Following the completion of a "competitive bidding process," a fund arranged by Cerberus Capital Management agreed to invest in the portfolio. CIBC sources did not return further queries for further information by deadline. Cerberus also did not return GlobeSt.com queries by deadline.
The fair value of the reference portfolio as of the effective date of the transaction, June 30, 2008, was $1.186 billion, according to a prepared statement. As of the end of CIBC's fiscal third quarter, July 31, 2008, the value was $1.075 billion.
Cerberus Capital Management agreed to acquire 1.05 billion of amortizing senior notes, which will have a capped return, payable in cash. The recourse on the notes will be limited to the assets in the reference portfolio. In addition, CIBC will retain 100% of the potential upside on the portfolio following repayment of the notes.
The reference portfolio consists of US residential mortgage-backed securities and collateralized debt obligations of RMBS. The securities are part of CIBC's legacy structured credit runoff portfolio, CIBC says in a statement.
As an all-cash deal, CIBC will not be providing any of the financing to the senior notes investor and will not be providing any performance guarantee in respect of the portfolio. Interest and principal payments on the senior notes will be paid from the portfolio only if the RMBS and CDOs of RMBS perform. According to a CIBC statement, following the repayment of the notes, CIBC "will retain all future cash flows of the portfolio."
CIBC has also retained the ability to call the notes at the end of three years upon payment of accrued and unpaid interest, remaining principal and a fixed redemption premium. CIBC will also keep all financial guarantor insurance contracts and related rights associated with the portfolio. CIBC president and CEO Gerry McCaughey says in a prepared statement that the transaction "sets a floor under CIBC's exposure to the US residential mortgage market. At the same time, retaining ownership of these securities, combined with the option regarding the timing of any redemption of this note, provides us with important flexibility to benefit from a future recovery in the cash flows of these securities."
McCaughey continues that "our capital position is strong and our actions to reduce risk in our structured credit portfolio further that strength. In addition, retaining the right to future recoveries provides the potential for further enhancement to CIBC's performance."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
