Capmark Financial Group Inc. Issues Quarterly Report as of and for the three and six months ended June 30, 2014 and 2013

HORSHAM, Pa.--()--Capmark Financial Group Inc. (the “Company”) today issued its Quarterly Report as of and for the three and six months ended June 30, 2014 and 2013. The Company reported consolidated net income of $7.0 million and $3.5 million for the three and six months ended June 30, 2014, respectively. The Company also reported consolidated total assets of $650.1 million, consolidated total liabilities of $240.4 million, and stockholders’ equity of $382.6 million as of June 30, 2014.

 
Highlights for the second quarter were:
           

 •

Transaction with Centerbridge:
 
On March 5, 2014, the Company entered into an agreement with Centerbridge Capital Partners II, L.P. and certain of its affiliates (“Centerbridge”) for a strategic investment in the Company by Centerbridge (“Investment Agreement”), subject to certain terms and conditions. Centerbridge will assist the Company over a two to three year period in identifying potential acquisition candidates that fit the Company’s strategic objectives. Funds made available to the Company by Centerbridge would be used, together with the Company’s own resources, to finance one or more acquisitions whose goal is to enhance value for all shareholders.
 

On May 8, 2014, following receipt of stockholder approval, the Company, as contemplated by the Investment Agreement, (i) filed Amended and Restated Articles of Incorporation and amended and restated its By-laws, (ii) issued to Centerbridge $5.0 million of convertible preferred stock and warrants to purchase up to 43 million shares of common stock and (iii) entered into a Note Purchase Agreement under which Centerbridge committed to purchase up to $100 million of floating-rate subordinated payment-in-kind notes, subject to certain terms and conditions. Pursuant to its rights as holder of the preferred stock, Centerbridge has elected Mr. Matthew Kabaker to the Company’s Board of Directors, which now consists of nine members.

 

 •

Total cash received from asset collections and revenue was $31.4 million. Included in the total cash received was $12.0 million from investment securities, $4.5 million from the sale of the Company’s headquarters, $4.4 million of distributions from real estate equity and debt funds, $3.8 million from the redemption of the equity investment in the Federal Home Loan Bank of Seattle and $3.1 million from the monetization of loan related assets.
 

 •

The Company’s net income of $7.0 million for the three months ended June 30, 2014 included $13.4 million of noninterest income primarily from net gains on investments and $1.8 million of net interest income partially offset by noninterest expense of $8.3 million. Included in noninterest income was $12.0 million related to the payment of interest shortfalls on several tranches of a commercial mortgage backed security classified as available for sale.
 

Highlight subsequent to the second quarter was:

 
On July 15, 2014, the Company announced that it has entered into an agreement (the “Sale Agreement”) to sell its interests in a subsidiary (“NewCo”) to be formed in connection with the Restructuring and Settlement Agreement (the “RSA”) among the Company, certain of its subsidiaries and Ambac Assurance Corporation (“Ambac”) relating to certain low-income housing tax credit funds for which Ambac issued surety bonds to investors (the “Ambac Funds”). Under the terms of the Sale Agreement, the Company will sell its interests in NewCo to HCP Pacific Holdings, LLC, an affiliate of Hunt Capital Partners, LLC and Hunt Companies Inc., for a purchase price of $31 million.
 
At the closing of the RSA, $30 million of the approximately $90 million of cash and investment securities previously pledged to Ambac for up to approximately ten additional years will be released to the Company and the Company will be released from all obligations related to the Ambac Funds. NewCo will be capitalized with the remaining Ambac collateral after payment of certain expenses in connection with the RSA and with certain other assets related to the Ambac Funds and will issue a new guarantee to Ambac for reimbursement of any payments it is required to make under the surety bonds.
 
The Company will receive an aggregate of $61 million upon the closing of the RSA and the Sale Agreement. Following the closing of the Sale Agreement, the Company will have no remaining interest in the Ambac Funds or NewCo.
 
The RSA was filed with the U.S. Bankruptcy Court for the District of Delaware on June 24, 2014 and approved on July 11, 2014. The closing of the RSA and the Sale Agreement are subject to certain closing conditions. The Company currently expects the RSA and the Sale Agreement to close in the third quarter of 2014, subject to fulfillment of closing conditions. The Company expects to record a gain on sale of discontinued operations of approximately $30 million after the closing of both the RSA and the Sale Agreement.
 

