SAN FRANCISCO -- Citadel Holding Corp. said it has reached agreements with institutional investors to spin off an 80% stake in its Fidelity Federal Bank unit, a key element in a previously announced plan aimed at recapitalizing the ailing thrift.
As a result of the agreements, Fidelity Federal, Glendale, Calif., is expected to receive a $108 million equity infusion from the sale of 21.6 million shares to the investors, who were not identified. J.P. Morgan Securities is Citadel's adviser and placement agent in the transaction.
The offering, which is scheduled to close on Thursday, should lift the thrift's core capital above 5% of assets, Citadel said. Without new equity, Fidelity Federal's core capital ratio would dip to 3.27%
Selling Offices to Ahmanson
In related transactions, Citadel, which has $4.1 billion in assets, has agreed to sell nine Southern California branches to H.F. Ahmanson & Co.'s Home Savings of America unit for approximately $7.9 million, a 2.25% premium on deposits, and it will sell in bulk $465 million of problem assets, taking a writedown of $56.5 million in the process.
Citadel said it expects to post a $92 million loss in the second quarter due to the bulk sale writedown, restructuring costs, and continuing operating losses.
Following the reorganization, Citadel's assets will consist primarily of its holdings of Fidelity Federal stock and four real estate properties it is buying from Fidelity for $19.8 million.
Stake to Be Adjusted
Citadel's exact stake in Fidelity Federal will be adjusted to ensure that investors can buy stock at $5.25 per share, or 75.5% of book value.
The restructuring will dilute the book value of Citadel's stock to less than $6 per share, compared with $25.99 at the end of March. The dilution is greater than expected because a plan to transfer real estate from Fidelity Federal to Citadel has been dropped.
Previously, Citadel said it would receive as a special dividend the thrift's headquarters and a second building, with a combined value of $9.5 million. Instead Citadel will get an option to buy the properties.
The change reflects greater-than-expected losses at Fidelity Federal, partly the result of the Northridge earthquake in January. The thrift "would not have made the 5% capital level if the dividend had gone through," said Citadel chief executive Richard M. Greenwood.
Analysts said it was probably also necessary for Fidelity Federal to keep the properties in order to sell the deal to investors.