Revising its bankruptcy reorganization plan, First City Bancorp. of Texas has proposed returning more than $150 million of anticipated lawsuit proceeds to investors, partially liquidating what remains of the company.
Under proposed legal settlements with the Federal Deposit Insurance Corp., the Houston-based company stands to gain more than $300 million in proceeds from receiverships of member banks seized and auctioned by the FDIC in 1992.
The funds will be returned to First City over three years as various bank receiverships are wound down.
First City has about $600 million in tax breaks stemming from earlier crisis years. The company envisioned going back into the banking business as a means of capturing the value of those tax breaks.
But creditors and preferred shareholders voiced a preference that estate funds be used to pay off their claims, rather than build a new company.
Under its amended reorganization plan, First City's focus will shift "from a reinvestment of FDIC settlement proceeds to a program of redeeming the securities to be issued under the plan," said a prepared statement released by the company. First City hopes to emerge from bankruptcy court protection in the fall.
If First City's new plan is approved, the company would pay off, in cash, 85% of the more than $60 million of principal and accrued interest owed creditors and bondholders.
In settlement of the remaining 15%, First City would offer newly issued senior secured notes bearing a 6.5% annual interest rate and maturing in two years.
First City's Series A preferred shareholders, whose claims total roughly $98 million, would get newly issued senior preferred stock that would be redeemed in one to two years.
New Start Isn't Ruled Out
Series B and E preferred shareholders, whose claims total roughly $135 million, would get newly issued junior preferred stock, which would be redeemed within three years.
Suzy Taylor, head of investor relations at First City, said the company will hold open the option of going back into business.
She said there would be plenty of time after First City emerges from bankruptcy for holders of junior preferred and common equity to reconsider tax-shielded growth options.