Capmark Financial Group Inc. has struck a deal with its lenders that would trim their claims in the case by $100 million and could ease the threat of a potential lawsuit from unsecured creditors.
The company is seeking more time to control its Chapter 11 case as it hashes out the details of the new settlement, designed to help Capmark avoid "a major obstacle" in its efforts to develop a plan to repay creditors.
That obstacle is an Aug. 12 move by the committee representing Capmark's unsecured creditors, which is seeking to launch litigation on behalf of Capmark against its lenders. The unsecured creditors say the company has failed to pursue claims stemming from a 2009 debt swap that could bring in an additional $1.5 billion for creditors, and they want to take matters into their own hands.
But Capmark says that if the creditors succeed in moving forward with the lawsuit, it will wreak havoc on the bankruptcy proceedings.
"Notwithstanding the debtors' view on the relative merits of potential avoidance claims, bitter and protected litigation of the secured claims is a near certainty if the committee's motion is successful," Capmark said in papers filed Wednesday with the U.S. Bankruptcy Court in Wilmington, Del.
Instead, Capmark has devised a deal it hopes will win the unsecured creditors' support. Under the settlement, the lenders, led by Citicorp North America Inc., would accept a 9% reduction of the principal of their claims, a hit that totals $100 million. The company says the deal has been agreed to by a large majority of the lenders and "reflects the relative merits of any potential avoidance actions and the uncertainties inherent in litigating them."
"If the settlement is approved, the claims and causes of action in the committee's motion will be resolved, providing for a Chapter 11 plan in which distributions are more certain and timely," Capmark said.
Attorneys for the unsecured creditors were not immediately available for comment Thursday, and Capmark acknowledged that it wasn't sure if the settlement would be enough to stop the lawsuit.
"Whether the committee's motion will be approved, or the debtors will prevail in obtaining approval of the settlement and thereby resolving this significant challenge to filing a Chapter 11 plan, is unknown at this time," Capmark said. "What is clear, however, is that the outcome of these matters necessarily will dictate the form and substance of a Chapter 11 plan."
To that end, Capmark is seeking more time to file a creditor-payment plan without the threat of rival plans from creditors. Its exclusivity period is currently set to expire on Sept. 30, but Capmark wants the right extended through Dec. 31. In addition, the company wants permission to solicit plans through March 1, as opposed to the current deadline of Nov. 30.
A judge is set to consider Capmark's request for an extension at a Sept. 15 hearing.