A Florida judge has denied a shareholder motion that would have forced the management of U.S. Century Bank to consider a rival buyout offer.
A judge for the Eleventh Circuit Court for Florida on Tuesday denied the plaintiffs' motion to appoint an independent committee to evaluate the two offers for U.S. Century, a troubled and undercapitalized lender in Doral, Fla. U.S. Century is currently renegotiating a $50 million recapitalization with an investor group led by Miami real estate developers James Tate and Sergio Rok; they had reached an initial agreement this spring.
Under the recapitalization plan, the local investors would inject $50 million into U.S. Century and the bank would sell $95 million of nonperforming loans to third parties at an undisclosed price. The bank has yet to offer the proposal to shareholders for a vote.
But BHK Associates, an investor group based in Los Angeles, made an offer for the lender in June, after U.S. Century had already agreed to the Tate-Rok deal, court filings show. While the filings did not say how much BHK would pay for the bank, a plaintiff filing says it "might be better for the corporate entity and its shareholders, but adverse to the board's own personal interests."
However, U.S. Century told BHK that it was barred from considering its offer because its agreement with the local investors contains a $4 million breakup fee that precludes it from considering other proposals, even those that are more favorable to shareholders, the filing says. No one at U.S. Century, BHK or the Tate-Rok investor group responded to requests for comment.
BHK has also offered to settle for $10 million the shareholder class action, according to the court filings. The lawsuit, filed in November 2012, accused nine former executives and directors of the bank of misusing Troubled Asset Relief Program funds and violating their fiduciary duties to the shareholders. The South Florida Business Journal first reported on the lawsuit, and the alternate offer from BHK, on Monday.
"We disagree with the judge's decision" to deny the request for an independent assessment of the two offers, said Elisabeth Culmo, an attorney with the firm Silva & Silva who represents the plaintiffs in the shareholder suit. "This is not simply a competing bid for the bank, which would of course go through the corporate governance channel. This is different: this is an offer to settle a class action lawsuit, which falls squarely in the jurisdiction of the court."
The proposal from BHK would offer U.S. Century's shareholders far better terms for the repayment of the bank's Tarp shares, Culmo says.
Under both the recapitalization agreement with local investors and the proposal from BHK, the buyer would repurchase U.S. Century's $50.2 million of outstanding Tarp shares from the Treasury Department at an 87% discount, Culmo says. But under the BHK offer, the Tarp shares would then be exchanged for common stock; under the Tate-Rok proposal, the bank would continue to pay the Tarp dividend to the investor group, she says.
Besides Rok and Tate, the local investor group includes the prominent Miami real estate developer Jorge Perez, Miami Dolphins owner Stephen Ross and former Wachovia executive Carlos Migoya. Rok and Migoya would join the bank's board under the recapitalization agreement.
The $949 million-asset U.S. Century is one of the largest undercapitalized banks in the country, with a Tier 1 leverage ratio of 5.14% and total risk-based capital of 7.14% as of June 30. It is under a consent agreement with the Federal Deposit Insurance Corp.
U.S. Century's planned sale to C1 Bank in St Petersburg, Fla., fell through late last year, after the Treasury rejected C1's proposal to redeem U.S. Century's Tarp debt at a 90% discount.