Low-ranking creditors of Capmark Financial Group Inc. will fight the bankrupt company’s plan to use most of its remaining cash to repay a $1.5 billion loan made by a group that includes Goldman Sachs Group Inc.
U.S. Bankruptcy Judge Christopher Sontchi scheduled a two-day hearing beginning Oct. 14 to resolve a dispute over the loan, which the unsecured creditors committee claims wasn’t legitimate. Capmark and the lenders behind the loan have signed a deal that would repay most of the loan’s principal balance and protect the lenders from legal liability.
The loan is the “last significant remaining piece” of the company’s bankruptcy case, Sontchi said during a teleconference today from Wilmington, Delaware.
At the October hearing, Sontchi will decide whether to approve the deal between the lenders and Capmark. If he doesn’t, he may allow lower-ranking creditors to file a lawsuit challenging the loan’s legitimacy.
Capmark, the former GMAC LLC commercial mortgage unit, borrowed the money from Goldman Sachs affiliates and other lenders five months before it filed for bankruptcy in October, according to court papers.
Capmark, based in Horsham, Pennsylvania, is partly owned by KKR & Co. and Goldman Sachs. The committee, which represents lower-ranking creditors, says 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.
The committee is seeking permission to file a lawsuit that would reduce the loan’s higher repayment status. Should Sontchi approve the settlement between Capmark and its lenders, the committee would be unable to challenge the loan. Other lenders include Bank of America NA, Citicorp North America Inc. and Credit Suisse Group AG, according to data compiled by Bloomberg.
Under the settlement, Capmark would save between $108 million and $135 million on the loan and stave off a lawsuit that might cost $50 million, according to papers filed by Capmark and its lenders. The company and its lenders say the loan was legitimate because it extended debt maturities, avoided defaults and delayed the company’s bankruptcy.
Should Sontchi approve the settlement, Capmark would be required to pay $1 billion to the lenders by Nov. 1, creditor attorney Adam L. Shiff said today during a telephone conference. The company had about $1.1 billion in cash at the end of July, according to court records.
Lower-ranking creditors are owed $7 billion, Shiff said.
Capmark filed for bankruptcy on Oct. 25, blaming falling property values and a drop in lending.
The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).