In a complex move, BNC Bancorp (BNCN) in High Point, N.C., is seeking to change its private equity partner's ownership position in order to boost its capital levels.
The $2.5 billion-asset BNC is asking shareholders to approve an issuance of non-voting common shares, permit its private equity partner to convert into those shares and ultimately, boost BNC's tangible common equity.
The PE partner, Aquiline BNC Holdings, mostly holds Series B preferred shares, which do not count toward the tangible common equity ratio as common stock. If BNC can convince shareholders to approve a new class of common stock as well as get Aquiline to convert its position, the company would bolster its TCE ratio by 71 basis points to 4.31%.
The TCE ratio "has become an increasingly important capital ratio in measuring and comparing the purported capital strength of financial institutions," said BNC in a proxy filing Monday. It "gives investors a consistent barometer from one bank to the next to measure and compare the financial strength of institutions."
Strengthening the balance sheet could also increase the likelihood of BCN exiting the Troubled Asset Relief Program. The company received $31 million in Tarp funds in late 2008.
While BNC says Aquiline "has indicated a willingness to consider" the conversion, it essentially means the investor would go from a preferred position to an almost entirely non-voting, common stock position. And as common stockholder, the firm would not have a liquidation preference in the event of a bankruptcy as it would with preferred shares. Aquiline was also likely offered only non-voting common shares because there are regulatory restrictions on how much voting common stock a private investor can own without seeking extensive approvals. Aquiline currently owns 1.8 million shares of series B preferred stock and 892,799 shares of common stock in BNC. It originally invested $35 million in June 2010.
Aquiline is represented on BNC's board by former Wachovia Chief Executive Ken Thompson. If the conversion is completed, Aquiline would be the largest shareholder, owning more than 20% of the company's outstanding stock and up to 33.3% of BNC's total equity.
BNC, the parent of Bank of North Carolina, is holding its annual shareholders meeting May 21.