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Two troubled banks were sold through bankruptcy auctions this month, and another is expected next week. The much-discussed recapitalization method has only recently gained traction.
December 7 -
Anchor BanCorp Wisconsin finally found some capital after a four-year search, but that wasn't enough. It has filed for Chapter 11 as a way to get Associated Banc-Corp, one of its creditors and competitors, to consent to its recapitalization.
August 13 -
Rarely is bankruptcy court a welcome detour, but more struggling banks may take it to overcome debtholders blocking their recapitalization efforts.
January 5 -
The U.S. Treasury was unprepared and disengaged in two rushed Troubled Asset Relief Program bankruptcy sales. It's a foreboding sign for the remaining $6.6 billion the government has tied up in Tarp.
March 26
Do I hear $17 million?
Auctions of banks tied to bankrupt holding companies are set to get a whole lot livelier if the interest in Rogers Bancshares' bank unit is any indication.
Bidders for the $991 million-asset Metropolitan National Bank in Little Rock, Ark., are expected to gather in a hotel Monday for an auction being conducted under section 363 of the bankruptcy code.
The results will be presented Thursday to Judge James G. Mixon in the Eastern District of Arkansas of the U.S. Bankruptcy Court.
The initial, or stalking horse, bid for $16 million was submitted by Ford Financial Group, the private-equity group led by veteran Texas bankers Gerald Ford and Carl Webb. Simmons First National (SFNC)
The competitive process signals the growing allure of bankruptcies of bank holding companies. In nearly every other successful bankruptcy auction for a bank in the last couple of years, the stalking horse bidder was the only bidder.
Even the idea of untying battered, but salvageable, banks from their debt-raddled holding companies through bankruptcy was considered radical or extreme a few years ago. Given the
"When we did AmericanWest, I predicted then that we would see more bidders at some point. At the time, buyers were waiting on the [Federal Deposit Insurance Corp.] process and were not ready to look at a 363,"
Likely sweetening the pot for Metropolitan was a change to the breakup fee built into the stalking-horse bid. As originally drafted, for Ford to be unseated, the next bidder would need to offer at least $21 million, including a $4 million breakup fee paid to Ford, and raise its offer in minimum increments of $1 million.
However, last month Judge Mixon at the urging of creditors, including holders of Metropolitan's trust-preferred securities reduced the fee to $640,000 and changed the bid increment to $100,000.
That was welcome news to creditors who have often complained that the bid process in bankruptcy auctions
Yet the change might complicate the process of identifying a stalking-horse bid, an essential for pre-packaged bankruptcies those that have all the elements in place before the Chapter 11 filing occurs.
Breakup fees typically represent 3% to 5% of the purchase price, but in the case of bank auctions, defining the purchase price gets tricky. There is the price paid to acquire the bank in the auction, but there is also the amount promised to infuse in the sick bank in order to gain regulatory approval of the sale.
Ford, for example, based its $4 million breakup fee on a figure closer to $90 million, including the $16 million to buy the bank and the rest to recapitalize it. In the case of a small acquisition price, but a large capital hole to fill, attorneys say they build the deal so that the breakup fee is less than the acquisition price.
Additionally, the stalking-horse bidder spends a lot of money and time in structuring the deal. David Provost, the chief executive of Talmer Bancorp in Flint, Mich., which acquired First Place Bank in a 363 auction last year, said a breakup fee that only reflects the amount to buy the bank would have made him rethink the deal.
"You can imagine the amount of time, effort and resources we had to allocate to put the bid in. We had $175 million of capital tied up in the process waiting to work its way through the court," Provost says. "If there was a very a small breakup fee, it would have been much tougher to commit the resources."
Durrer says he doesn't think the lowering of the fee in the Metropolitan case will have a chilling effect on would-be stalking horses in the future, but he thinks they will tread more carefully.
"It will cause people to pay more attention to their stalking-horse bid they'll be more aggressive in how they implement them," Durrer says.
