Hampton Roads Bankshares is preparing for retooled ownership, a new director and a significant capital infusion that could give private equity greater say in the company’s dealings.
The Norfolk, Va., bank said Monday that it will sell $50 million of common stock to CapGen Financial, Carlyle Group and Anchorage Capital Group. At 70 cents a share, the stock will sell at a 79% discount to the $2.1 billion-asset company’s closing price just before the announcement.
CapGen will surpass Carlyle as the company’s biggest shareholder, with a stake of up to 41.2%. Carlyle and Anchorage will each own up to 24.9% of the company’s shares. Calls to CapGen and Carlyle were not returned; a representative for Anchorage declined to comment.
Despite the changes, some observers believe it will remain business as usual as the company purges bad loans and cuts costs. The private-equity firms are unlikely to push for big changes, says Scott Cottrell, a managing director at FJ Capital Management in McLean, Va. “Private-equity firms provide discipline and might recognize when to bring in third-party experts to look at the loan book, to help quantify the capital hole,” says Cottrell, who is not involved in the deal. “Private-equity investors will also keep [management] on track with their strategic plan.”
The capital raise will “not change the governance structure of the bank,” says Stephen Theobald, the company’s chief financial officer. Each of the private-equity firms will keep one seat on the company’s board. Other actions indicate that the big investors are content with the company’s progress. In February, Hampton Roads removed the “interim” tag from Douglas Glenn, who had been the acting chief executive.
Hampton Roads’ private-equity investors are involved with other banks. CapGen has an investment in PacWest Bancorp, which has made some aggressive moves in recent weeks. PacWest outbid Umpqua Holdings to buy American Perspective Bank in San Luis Obispo, Calif., and it made an unsolicited offer for First California Financial Group.
Hampton Roads plans to sell another $45 million in stock through a rights offering. Existing shareholders can maintain their ownership percentages by participating. CapGen, Carlyle and Anchorage will buy more shares if the offering is undersubscribed.
For a company that has lost more than $415 million since early 2009 and continues to operate under a written agreement from regulators, Hampton Roads sorely needs new capital. The company’s total risk-based capital ratio hit 8.98% at March 31, down from 12.56% at the end of 2010. The company warned in a recent regulatory filing that it could face a prompt corrective action if the ratio dips below 8%.
Real estate losses pummeled the company in 2009. Its purchase of Gateway Financial Holdings depleted capital. A deal to sell several Gateway branches fell through after ECB Bancorp of Englehard, N.C., backed out. The company has since found buyers for three branches in North Carolina that it had planned to sell to ECB.
Hampton Roads still holds $80 million in capital tied to its participation in the Troubled Asset Relief Program. At March 31, the Treasury Department owned 6% of the company’s common stock.
Hampton Roads this year formed a special committee of directors to explore its options, including a debt sale, a public stock sale or a private offering.
The company has shown signs of improvement. It had a loss of $7.9 million in the first quarter, compared with a $21.4 million loss a quarter earlier. Hampton Roads’ nonperforming assets also declined for the sixth consecutive quarter. It has also been cutting costs by closing branches and selling off business units.
Shareholders will meet on June 25 in Norfolk, Va., to vote on the capital raise.
Hampton Roads also said on Monday that James Burr, a former corporate treasurer at Wachovia, will join its board, succeeding Randal Quarles as Carlyle’s representative. Quarles resigned because of “expanding duties” at Carlyle, Hampton Roads said in a regulatory filing.