First City Bancorp's long road out of bankruptcy took a giant leap forward when shareholders and creditors overwhelmingly approved a reorganization plan submitted by Waco, Tex.-based J-Hawk Corp.
The plan was approved last week by 90% or more of all creditor and preferred stock classes. Common shareholders voted 89% for the plan.
Robert Brown, president and chief operating officer of First City, said he expects quick approval from the bankruptcy court because the vote was so strong. "We hope the judge will confirm the plan within the next couple of weeks," he said.
Before it can emerge from Chapter 11 protection, however, the Texas company and the Federal Deposit Insurance Corp. must settle pending litigation. The J-Hawk plan calls for First City to release the FDIC and other banking regulators from the suits.
In exchange, the FDIC will return $200 million in cash and assets up- front. The company will receive another $75 million from the FDIC pending an agreement between First City and Texas Commerce Bank and Frost National Bank of San Antonio.
That agreement, also expected in April, will call for First City to buy up to $200 million in bad assets that Texas Commerce and Frost acquired when they bought former First City banks from the FDIC in 1993.
Following the reorganization, J-Hawk, an acquirer of distressed financial assets, will own 49.9% of the new First City. By buying less than 50%, the plan allows First City to retain its $650 million in net operating loss carryforwards.