IDD Daily Updates and Restructuring Alert Weekly Updates, our email alerts
Cerberus Helps CIBC With $1B Deal
Cerberus deal will shift the risk in CIBC's US mortgage security portfolio.
October 3, 2008
Cerberus Capital Management has agreed to invest $1 billion in the US residential real estate portfolio of CIBC.
Terms call for CIBC, which announced the deal on Friday, to retain ownership of the real estate assets in the form of residential mortgage-backed securities and collateralized debt obligations, whereas Cerberus will receive cash from the notes that are linked to the real estate portfolio.
"This transaction sets a floor under CIBC's exposure to the US residential mortgage market," said CIBC president and chief executive Gerry McCaughey in a statement.
The deal with New York private equity firm Cerberus is innovative in that it will shift the risk it holds in its mortgage securities portfolio, but also allow the Canadian bank to capitalize on residual value in its portfolio of RMBS and CDOs. As part of the deal, CIBC will only receive interest and principal payments on the senior notes if the RMBS and CDOs perform.
Unlike Merrill Lynch's deal with Lone Star earlier this year that saw the private equity firm purchase some $30 billion worth of assets at 22 cents on the dollar that was largely financed by Merrill, CIBC is not providing Cerberus with any debt financing for the purchase.
“They’re using a blend of structured finance technology with a credit-linked note that puts a floor underneath the risk on this portfolio and protects CIBC equity investors from further deterioration in the CDO and CMBS market,” says Paul Jorissen, a partner at Mayer Brown who served as lead counsel to CIBC on the transaction.
The deal is expected to have a positive impact on CIBC's Tier 1 capital ratio, which was 9.8% in July. As result of the deal, the Tier 1 ratio will be boosted by 13 basis points.
Find out more information about people mentioned in this article from our People Database:
For more information on related topics, visit the following:
