PhillyDeals: Realpoint makes place at the ratings table

"Investors have lost confidence in Standard & Poor's, Moody's, and Fitch," says Rob Dobilas, head of Realpoint L.L.C., a Horsham agency that rates real estate loans and bonds.

Unlike those big-name agencies, Realpoint is paid by the people who buy the stuff it rates.

The big agencies, by contrast, are paid by the firms that issue and sell securities - an obvious conflict of interest.

Dobilas will testify in Congress today about how the name-brand ratings firms let investors down by selling high-investment grades to firms that sold bonds packed with subprime mortgages that defaulted, paralyzing the credit markets last year.

He'll also urge lawmakers to resist proposals to tighten rating regulations to the point where small firms like his get squashed.

Dobilas says 200 institutional investors, including giants like BlackRock Inc., pay $30,000 to $1 million a year for Realpoint data. "Thousands of users" pay lesser fees for more basic information collected by Realpoint's staff of 43.

Realpoint has been approved alongside the traditional rating agencies by the Securities and Exchange Commission, the Federal Reserve, and the National Association of Insurance Commissioners since the subprime crisis began two years ago.

Why Horsham? That's where Dobilas and his colleagues worked for the former General Motors Acceptance Corp.'s (later Capmark) commercial mortgage group, which assigned them to start collecting data on business property loans and bonds in the early 2000s.

It's also a lot cheaper place to work and live than Wall Street, Dobilas says.

When Capmark was purchased by Kohlberg Kravis Roberts, the buyout firm, in 2006, "we didn't fit," says managing director Frank Innaurato. "Research is not a glorious industry. KKR didn't see it as a core competency."

"Now, this data is gold," says managing director Joe Petro.

What Realpoint sells is a penetrating online view into the guts of real estate securities - property listings, default rates, tenants, renovation dates, and much more, constantly updated, and not widely available, even to clients of Bloomberg L.P. and other business data services.

Realpoint buys some information from commercial data collectors. Analysts also work the phones and check out properties firsthand.

It's not just about protecting investors, Dobilas says. It's about making capitalism "transparent" - an urgent need as investors weigh whether they can afford to refinance some of the estimated $230 billion in commercial real estate loans coming due over the next year and a half.

The alternative: another financial meltdown.

Seventeen years after the Philadelphia Savings Fund Society was seized by government regulators, a Washington appeals court ruled yesterday that taxpayers owe PSFS shareholders $276 million - $4.50 a share. This is for bank regulators' wrongly taking down the once-ubiquitous neighborhood institution by arbitrarily changing the rules.

The settlement works out to around $4.50 a share, after legal fees, says investor Gary Hindes of Deltec Asset Management Corp. in New York.

Shareholders alleged the government had lured PSFS (also known as Meritor Savings Bank) into taking over a shaky rival so the government bank-insurance fund wouldn't have to - only to tighten capital rules during the savings-and-loan crisis of the late 1980s, and arbitrarily force the bank out of business.

But Federal Deposit Insurance Corp. agents said in court that PSFS failed because it made a lot of dumb development loans and was running out of money.

Thomas Buchanan, of Winston & Strawn L.L.P., the Washington law firm representing Philadelphia investor Frank Slattery in the case, said the FDIC will contact "all known shareholders" and pay once the case is settled for good.

But that could still take months. "The government will almost certainly seek a rehearing from the entire Federal Circuit Court," said Buchanan.

"We have not made a determination" whether to appeal, said Justice Department spokesman Charles Miller. Buchanan says the government has 45 days to decide.

Hindes said the case has echoes in the recent banking crisis. "There was talk a year ago, when the banks were having trouble," of easing capital rules to entice solvent banks to take over weak ones, he said. "We laughed. They dropped that idea."

Select Medical Holdings Corp., which employs 21,000 U.S. health-care workers at 92 long-term acute-care inpatient rehabilitation hospitals and nearly 950 outpatient rehab centers, plans to go public, with the sale of 30 million shares, at $10 each, on the New York Stock Exchange today. Trading symbol is SEM.

Select, based in the Harrisburg suburb of Mechanicsburg, will use the estimated $300 million proceeds to pay down debt, and to pay bonuses to chief executive Robert Ortenzio and other bosses.

Underwriters are Goldman Sachs, Morgan Stanley, BofA Merrill Lynch, and JPMorgan. Philadelphia-based Dechert L.L.P. is representing Select in the sale.