CIBC sells U.S. mortgage notes
Canadian Imperial Bank of Commerce says it will limit its U.S. residential mortgage exposure in a deal that will see Cerberus Capital Management LP pay $1.05 billion (U.S.) in cash for senior notes linked to the bank’s U.S. residential real estate assets.
Cerberus will receive cash flow from the notes, while the CIBC, which wrote down its debt investments by about $7.55 billion (Canadian) since last year, more than any other domestic bank, will retain ownership of the underlying assets.
The Cerberus investment will "significantly limit our future exposure to the U.S. residential real estate market," said CIBC chief executive Gerry McCaughey.
CIBC said it’s giving away "potential upside" in its portfolio to protect against any downside in the real estate market.
CIBC in January sold most of its New York-based investment banking business to Oppenheimer Holdings Inc.
Cerberus, a New York-based firm chaired by former U.S. Treasury Secretary John Snow, expects to recoup its investment plus a return of about 20 per cent, McCaughey said. The notes mature in three to four years.
The real estate portfolio has a notional value of about $6 (payday loan online).3 billion (U.S.) and consists of mortgage-backed securities and collateralized debt obligations. The assets have been written down "by a material amount," said CIBC chief administrative officer Ron Lalonde, with a fair value of $1.08 billion at July 31.
"Some of those notes are in significant distress and will end up being liquidated and terminated for some amount of value," Lalonde added.
The transaction shows "there is capital out there to enter into these deals, but there hasn’t been an avalanche of them yet," Lalonde said.
"There is hedge fund and private equity money that stands ready to be deployed in the right types of investments in distressed assets," said Paul Jorissen, a partner at New York-based Mayer Brown LLP, which advised CIBC on the transaction. "The issue is trying to call the bottom."
From the Star’s wire services
Filed under: legal by TheDoor