Capmark Financial Group Inc., the bankrupt lender partly owned by KKR & Co. and Goldman Sachs Group Inc., reached a settlement with secured creditors designed to avoid litigation over a $1.5 billion loan.
The settlement will save the company between $108 million and $135 million on the loan and stave off a lawsuit that might cost $50 million, according to papers filed today by Capmark and its lenders in U.S. Bankruptcy Court in Wilmington, Delaware.
The accord may make it easier for Capmark to end its bankruptcy case this year by removing the threat of litigation over the loan. Capmark, the former GMAC LLC commercial mortgage unit, borrowed the money from Goldman Sachs affiliates and other lenders five months before filing for bankruptcy in October, according to court papers.
Capmark and a committee representing lower-ranking unsecured creditors are scheduled to battle over the legitimacy of the loan in court on Sept. 15. The committee of unsecured creditors claims the loan was a fraudulent transfer because it did nothing but exchange unsecured debt held by the lenders for a secured loan that would have a higher repayment priority.
“We find it interesting that any effort to settle comes after we sought to end payments to the term lenders and sought to file a lawsuit against the term lenders,” committee attorney Thomas Moers Mayer said in an interview. The committee hasn’t seen the settlement, and intends to go forward with its challenge, he said.
The unsecured creditors claim the loan has “little to no value” and was wrongly arranged by company insiders to ensure that lenders got paid before other creditors. The committee needs permission from U.S. Bankruptcy Judge Christopher Sontchi to sue Citigroup Inc., the loan’s administrative agent. Should Sontchi approve the settlement announced today, the committee would lose the right to challenge the loan.
The lenders agreed to a 9 percent discount on $1.5 billion of claims, or $135 million of principal, in exchange for getting paid by the end of the year, people familiar with the settlement said. They asked not to be identified because the talks weren’t public.
Capmark and lenders who hold a majority of the $1.5 billion loan disclosed the settlement, without giving terms, today in court papers opposing the creditor committee attempt to overturn the loan. They said the loan allowed Capmark to extend debt maturities, avoid defaults and delayed the company’s bankruptcy.
The loan gave Capmark “an opportunity to weather the financial storm and maximized the value of the estate,” James Sprayregen and Edward Sassower, attorneys for the lenders with law firm Kirkland & Ellis LLP, wrote in court papers.
Martin Bienenstock, a partner at Dewey & LeBoeuf LLP in New York, is representing Capmark. Messages left for Capmark spokesman Thomas Fairfield weren’t returned and Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.
Capmark, based in Horsham, Pennsylvania, filed for bankruptcy on Oct. 25, blaming falling property values and a drop in lending.
KKR, Goldman Sachs, Dune Capital Management LP and Five Mile Capital Partners LLC bought 78 percent of Capmark, then called GMAC Commercial Mortgage, in 2006 for $1.5 billion in cash and the repayment of $7.3 billion of debt, before General Motors Corp. sold a 51 percent stake in the rest of its finance business, GMAC LLC.
The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).