Asset management firm Cremac is seeking so-called strategic alternatives to sole ownership for its third-party credit risk management subsidiary Risk Management Group, according to Cremac President Joe Cafiero. Cypress Advisors is in the process of conducting a bidding process for the company, the second-largest credit risk manager, behind Clayton Holdings Inc.
Cremac is looking to negotiate an outright sale, a strategic alliance or a cash infusion for the company. The Brooklyn, N.Y.-based firm was founded in May 2003, and employs 13. Cafiero declined to comment on its estimated value. Cafiero is aiming to close a deal within 30 to 60 days, he said.
Why right now? "Purely because of the volume and the size of this industry, there is a need for this product right now - and there are a lot of people who have identified that need now that the public has a better understanding of credit risk management, for it to be out there," Caffiero said. Cremac announced its intentions last month to enter the CDO market as a manager. The company, however, is not actively investing in residential mortgage assets due to a negative outlook of that collateral's performance amid new product types, underwriting standards and tighter spreads offered to compensate for risk. Cremac is instead focused on the CMBS sector.
RMG has $40 billion in assets under management that consist primarily of Alt-A and subprime loans. The company works as an intermediary between the asset manager and servicer on a given pool of loans.
Because of the changing landscape in residential mortgage underwriting, the company's analysis has geared itself toward forecasting loss and prepayment rates for the slew of emerging mortgage products - from option adjustable-rate mortgages to interest-only loans, Cafiero said. The company recently began managing home-equity loans as well, and recently secured a contract to manage a pool of home equity lines of credit.
"We think the company has a very good platform, and we think it has a lot to offer for another financial company to come in and help us grow the platform," Cafiero said. "The technology, the automation, has the capability of identifying high risk items, whether it be in the underwriting related or performance related, to bring them to the top, so you can do a high-level analysis on the whole pool, or do a more detailed analysis on the potential concerns that you see coming out of these various reports," he said. Cafiero described the company's technology platform as more of an interactive, loss mitigation tool than a static report generator. Its technology was developed in-house.
Private equity and buyout firm TA Associates gave a $41.7 million cash infusion to The MurrayHill Co. last July. In April, The company announced a partnership with Clayton Services Inc., a technology and loan analysis provider also owned by TA Associates to form Clayton Holdings Inc. The company monitors some $800 billion in securitized bond portfolios.
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