CapitalSource Delays Unit's IPO

By Thomas Heath

CapitalSource, the Chevy Chase-based commercial lender, said yesterday that it has temporarily delayed the initial public offering of its wholly owned health-care real estate investment trust due to "market volatility."

CapitalSource in August said it would offer 14 million shares in CapitalSource Healthcare REIT, priced at $18 to $21, and net around $223 million. The company did not respond to a request for comment, and the announcement of the delay did not say when CapitalSource would return to the market.

"This is likely due to poor market conditions," said Scott Valentin, an analyst with FBR Capital Markets. "I was frankly surprised when they first announced they were going forward, given the volatility of the market."

There have been few stock-market debuts recently. No U.S. companies had IPOs in September, the first time that happened since July 2003, according to Bloomberg.
One source familiar with the company's plans, who spoke on condition of anonymity because the person is not legally permitted to speak publicly, said CapitalSource wanted to slightly modify the terms of the offering to maximize its price and suggested the IPO could be introduced within weeks.

CapitalSource Healthcare REIT, a wholly owned subsidiary of CapitalSource, is a real estate investment trust that invests principally in skilled nursing facilities located in the United States. Its portfolio consists of 187 facilities in 23 states.

CapitalSource, like many financial companies, has been hit hard by the credit crisis. It cut its quarterly dividend last month from 60 cents to 5 cents. Shares are 56 percent off their 52-week high and closed yesterday at $8.51, down $1.33.

CapitalSource, founded by chief executive John Delaney, earlier this year purchased a troubled California community bank, Fremont Investment & Loan, and assumed its $5.6 billion in deposits and its 22 branches. The $170 million deal gave CapitalSource control over the bank's assets, a move designed to give it a stable cash base. The 70-year-old bank was a major subprime mortgage lender until it agreed to a cease-and-desist order with the Federal Deposit Insurance Corp. more than a year ago.

CapitalSource shares are owned by prominent institutions, including Farallon Capital, a San Francisco-based hedge fund run by Thomas F. Steyer. Another investor is Madison Dearborn Partners, a large private-equity fund based in Chicago.

By Terri Rupar  |  October 15, 2008; 5:33 PM ET  | Category:  Finance
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