Albina Community Bancorp in Portland, Ore., has filed for bankruptcy.
The company applied for Chapter 7 liquidation on Wednesday, the last day before it would have defaulted on its trust-preferred debt. Albina had been deferring interest payments for five years, and Hildene Capital Management, a New York hedge fund, had threatened to force the company into involuntary liquidation if it defaulted on the payments. Hildene invested in a collateralized debt obligation backed by Albina's debt.
Albina's Chapter 7 filing showed $7.5 million on liabilities, all unsecured debt, and $1.3 million in assets. The company's largest remaining asset is its 9.9% stake in the $137 million-asset Albina Community Bank. The company has been operating under a written agreement with the Federal Reserve Board that forbids it from paying its trust-preferred debt without regulatory approval.
The company's board resigned as of the bankruptcy filing. Graham Bryce, the company's former chairman and chief executive, declined to comment, as did John Scannell, Hildene's chief operating officer.
Bankruptcy has become a common strategy for debt-burdened holding companies, but Albina Community Bancorp is an unusual case. The company's stake in Albina Community Bank was diluted in a recapitalization last year. The recap was structured as a direct sale of stock by the bank, circumventing the over-indebted parent company.
The recapitalization gave Beneficial State Bancorp in Oakland a 90.1% stake in Albina Community Bank. Beneficial is controlled by a nonprofit founded by the billionaire Tom Steyer, founder of the hedge fund Farallon Capital Management, and his wife, Kathryn Ann Taylor. The couple has donated nearly $50 billion to back Beneficial, a community development financial institution, since the financial crisis. Taylor did not immediately respond to a request for comment.
Albina's trust-preferred investors opposed the recapitalization, arguing that it violated the trust-preferred agreement. In comment letters on the stock sale, Hildene and Zions Bancorp, another investor, raised the possibility that the sale could expose Albina's directors, as well as Beneficial, to legal liability. But the Federal Reserve Board of San Francisco approved the sale, saying the creditors' objections are outside its jurisdiction.
There are about 240 banks that have defaulted on their trust-preferred debt and 200 that are still deferring interest payments, according to Fitch Ratings analyst Alina Pak. Two have been forced by creditors into involuntary bankruptcy: American Bancorporation in Minnesota and FMB Bancshares in Georgia.