Consolidated Balance Sheet

The Company had consolidated total assets of $650.1 million and $681.1 million as of June 30, 2014 and December 31, 2013, respectively. Total assets of $650.1 million as of June 30, 2014 consisted primarily of cash and cash equivalents, equity investments and loans. Loans held for sale included $85.0 million and $115.1 million as of June 30, 2014 and December 31, 2013, respectively, of loans held for sale that are no longer owned by the Company, but continue to be recognized on the Company’s balance sheet because the transfers of these loans to third parties were accounted for as financings under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing (“ASC 860”). Assets totaling $138.5 million and $135.2 million were associated with discontinued operations as of June 30, 2014 and December 31, 2013, respectively.

The Company had consolidated total liabilities of $240.4 million and $273.8 million as of June 30, 2014 and December 31, 2013, respectively. Secured borrowings of $93.6 million and $130.4 million as of June 30, 2014 and December 31, 2013, respectively, primarily include secured borrowings that the Company recognized on the consolidated balance sheet under ASC 860 when transfers of loans to a third party were accounted for as financings. Recourse is limited to the assets related to these contractual arrangements and the Company expects to derive no material economic benefit from these transactions. Liabilities of $87.1 million and $77.4 million were associated with discontinued operations as of June 30, 2014 and December 31, 2013, respectively.

Total stockholders’ equity was $382.6 million at June 30, 2014 compared to $373.6 million at December 31, 2013.

Consolidated Results of Operations

The Company had net income from continuing operations before income taxes of $6.8 million in the three months ended June 30, 2014, as noninterest income of $13.4 million and net interest income of $1.8 million was offset by noninterest expense of $8.3 million. The $13.4 million of noninterest income included $12.0 million of net gains on investments and real estate and net gains on loans of $0.5 million. Net gains on investments and real estate of $12.0 million for the three months ended June 30, 2014 primarily included a realized gain related to the payment of interest shortfalls on several tranches of a commercial mortgage backed security classified as available for sale. The noninterest expense of $8.3 million included professional fees of $4.5 million and compensation and benefits expense of $2.7 million. Professional fees included $2.5 million of costs associated with the Investment Agreement and $0.6 million of costs associated with litigation and bankruptcy related matters.

The Company had net income from continuing operations before income taxes of $3.3 million in the six months ended June 30, 2014, as noninterest income of $17.4 million and net interest income of $4.0 million was offset by noninterest expense of $18.0 million. The $17.4 million of noninterest income included $13.8 million of net gains on investments and real estate, $1.5 million of net gains on loans and $1.4 million of other gains, net. Net gains on investments and real estate of $13.8 million for the six months ended June 30, 2014 primarily included realized gains related to the payment of interest shortfalls on several tranches of a commercial mortgage backed security and on a redemption of an interest in a collateralized debt obligation, both classified as available for sale. The noninterest expense of $18.0 million included professional fees of $9.7 million and compensation and benefits expense of $5.8 million. Professional fees included $5.6 million of costs associated with the Investment Agreement and $1.5 million of costs associated with litigation and bankruptcy related matters.

Liquidity

As of June 30, 2014, the Company’s continuing operations had $229.8 million in total cash and cash equivalents, including $11.8 million of restricted cash.

The Company’s primary sources of liquidity from the existing assets are expected to be (1) distributions received from equity investments and (2) collections on and sales of other assets in its portfolio. The Company expects to generate sufficient liquidity from the existing assets to meet its needs for cash in its operations over the next 12 months, including paying its operating expenses.

The Company does not anticipate making additional distributions to stockholders in the near term. The terms of the Investment Agreement prohibit future distributions by the Company and certain of its subsidiaries.

Quarterly Report and Investor Conference Call

The Company’s Quarterly Report as of and for the three and six months ended June 30, 2014 and 2013 may be found on the Company’s website (www.capmark.com) under the heading “Financial Reporting.”

The Company will hold an investor call on August 21, 2014 at 11:30 a.m. Eastern Time to discuss, among other items, the Report as of and for the three and six months ended June 30, 2014 and 2013.

To listen to the investor call, please go to www.capmark.com under the heading “Investor Relations” at least fifteen minutes prior to the scheduled start time to download and install any necessary audio software. For those who are unable to listen to the live broadcast, an archived replay will be available on the website for a period of time. Investors who have questions for the Company’s management can participate in the conference call by dialing the following:

  • Toll Free: (877) 254-2825
  • Conference ID # 88843381

Forward-Looking Statements

Certain statements in this release may constitute forward-looking statements. These statements are based on management’s current expectations and beliefs but are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such forward-looking statements are made only as of the date of this release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or changes in events, conditions, or circumstances on which any such statement is based.

