More than a year after filing for Chapter 11 federal bankruptcy protection, Criimi Mae Inc. has filed a reorganization plan with the United States Bankruptcy Court.

Criimi Mae, a Rockville, Md.-based commercial mortgage real-estate investment trust has put forth a $910 million recapitalization plan, announced Sept. 23. The plan would allow a division of Apollo Real Estate Advisors IV LP to invest $50 to $61 million of a new series of convertible preferred stock, and purchase a majority of Criimi's current commercial mortgage-backed securities to reduce the size of Criimi Mae's balance sheet, totaling approximately $425 million.

The plan also calls for $435 million in debt refinancing. "It's contemplated that new financing would be raised, some from existing lenders, to refinance the remaining part," said Criimi Mae spokesman James Pastore.

Its first hearing is scheduled for Nov. 1.

As part of Criimi Mae's reorganization, four of its creditors - Citicorp Securities, First Union National Bank, Lehman Ali Inc. and Morgan Stanley & Co. International - will be paid for its secured claims in cash. Two creditors - German American Capital Corp. and Merrill Lynch Mortgage Capital Inc. - will be paid partially in cash and partially in a new senior secured note.

At the hearing Criimi Mae will be asking for bidder protection, which would give protection to Apollo's bid, "so that Apollo's bid, should it be beaten, has some recompense," noted Pastore.

Criimi Mae filed for Chapter 11 bankruptcy protection in October 1998, after a bottoming-out of the commercial real estate market following a Russian default on government bonds earlier that summer. Because the value of Criimi Mae's securities was perceived to be so low, Criimi experienced a great deal of collateral calls, which prompted the company to put up more cash and CMBS to pay down the principals on its loans.

However, it was Merrill Lynch, one of Criimi Mae's largest lenders, that triggered the actual filing, said Pastore. Merrill "used a valuation of the underlying assets that was way lower than the kinds of valuations that Criimi had been dealing with in other collateral calls ... values would be so low that Criimi wouldn't be able to deal with it, and it was a completely irrational situation," he said. "The underlying assets of the mortgages are still paying out exactly as they're supposed to."

After eight months and about a dozen lawsuits, Criimi Mae put together a reorganization committee. Many investors at that time did not believe Criimi would be able to come out of Chapter 11.

Before filing for bankruptcy, Criimi Mae was the largest investor in noninvestment grade, the lowest rated and even unrated, CMBS. Its portfolio is still performing well, having assets of about $2.3 billion at the end of the second quarter of 1999.

Criimi Mae suspended its origination and securitization of CMBS pools after filing for bankruptcy protection, and does not know how long, if, and when, it will begin to continue those services.

"The company hopes to resume its line of business. However we can't make any predictions about timing, or if actually we'll be able to," said Pastore.

Market Ripe For Comeback

Those on Wall Street do feel that the market is prime for Criimi Mae's deal with Apollo to succeed.

"I can see Apollo's logic completely and I think that they're well-positioned to do well going forward," said the head of a major Wall Street CMBS desk. "We believe that the capital markets have pretty severely disciplined the real-estate sector, and as a result we're seeing the softening of property prices in 1998 and kind of staying at lower property price levels in '99."

He added that the spreads aren't so wide that Apollo would be compensated quickly, but that the investments are "screaming cheap" and an investment in a CMBS B-piece is a "terrific investment." The spreads are currently wider than the entire period from 1993 to 1997, and most of 1998.

"A lot of people are fixated on the high construction outlays we have currently in 1999, but those are slipping downward and in our view, it's going to slip some more next year. Fundamentally, the investments look strong. The pricing is a screaming buy, and I can see why Apollo has undertaken it," he said.

Also, the CMBS pro said he feels that the terms of the plan reached between Criimi Mae and Apollo are great, given the situation that Criimi Mae has been in for the past year.

"I would imagine Apollo got a great deal, and they've got great fundamentals supporting them," he said. "Criimi was not in a good bargaining position, so that they're sort of having to pay Apollo for the privilege, so I presume the terms reflect those kind of economics."

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