CRIIMI MAE Suspends Suit Against Morgan Stanley; Agrees To Sell CMOs

Courtesy: Andrews Publications

CRIIMI MAE Inc. will suspend its suit against Morgan Stanley & Co. and has agreed to cooperate with the New York brokerage in the sale of two classes of investment grade commercial mortgage-backed securities (CMBS). However, the agreement is still subject to U.S. Bankruptcy Court approval. In re CRIIMI MAE Inc. v. Morgan Stanley & Co. International Limited, No. 98-23115 (D MD Bankr., Southern Div., agreement announced Jan. 15, 1998).

According to CRIIMI MAE, if the sales are successful, the proceeds will be used to fund the company's reorganization.

Rockville, MD-based CRIIMI MAE is a self-managed, full service commercial mortgage company involved in the acquisition, origination, securitization and servicing of multi-family and commercial mortgage and mortgage-related investments.

The Maryland company, the nation's largest CMBS buyer, filed for Chapter 11 bankruptcy protection last Oct. 5, citing a liquidity crunch in the debt and equity markets. The tight market reportedly made the company unable to meet its lenders' collateral calls.

In addition to the voluntary Chapter 11 filing in Greenbelt, MD, federal bankruptcy court, CRIIMI MAE's top officers have been sued by shareholders for allegedly misleading investors about the company's cash flow. (See Derivatives LR, Nov. 5, 1998, P. 5.)

CRIIMI later took the offensive, suing several of its lenders in an attempt to keep them from liquidating collateral held on CMBS loans.

Last month, CRIIMI MAE settled its bankruptcy dispute with two other creditors, Merrill Lynch Capital Inc. and German American Capital Corp. The Rockville company agreed as part of the settlement to pay the two lenders a stream of monthly income from 13 CMBS. The money will be used to pay down CRIMMI MAE's collateral obligations.

In the Morgan Stanley dispute, CRIIMI MAE agreed to a "standstill period" during which the company and the brokerage will suspend litigation and attempt to reach a final settlement. At stake are seven classes of CMBS worth millions. The negotiation period ends March 31, 1999.

The agreement is "another important step toward our goal of emerging from bankruptcy court protection," said CRIIMI MAE Chairman William B. Dockser.