CalFed Restructuring Adds $150 Million Capital, Averting Takeover Threat
LOS ANGELES (AP) _ CalFed Inc. shareholders agreed Wednesday to give 78.55 percent ownership to the company’s bondholders in return for their debt, averting a threatened government takeover of California Federal Bank.
Regulators had ordered CalFed, the parent of California Federal Bank, to increase its cushions against loss even as residential and commercial real estate weakened in California, its primary market.
As CalFed pumped more and more money into reserves for bad loans, it reported loss after loss, including $42.2 million during its latest quarter.
Office of Thrift Supervision officials had threatened severe action, including taking over operations of the S&L, unless it was restructured to increase capital by Dec. 31.
The reorganization, approved by 58 percent of stockholders and 97 percent of bondholders at a special shareholders meeting, erases a $160 million debt to the bondholders.
It increases capital by more than $150 million. California Federal goes into 1993 with $108.5 million more than needed to meet core capital requirements, and $97.8 million more than needed for risk-based capital.
There’s a good chance it can meet capital standards when they tighten further in June, and CalFed has told regulators it projects earnings of $42 million in 1993 and nearly $50 million in 1994, spokesman Jim Hurley said.
Even if the state economy remains sluggish, CalFed should be able to remain independent, said Cary J. Stanford, a senior vice president of Houlihan Lokey Howard & Zukin, the financial adviser for the bondholders steering committee.
″It’s only if the California economy slides further, that’s where we would have to revisit the question of more capital,″ Stanford said.
E. Gareth Plank, a banking analyst with Mabon Securities Corp., said the deal ″gets one monkey off their back - the recapitalization.″ He said, though, that a big question mark still hangs over real estate in California.
″The jury is still out regarding their long term independence,″ he said.
Plank said the agreement makes CalFed a more attractive merger target for healthy, acquisition-minded banks or thrifts, both in-state and out.
As part of the deal, the parent CalFed Inc. will disappear, merged into the savings and loan, which becomes the publicly traded company. In addition to their new stock, the bondholders received about $14 million in new IOUs.
The original shareholders also received warrants allowing them to buy about one new share of stock for each two shares they own. The warrants can be exercised in 18 months at $2.10 per share.
CalFed stock, which had traded in the teens a few years ago, had fallen as low as $1.25 per share this year. It had risen recently on tentative approval of the debt-for-equity deal, and went up another 25 cents to close at $2.75 in New York Stock Exchange trading Wednesday.