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BB&T said Tuesday that it would pay off holders of BankAtlantic's trust-preferred securities and take an interest in additional assets to rescue the stalled deal.
March 13 -
A judge's ruling against the sale of BankAtlantic to BB&T could also empower holders of trust preferred securities to play a bigger role in M&A.
February 28 -
The Florida company is looking at bringing in capital in case the sale of its thrift fails to go through by early April.
February 17 -
BankAtlantic Bancorp Chairman Alan Levan says his company would likely be "out of business" within two years if certain investors succeed in blocking the sale of BankAtlantic's thrift to BB&T Corp.
February 2 -
BankAtlantic Bancorp's deal to sell the bulk of its assets to BB&T Corp. has come under attack from yet another BantAtlantic investor: Wells Fargo.
January 13
BB&T Corp.'s new deal with BankAtlantic Corp. may be riskier but could still be lucrative.
That is experts' take on
"They are making a more than reasonable bet," said Ralph "Chip" MacDonald, a partner who specializes in bank transaction for the law firm Jones Day.
An executive from Hildene Capital Management LLC, which led the legal challenge, endorsed the changes. It is a "good deal for all stakeholders," John Scannell, Hildene's chief operating officer, wrote in an e-mail. "Creditors continue to be secured by the assets against which they lent money."
The broad outline of the deal is unchanged. BB&T is still paying the same price — a deposit premium of 9% — for 78 branches from Port St. Lucie to Miami, an important stretch of the east coast of Florida where BB&T wants to avoid being outflanked by PNC Financial Services Group Inc. and Toronto-Dominion Bank.
What did change is that BB&T now has a side deal involving big batches of BankAtlantic liabilities and assets left out of the first transaction: $285 million owed to holders of trust-preferred securities and $440 million in distressed assets.
The crux of the new terms have BB&T later this year paying off bondholders what they are owed, and replacing that money with cash flow from a new subsidiary it will set up to wind down the distressed assets.
BB&T did not want the baggage and could lose money on it, but there is a good chance it may profit. The loans it would get are troubled but not worthless. About 60% of them are paying interest. There is also the bigger prize: Entry into a market with good long-term demographics at a fairly low price.
"When you start looking at what you are really getting, at the end of the day, nothing has really changed," MacDonald said.
That is because BB&T estimates that the commercial real estate and other loans it is to assume are worth more than what it has to pay to Hildene Capital and other trust-preferred holders behind the successful court challenge in February. BB&T is counting on the wind-down vehicle to generate at least $285 million within seven years. If it does not, BB&T would hope to recover that cash in a fire sale.
The transaction —
"We think that we have responded to the judge's order," Kelly King, BB&T's chairman and chief executive, said in a conference call on Tuesday. "Our lawyers believe very firmly that this simply meets the order that was required to eliminate the injunction."
BB&T estimates that distressed assets have a fire-sale value of at least $350 million, or $65 million more than what it is paying bondholders.
The deal has one more layer of protection for BB&T. BankAtlantic promised to pay it $35 million should BB&T be unable to at least break even on the wind-down vehicle, a limited liability corporation that will pay 95% of the cash it generates to BB&T. The rest of the interest will pay a third-party in charge of servicing the assets.
Cash flow from the subsidiary will be classified as a receivable — or earning asset — that pays BB&T an interest rate of LIBOR plus 200 basis points. That is about what a healthy commercial loan pays.
The subsidiary's assets will not be classified as overdue loans on BB&T's balance sheet.
The one potential hiccup: A meltdown in that portfolio, which is, after all, tied to Florida's rocky real estate market. Market watchers are giving BB&T the benefit of the doubt on that front, given its successful integration of Colonial BancGroup, which was plagued with commercial real estate problems when acquired in 2009.
"There is no reason not to believe it," said Marty Mosby, an analyst with Guggenheim Securities LLC. "They have had enough time to go in and spend some time going in and looking at those loans."
