if unsecured bondholders obtain a security package, the bondholders estimated only about USD 4bn of available assets and USD 10bn of debt at the company from a recovery standpoint, most investors regard Capmark’s subsidiary Capmark Bank to be more of a liability than an asset despite holding more than 50% of the Capmark Financial’s USD 21bn in book-value assets, three bond holders said.
In total, Capmark’s assets net of Capmark Bank are worth USD 3.8bn-USD 4.1bn, said the three bond holders. After paying out USD 1.6bn in secured claims in a bankruptcy – and assuming the liens remain unchanged – between USD 1.8bn and USD 2.1bn will be left for USD 7.7bn-USD 8.6bn in projected unsecured claims, the three bond holders noted.
That implies an unsecured recovery rate of roughly 24%, said the three bond holders. Stripping liens would boost unsecured recovery to about 36%, they said.
Capmark’s USD 637.5m Libor +265bps senior unsecured notes due May 2010 have traded up to 27.75 from 22 in the last two weeks while its USD 1.2bn 5.875% senior unsecured bonds due May 2012 traded up to 27.5 from 20, according to MarketAxess.
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