M&A

13 November, 2009

PNC eying Capmark's servicing unit--sources

By Caroline Humer and Tom Hals

NEW YORK/WILMINGTON, Del., Nov 13 (Reuters) - A unit of PNC Financial Services Group Inc (PNC.N) is considering a bid for Capmark's mortgage servicing portfolio that may "significantly" top an agreed deal with Warren Buffett, according to sources.

Capmark Financial Group Inc [CPFNG.UL] filed for bankruptcy in October with a plan to sell its mortgage servicing business, one of the world's largest, to a joint venture of Berkshire Hathaway Inc(BRKa.N) and Leucadia National Corp (LUK.N) for about $490 million, subject to higher bids.

A lawyer for Capmark told a bankruptcy judge on Nov. 4 that a potential strategic buyer had come forward with a bid for "significantly more money" than the bid by the joint venture, which is known as Berkadia.

That alternative proposal came from Midland Loan Services, a unit of PNC, according to sources close to the situation.

A spokesman for PNC said the bank would not comment on rumors and speculation.

Capmark services $288.6 billion in loans, the third-largest commercial and multifamily residential loan portfolio.

Overland Park, Kansas-based Midland is interested in buying the loan business but already has a structure in place to service it, which means the potential for job losses, one of the sources said.

For that reason, the offer would have to be higher than the Buffett deal and provide enough money to enable the company to pay to keep staff in place to service the loans in the interim, the source said.

In financial companies, people are often considered the assets, and one of the fears about bankruptcy in such a company is that the assets will in effect walk away during the process. This is what drove the sale of some Lehman Brothers assets to Barclays Capital last year during its collapse.

Midland tipped people off to its interest at the initial Capmark bankruptcy hearing when one of its lawyers objected to the tight deadline Capmark had proposed for selling its mortgage servicing business.

The lawyer for Midland called Capmark's servicing business "as complex a business as I've ever seen" and said potential bidders did not have an opportunity to properly examine the business.

Capmark's attorney told the bankruptcy court that as of Nov. 4, the alternative proposal did not meet the criteria for a qualifying bid. In part, that was because the potential buyer did not want all of Capark's servicing staff or the entire portfolio.

That sparked a warning from Freddie Mac's attorney, who said the government-sponsored agency wanted to be reassured it would have continuity in handling its loans.

Capmark is Freddie Mac's top servicer of multifamily loans.

The attorney said Freddie Mac had power to terminate the servicing rights, and if it did so the value of the servicing portfolio "would evaporate."

Judge Christopher Sontchi said he understood Freddie Mac's position but also questioned if "the contract terms you claim are enforceable."

Qualifying bids are due by Nov. 20 and if an auction is needed it will be held on Nov. 23. A hearing to approve the sale is scheduled for Nov. 24. (Editing by Gary Hill)

Source: http://www.reuters.com