Capitol Bancorp (CRBC) has spent the last three and a half years trying to come up with ways to recapitalize its ailing banks before finally resorting to a bankruptcy filing.
The $1.9 billion-asset company announced late Thursday that it has filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Eastern District of Michigan. Capitol had disclosed in June that it was pursuing two options to tackle its capital and debt woes.
The preferred option involved asking holders of its $158.3 million of debt to exchange those holdings for equity. The Lansing, Mich., company said that the offer expired July 27 and that it was unable to get the minimum number of debtholders to convert.
The second option involved putting the holding company into bankruptcy, where a court would convert all stakeholder interests into equity. Capitol said in its release Thursday that its stakeholders "overwhelmingly voted to accept" the bankruptcy plan.
Through bankruptcy, existing stakeholders, which includes the trust-preferred securities holders, would be left with 53% control of the company. Capitol is searching for new investors to infuse the company with $70 million to $115 million in exchange for the remaining 47%. Capitol's release Thursday did not identify any potential investors. The company declined to comment beyond the regulatory filings.
Bank holding company bankruptcies have been touted as a possible recapitalization tool, particularly in dealing with holding company debt, but they have rarely been used. The bankruptcy of AmericanWest Bancorp is perhaps the best known example. In that case, however, the bankruptcy court sold the bank to a new group of investors and the holding company was liquidated.
In fact, Capitol and a reinvigorated AmericanWest are familiar with each other. Last year, the Spokane, Wash., bank bought Capitol's Bank of the Northwest in Seattle and its Sunrise Bank in San Diego.
As it pursues bankruptcy, Capitol is continuing to sell banks to bring in capital to prop up several of its significantly undercapitalized banks. The company announced on July 31 that it had sold its interest in the $90 million-asset Bank of Michigan and the $76 million-asset First Carolina State Bank. It said Thursday it also has pending sale on a bank in the Northwest.
Capitol on Thursday reported a second-quarter loss of $10.3 million, narrowing its loss by 37% from a year earlier. The loan-loss provision was $294,000, compared to $5.7 million a year earlier.