Bank Goes From Reluctant Seller to Patient Investor With the First C5 Asset Recovery Company

C5 Advisors announced the closing of the first proprietary C5 Asset Recovery Company (“ARC5(TM)”) for an $800 million commercial bank client which had no options for public sector assistance. This particular bank client will realize significant benefits not available in the current market via the private or public sector and expects to close additional follow-up ARCs over the next 6 months. C5 is currently structuring ARCs for 12 other banks nationwide (ranging in size from $20-300+ million per ARC5(TM)).

According to Gary Saykaly, President, “C5 invested time, capital, resources and worked with a team of extremely creative advisors to create a unique proprietary private sector solution (ARC5(TM)) that provides banks with a structure that best addresses their current issues (capital access & “toxic” or troubled real estate loan / OREO exposure) and creates a 100% bridge between investment capital and banking requirements. The current options, public and private sector, for community and regional banks are limited and are not providing optimal long term solutions and also do not fully bridge the market bid/ask spread.

Bill Buchalter, CEO of C5, states “the ARC5(TM) is not a liquidation vehicle but instead provides a long term investment for a bank in a new real estate operating company equipped with capital, expertise, and the luxury of time, to significantly maximize the value of a bank’s troubled real estate holdings. Each Bank’s ARC5(TM) requires precision construction to structure around key factors: Accounting, Economics, Capital, Regulatory, and Management & Control.”

• The C5 ARC5(TM) provides very unique accounting, economic and execution benefits to a bank that are not currently available:
• The ARC5(TM) allows C5 to operate the assets over a much longer time horizon than a bank can, thereby maximizing the value of those assets, resulting in larger cash distributions to the bank.
• The ARC5(TM) system would enable a bank to account for the investment in the venture using an accounting methodology that is appropriate for a long term investment.
• The bank would no longer consolidate the assets/loans and thereby receive an immediate tourniquet effect for future asset impairments, providing the balance sheet stability to attract the interest of new capital.
• Immediate capital (pre-funded by the manager) for the ongoing operations and business plan execution, eliminating the need by the bank to provide any additional future capital.
• Puts the troubled assets in the hands of an interdisciplinary team of experienced real estate professionals with the required expertise and resources to maximize the value for each asset, allowing the bank to go back to the business of banking.
• Banks can contribute all or a portion of their performing/sub & non-performing loans and OREO assets for both residential (land, lots, subdivisions, vertical homes) and/or any type of commercial project or land.

According to Saykaly, “given the specific mechanics and structure of each ARC5(TM), investment capital is provided very unique benefits: attractive risk adjusted returns, flexible investment structures, 80-95% synthetic leverage, principal preservation, access to a significant amount of off-market bank owned real estate loans/assets, and proven execution expertise.