In a strong vote of confidence for an ailing company, institutional investors have agreed to buy $113 million in new common stock from Midlantic Corp.
The private placements, equal to a 15% stake, mark a milestone in the New Jersey-based company's attempt to recover from massive losses on realty loans.
Stronger Leverage Ratio
The new stock, coupled with the sale of four bank subsidiaries, will lift Midlantic's leverage capital ratio to 5.1% from a slim 3.70% on June 30, the company said Monday.
Analysts, who just six months ago were speculating that the $16.4 billion-asset banking company might fail, applauded the infusion.
"This ensures their ability to survive and return to competitiveness," said Jerome Baron, an analyst at the Buckingham Research Group, New York.
Mr. Baron was surprised that the company, the second-largest in New Jersey, was able to attract investors just weeks after reporting its first quarterly profit in two years. Midlantic earned $7.8 million in the second quarter, reversing a $415.3 million loss a year earlier.
He and others estimated that the private placements would dilute the stake of existing shareholders by about 10% to 12%.
That's a sizable number, he said. But he pointed out that Midlantic doesn't have the luxury of holding out for a better deal and that the new capital will help speed its recovery.
Still Below Book Value
Because of the dilution, Midlantic fell 37.5 cents in late trading Monday, to $16.75.
The company's stock has risen about 100% since mid-May, when officials indicated to analysts that loan problems were easing. The company's book value at the end of the second quarter was $17.12 a share.
In its announcement, Midlantic said that Fox-Pitt Kelton, the London-based investment banking firm, has agreed to purchase at least 5.75 million Midlantic shares for distribution to about 150 institutional investors in Europe and Britain.
In addition, five unidentified investors based in the United States have agreed to purchase a total of a million shares.
Midlantic said that the overseas portion of the deal should be completed by Aug. 13 and the U.S. portion by Aug. 31.
It also said that Fox-Pitt has the option to issue another 850,000 shares in Europe.
Howard I. Atkins, Midlantic's chief financial officer, said that the new shares would be sold at a discount to Midlantic's market price when the deal closes.
He declined to specify what the discount would be, but said it would be in line with discounts offered recently by other rebounding companies, like Shawmut National Corp. That would suggest a discount of about 11%.
Mr. Atkins said the discount was necessary because the investors cannot sell their shares immediately. The overseas investors must wait 40 days, while the U.S. investors must wait until the beginning of 1993, he said.
Expediting the Deal
Donald Ebbert Jr., a senior vice president, said the company decided against a public offering, which might be cheaper, because it would take months to get regulatory approvals. "The equity markets have been very strong this summer, but you don't know what the market conditions will be like in the fall with the uncertainty surrounding the election," he said.
The new stock will add about 75 basis points to Midlantic's leverage capital ratio, which measures core equity as a percentage of assets. The ratio should rise another 65 basis points after the sales of four subsidiary banks are completed this quarter, the company said.