About Capmark®:

Capmark, a commercial real estate finance company, is focused on managing its existing assets and business and potentially acquiring one or more businesses with a view to maximizing shareholder value. Capmark is headquartered in Horsham, Pennsylvania and operates principally in North America. For more information, visit www.capmark.com

 
CAPMARK FINANCIAL GROUP INC.
Consolidated Balance Sheet (unaudited)
(in thousands, except share amounts)
   
June 30, 2014 December 31, 2013
Assets
Cash and cash equivalents $ 218,082 $ 126,535
Restricted cash 11,758 11,861
Accounts and other receivables 41,717 61,019
Investment securities available for sale 1,064 4,974
Loans held for sale 88,933 156,870
Equity investments 148,368 177,534
Other assets 1,683 7,172
Assets of discontinued operations (1)   138,496   135,177
Total assets $ 650,101 $ 681,142
Liabilities and Equity
Liabilities:
Secured borrowings 93,597 130,449
Other liabilities 59,617 65,922
Liabilities of discontinued operations (1)   87,147   77,438
Total liabilities   240,361   273,809
Commitments and Contingent Liabilities
Equity:
Series A participating convertible preferred stock, $0.01 par value, $5,000 stated value; shares authorized — 10,000,000 at June 30, 2014 and 0 at December 31, 2013; shares issued and outstanding — 1,000 at June 30, 2014 and 0 at December 31, 2013 4,772
Common stock, $0.01 par value, shares authorized — 350,000,000 at June 30, 2014; $0.001 par value; shares authorized — 110,000,000 at December 31, 2013; shares issued and outstanding — 100,182,419 at June 30, 2014 and December 31, 2013 1,002 100
Capital paid in excess of par value 190,047 189,820
Retained earnings 185,548 182,015
Accumulated other comprehensive income (loss), net of tax   1,211   1,627
Total Capmark Financial Group Inc. stockholders’ equity 382,580 373,562
Noncontrolling interests   27,160   33,771
Total equity   409,740   407,333
Total liabilities and equity $ 650,101 $ 681,142

________________________

(1) The following table presents assets of consolidated variable interest entities (“VIEs”) included in each balance sheet line item that can be used only to settle the obligations of the consolidated VIE and liabilities of the consolidated VIE included in each balance sheet line item for which creditors or other interest holders do not have recourse to the general credit of Capmark Financial Group Inc. and its subsidiaries.
             
June 30, 2014 December 31, 2013 June 30, 2014 December 31, 2013
Assets Liabilities

Assets of discontinued operations

$ 45,023 $ 41,685 Liabilities of discontinued operations $ 17,865 $ 7,929
Total assets $ 45,023 $ 41,685 Total liabilities $ 17,865 $ 7,929
 
       
CAPMARK FINANCIAL GROUP INC.

Consolidated Statement of Comprehensive Income (Loss) (unaudited)

(in thousands, except per share data)
 
Three months Three months Six months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2014 2013 2014 2013
Net Interest Income
Interest income $ 2,233 $ 6,139 $ 4,835 $ 18,463
Interest expense   455   1,703   900   3,726
Net interest income   1,778   4,436   3,935   14,737
Noninterest Income
Net gains on investments and real estate 11,977 47,585 13,772 48,385
Net gains on loans 498 8,364 1,474 19,196
Other (losses) gains, net (123) (518) 1,424 (2,007)
Equity in income (loss) of joint ventures and partnerships 329 3,698 (235) 4,163
Net real estate investment and other income   696   1,320   933   999
Total noninterest income   13,377   60,449   17,368   70,736
Net revenue   15,155   64,885   21,303   85,473
Noninterest Expense
Professional fees 4,453 5,888 9,698 11,558
Compensation and benefits 2,664 6,598 5,795 15,358
Occupancy and equipment 322 540 796 1,198
Other expenses   901   459   1,753   4,309
Total noninterest expense   8,340   13,485   18,042   32,423
Income from continuing operations before income tax provision 6,815 51,400 3,261 53,050
Income tax provision   209   91   499   250
Income from continuing operations after income tax provision 6,606 51,309 2,762 52,800
Loss from discontinued operations, net of tax   (2,708)   (5,230)   (5,661)   (13,403)
Net income (loss) 3,898 46,079 (2,899) 39,397
Plus: Net loss attributable to noncontrolling interests   3,124   911   6,432   5,804
Net income attributable to Capmark Financial Group Inc. $ 7,022 $ 46,990 $ 3,533 $ 45,201
Other comprehensive income (loss)
Net change in unrealized gains and losses on investment securities (483) (5,200) (416) 8,110
Net foreign currency translation     (159)     (1,091)
Other comprehensive income (loss)   (483)   (5,359)   (416)   7,019
Comprehensive income attributable to Capmark Financial Group Inc. $ 6,539 $ 41,631 $ 3,117 $ 52,220
Basic and diluted net income per share - continuing operations $ 0.10 $ 0.52

