Feb 28 BB&T Corp's purchase of
BankAtlantic Bancorp Inc's lending business was blocked
by a Delaware Chancery Court judge, who agreed with hedge-fund
investors that the deal favored BankAtlantic's management over
Vice Chancellor Travis Laster said the deal violated rights
of investors by transferring most of BankAtlantic's assets to
BB&T while leaving debt obligations and distressed assets
Under the terms of the Nov. 1 deal, BB&T agreed to absorb
$2.1 billion in performing loans, $3.3 billion in deposits and
78 branches from BankAtlantic's bank subsidiary, which operates
in South Florida. BB&T agreed to pay a premium of $301 million
above the net asset value of BankAtlantic.
In response to Monday's ruling, BB&T spokeswoman Merrie
Tolbert said the bank hoped BankAtlantic could reach an
agreement with its investors. BankAtlantic Chairman and CEO Alan
Levan said that "in the days ahead we will be considering all of
the options available to us."
John Scannell, an executive at hedge fund Hildene Capital
Management, one of the plaintiffs that brought the lawsuit, said
the judge's ruling could stop similarly structured bank deals
that potentially harm debt investors.
"We have this precedent here," said Scannell. "You see this
is not allowed. We'll make sure (banks) are very aware of it."
If the deal had gone through as originally structured,
distressed loans would have remained with BankAtlantic's holding
company, which owed about $330 million to holders of its trust
preferred securities, or TruPS.
Laster found the deal favored management and equity
investors and violated the terms of the TruPS because BB&T was
not assuming the debt obligations along with the assets, as the
TruPS contracts required.
"The payments divert a portion of the deal
consideration to Bancorp's controlling stockholders, vaulting
them over the debt securities and other corporate
constituencies," Laster wrote in his 42-page opinion.
BankAtlantic Bancorp's controlling shareholder, BFC Corp, is
majority owned by Levan and BankAtlantic Bancorp Vice Chairman
TruPS securities were an attractive way for many smaller
banks to raise capital because they combine features of debt and
equity. However, many of those banks are now finding the TruPS
to be a roadblock to new investment, because new equity funding
at the holding company level flows first to overdue payments to
Scannell said hundreds of banks are not current on their
TruPS obligations and some are looking at deals similar to the
one struck by BankAtlantic and BB&T.
"The whole BankAtlantic situation was what I consider to be
the first of a wave of these things to happen. And had we not
stopped it, it would have been bad for investors in any bank
with TruPS outstanding," Scannell said.
Shares of BankAtlantic were down 2.5 percent at $2.73
Tuesday morning on the New York Stock Exchange. The stock hit $7
on the day the BB&T deal was announced. The stock plunged 16
percent Monday afternoon after Laster issued his ruling.
Shares of BB&T were down 1 percent at $29.49 on Tuesday,
also on the New York Stock Exchange.