Investors led by Kohlberg & Co., a New York Investment firm, said Monday that they had signed a letter of intent to buy the ailing Carteret Savings Bank.
Under the deal, the Kohlberg group would provide a $200 million capital infusion in return for 90% of Carteret.
AmBase Corp. of Greenwich, Conn., the New Jersey thrift's current owner, will see its stake reduced to 10% from 100%
Survival Would Be Assured
If completed, the deal would assure survival in the immediate future for the $5.2 billion Carteret, which operates in northern New Jersey and southern Florida. It would also bring the thrift into compliance with regulatory capital requirements.
Carteret, which reported a capital deficit of $67 million in the first quarter, had been operating under an ultimatum from the Office of Thrift Supervision to raise capital or be seized.
"Carteret is an excellent institution," James Kohlberg, one of the firm's partners, said in a release. "The bank has a strong retail branch network, extensive mortgage banking operations, and a highly qualified management team."
Based in Morristown, N.J., Carteret has 31 branches in northern New Jersey, nine in southern Florida, and one in Washington, D.C.
Like many banks and thrifts throughout the Northeast, Carteret's financial woes stem from overzealous lending to real estate developers.
However, as the largest thrift in the state and one of its leaders in home mortgage lending, it has a good franchise.
That could make it valuable either on its own or to another bank or thrift in the state.
Other Suitors Reported
In fact, a source close to the deal said that the company was considered so valuable that other companies were believed to be pursuing similar deals for Carteret.
Normally, buyers will wait for a bank or thrift to be seized before they get serious about negotiating a deal.
Among other things, the Kohlberg deal is subject to the completion of due diligence and an OTS/Federal Deposit Insurance Corp. exam, both of which are under way.
The Kohlberg group has 60 days to complete its work and negotiate a definitive agreement.
Top Managers to Stay
The infusion will leave Carteret with a tangible capital ratio of 4% which exceeds regulatory minimums.
Richard A. Bianco, Carteret's chairman and chief executive, and Donald Kramer, vice chairman and chief financial officer, are expected to continue in their posts if the deal is completed, according to Neil L. Cohen, Am-Base's chief financial officer. They assumed their jobs a year ago after former management was ousted.
Although the Kohlberg group would be getting Carteret cheap, its members will have to satisfy themselves that they can sustain what seems to be a turnaround in progress.
Nonperformers Are Stubborn
Although the company has been profitable since the fourth quarter of 1991, nonperforming assets, equal to about 10% of total assets, have not yet shown signs of peaking.
Kohlberg & Co. was formed in 1987 when Jerome Kohlberg left Kohlberg Kravis Roberts & Co., the leveraged buyout firm he helped create.
With 20 professionals and a $400 million pool of capital, it has completed four major deals, including investments in Welbilt Corp., a kitchen appliance company in New Hyde Park. N.Y., and Colorado Prime Corp., a food service company in Farmingdale, N.Y.
Carteret would be the company's first financial institution deal.
Good News at Last
If completed, the deal will be the first piece of good news for AmBase shareholders in some time.
With Carteret as AmBase's only significant asset, Ambase shareholders have seen their holdings shrink to almost nothing. But with the completion of this deal they will suddenly hold a stake, albeit a significantly reduced one, in a viable franchise.
Although AmBase also used to own Home Insurance Co. and Gruntal & Co., a brokerage house, it was forced to sell them in 1991 when it ran into trouble paying the interest on its debt and when regulators said Carteret required more capital.
AmBase's stock was up 1/16, to 9/16, on the news.