$

0.09 $ 0.59
Basic and diluted net income per share attributable to Capmark Financial Group Inc.   0.07   0.47   0.03   0.45
Basic weighted average shares outstanding 99,803 99,728 99,803 99,728
Diluted weighted average shares outstanding

100,628

99,756

100,217

99,745
 
 
CAPMARK FINANCIAL GROUP INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
(in thousands, except number of shares)
   
Six months ended Year ended
June 30, 2014 December 31, 2013
Common Stock
Number of shares outstanding at beginning of period 100,182,419 100,242,722
Additional shares issued
Treasury shares retired     (60,303)
Number of shares outstanding at end of period   100,182,419   100,182,419
Preferred Stock
Number of shares outstanding at beginning of period
Additional shares issued   1,000  
Number of shares outstanding at end of period   1,000  
Preferred Stock
Balance at beginning of period $

$

Shares issued 5,000
Beneficial conversion feature associated with Preferred Stock   (228)  
Balance at end of period   4,772  
Common Stock
Balance at beginning of period 100

 

100
Change in par value from $0.001 to $0.01 per share 902
Additional shares issued (retired)    
Balance at end of period   1,002   100
Capital Paid in Excess of Par Value
Balance at beginning of period 189,820 1,240,834
Additional shares issued
Change in par value from $0.001 to $0.01 per share (902)
Beneficial conversion feature associated with Preferred Stock 228
Stockholder distributions (1,052,548)

Treasury shares retired

(267)
Stock-based compensation   901   1,801
Balance at end of period   190,047   189,820
Retained Earnings
Balance at beginning of period 182,015 90,313
Net income attributable to Capmark Financial Group Inc.   3,533   91,702
Balance at end of period   185,548   182,015
Accumulated Other Comprehensive Income (Loss), net of tax
Balance at beginning of period 1,627 (4,885)
Other comprehensive income (loss)   (416)   6,512
Balance at end of period   1,211   1,627
Total Capmark Financial Group Inc. Stockholders’ Equity   382,580   373,562
Noncontrolling Interests
Balance at beginning of period 33,771 61,849
Net loss attributable to noncontrolling interests (6,432) (14,432)
Other   (179)   (13,646)
Balance at end of period   27,160   33,771
Total Equity $ 409,740 $ 407,333
 
 
CAPMARK FINANCIAL GROUP INC.
Consolidated Statement of Cash Flows (unaudited)
(in thousands)
   
Six months ended Six months ended
June 30, 2014 June 30, 2013
Net Cash Provided By Operating Activities of Continuing Operations $ 69,540 $ 220,709
Investing Activities of Continuing Operations
Net increase in restricted cash 104 13,202
Repayments of investment securities classified as available for sale 17,179 14,189
Proceeds from sales of investment securities classified as available for sale 240
Proceeds from sales of/capital distributions from equity investments 29,001 51,604
Proceeds from sales of real estate investments 160,602
Sale of property and equipment 4,664
Other investing activities, net   (1)   1
Net cash provided by investing activities of continuing operations   50,947   239,838
Financing Activities of Continuing Operations
Repayments of secured borrowings (36,852) (57,457)
Proceeds from the issuance preferred stock 5,000
Repayment of deposit liabilities (423,396)
Distributions to stockholders (701,699)
Other financing activities, net     (9,624)
Net cash used in financing activities of continuing operations   (31,852)   (1,192,176)
Effect of Foreign Exchange Rates on Cash   41   (739)
Discontinued Operations
Net cash used in operating activities of discontinued operations (271) (10,530)
Net cash provided by (used in) investing activities of discontinued operations 2,871 (4,140)
Net cash used in financing activities of discontinued operations     (22,340)
Net cash provided by (used in) discontinued operations   2,600   (37,010)
Net Increase (Decrease) in Cash and Cash Equivalents 91,276 (769,378)
Cash and Cash Equivalents, Beginning of Period(1)(2)   127,066   1,568,920
Cash and Cash Equivalents, End of Period(3)(4) $ 218,342 $ 799,542

________________________

Notes:
(1)   Cash and cash equivalents exclude restricted cash of $93.9 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $0.5 million, respectively as of December 31, 2013.
 
(2) Cash and cash equivalents exclude restricted cash of $150.4 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $90.0 million, respectively as of December 31, 2012.
 
(3) Cash and cash equivalents exclude restricted cash of $96.7 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $0.3 million, respectively as of June 30, 2014.
 
(4) Cash and cash equivalents exclude restricted cash of $140.7 million from continuing and discontinued operations and include non-restricted cash of discontinued operations of $8.8 million, respectively as of June 30, 2013.
 

Contacts

Capmark Financial Group Inc.
Thomas L. Fairfield, 215-328-1555