Fed Forces Anchor in Wisconsin to Default on $176M in Debt

Anchor BanCorp Wisconsin (ABCW) has defaulted on a loan from a group of banks led by U.S. Bancorp (USB) after the Federal Reserve Board rejected a request to extend the loan.

The Madison, Wis., company owed $116 million in principal — plus $60 million of interest and fees — under a revolving loan that was due on June 30, Anchor disclosed in a regulatory filing. Anchor and its lenders had extended the loan's due date six times since 2008 and were prepared to do so again, the filing said.

Anchor is operating under a 2009 cease-and-desist order that requires it to get the Fed's approval before taking on debt.

"Obviously, we were a little surprised and disappointed, because US Bank and the bank group were being quite cooperative, and had agreed to the extension," said Anchor Chief Executive Chris Bauer. "But this action does not disrupt in any way the operation of the holding company or the operation of the bank."

As a result of Anchor's default, the lenders can terminate the loan or demand immediate repayment of the balance. The lenders have not told Anchor that they intend to take either step, Bauer said.

The default also caused the interest rate on the unpaid principal to rise by 200 basis points, to 19% a year. Bauer said he does not expect the default to have any further immediate financial impact on the company.

Anchor said it is working to raise the needed capital, and is discussing alternatives with its lenders.

Anchor has strengthened its loan portfolio over the past year, but still recorded a $17.5 million loss in the first quarter, compared to a $15 million loss in the fourth quarter. In December, the company prepaid $150 million worth of advances from the Federal Home Loan Bank.

The $2.4 billion-asset AnchorBank had a Tier 1 leverage ratio of 4.53% and total risk-based capital of 9.02% on April 30, according to the Federal Deposit Insurance Corp.