Anchor BanCorp Wisconsin Inc. is going back to square one in its recapitalization efforts after its lifeline collapsed — a situation that may be increasingly common for banks in distress.

The $4.6 billion-asset company in Madison, Wis., announced late Friday that its $400 million deal with Badger Anchor Holdings LLC had been mutually terminated.

More recapitalization deals are pushing up against their deadlines lately, experts said, because of all the complex strings attached. As a result, the parties often agree to extend the deadline — sometimes even several times.

That makes it noteworthy that Anchor's deal fell apart without even one extension.

"The complexities of those contingencies just made it impossible" to complete the deal by March 31, Chris Bauer, Anchor's chief executive officer, said in an interview Monday. "I don't think they terminated because they didn't like our franchise; we didn't terminate because we didn't like them. We just couldn't get all the pieces to fall into place in time. We are regrouping now."

Badger — which is headed by Steven Hovde, a longtime investment banker in Illinois — was unable to persuade U.S. Bancorp to resolve a $116 million line of credit with Anchor by the deal's March 31 deadline. Anchor, which announced the deal in December, also was asking the Treasury Department to convert its ownership into common equity.

Anchor said that it has engaged Sandler O'Neill Partners LP to help it explore "strategic alternatives."

"We've seen a lot of deals get pushed back; there was nothing precluding Anchor and Hovde from doing that," said Jeff K. Davis, a longtime industry analyst. "But this was a tough deal with a lot of hair on it. It was always a bit of head-scratcher. There were so many moving parts that needed to align just to save something that is really troubled."

Bauer said a deadline extension was considered but that Anchor and its board ultimately determined that it was time to start looking more broadly in its search for capital — and to make some internal changes in the short run.

"We felt that it was our responsibility to have every avenue covered," Bauer said. "Ultimately, we are going to have to raise capital, but there are things we can do in the interim and we needed to have those tools available to us."

Bauer said the company is considering further internal cost-cutting, realigning its balance sheet and selling more branches.

Late last year Anchor announced the sale of 11 branches to Royal Credit Union, a deal that is expected to close this summer. Bauer said the company was limited in making such divestitures under its deal with Badger.

The goal of the internal changes, Bauer said, is to return Anchor's thrift unit to being at least adequately capitalized. As of Dec. 31, its capital ratios were teetering at that level. The leverage ratio was 4.3%, just above the threshold for adequately capitalized, while its total risk-based capital ratio was 7.9%, just below the threshold.

Still, the Office of Thrift Supervision had ordered the thrift to have a leverage ratio of 8% and a total risk-based capital ratio of 12% by Dec. 31.

Bauer did not provide details of the company's results for the fourth quarter ended March 31, which have not been made public, but said the trend pointed toward the company stabilizing.

In addition to being out of compliance with the OTS order, Anchor's $116 million line of credit with a group led by U.S. Bancorp comes due on May 31.

Badger attempted to negotiate a resolution to that debt. U.S. Bancorp would not comment, but Hovde said in a brief interview that a price was never determined.

"Clearly, we couldn't see eye to eye," Hovde said, adding that his group offered U.S. Bancorp a "deeply discounted" price.

Bauer said he was not a part of those negotiations, but that he plans to continue to work with U.S. Bancorp to find a way to resolve the debt. He also wants to continue talks with Treasury about its willingness to convert into equity the $110 million investment it made in Anchor under the Troubled Asset Relief Program.

Other companies, including Midwest Banc Holdings Inc. and Independent Bank Corp., have reached such deals with Treasury.

Bauer and Hovde said they could revive the deal if Anchor has better luck getting the Treasury and U.S. Bancorp on board.

"We are going to let them spend time to work out a deal with their lender group and the Treasury and see where they end up before we revisit it," Hovde said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.