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Creative Exchange Sees Bank Moving Toxic Assets
Georgia’s third largest bank, United Community Banks (Nasdaq:UCBI),
has struck a barter-type deal with a New York-based private equity
firm, Fletcher International. Fletcher will acquire $100 million in
United’s most illiquid assets.
These assets are ones the bank couldn’t have shed from its books
without essentially giving them away and burning enormous capital.
In the exchange the private equity group receives warrants for
equity in the bank.
The complex transaction covers nonperforming commercial and
residential mortgages and foreclosed property — mostly partially
built houses and raw lots — in the North Georgia Mountains, the
Western Carolinas and along the Georgia coast.
The deal will essentially take illiquid assets off the balance sheet
and free up capital. In short, United gets capital back (instead of
losing capital in fire sales) while also structuring the deal to be
accretive to capital over time through a stock investment by its new
private equity partner.
Fletcher now has rights to acquire $65 million in convertible
preferred stock and will acquire warrants to purchase up to an
additional $65 million in common stock. They will also put $10
million in deposits into the bank in exchange for the financing.
Bottomline: A good deal for everyone. And United is now in the
position of becoming a consolidator of failed banking institutions.
