Opportunistic acquirers could gather in Colorado as a Denver-area bank prepares to go on the auction block.

Big Sandy Holding in Longmont, Colo., filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Colorado. To satisfy creditors, the company's bankruptcy plan, filed on Thursday, calls for an auction of its $840 million-asset unit, Mile High Banks.

"This transaction is the most effective way to recapitalize and position the bank to meet its regulatory requirements," Dan Allen, Big Sandy's president and chief executive, said in a press release.

The notion of entering bankruptcy and selling assets has been tossed around as a possible recapitalization tool in recent years. Though initially dismissed, banking lawyers say that chatter is increasing because bank holding company debt remains an issue for getting traditional deals completed.

"The issue of bankruptcy is a huge decision to make and it is hard to do. All that said, we are seeing more and more of it," J. Brennan Ryan, a partner at Nelson Mullins, said in an interview. "I think eventually that the stigma associated with it will reduce."

Big Sandy said that Strategic Growth Bancorp in El Paso, Texas, has agreed to buy the bank in the court auction for $5.5 million. The buyer would also infuse $90 million of new capital into the significantly undercapitalized bank. Big Sandy executives did not return a call for comment. Strategic Growth declined to comment further than to say the company planned to apply to the Federal Reserve Board for permission to acquire Mile High Banks.

Banking observers say the bank could draw attention from other bidders. The bank has significant issues with asset quality, but its 14 branches in Denver and surrounding areas may whet the appetite of other potential buyers.

"There will absolutely be other bidders. All you have to do is look at the bidding for Bank of Choice and Community Banks of Colorado," Adam Fiedor, a principal at St. Charles Capital in Denver, said in an interview. "There is a demand for a Denver-Boulder footprint and that is what they have."

Bank of Choice in Greeley, Colo., failed in July 2011; it received seven bids from two bidders. Community Banks in Greenwood Village, Colo., failed in October 2011; it received 12 bids from four different bidders. National Bank Holdings in Denver was the winning bidder for both banks.

To be sure, Mile High's planned sale is different than the failed bank deals. Those auctions were part of resolutions handled by the Federal Deposit Insurance Corp. Mile High is an open-bank transaction that will be overseen by the bankruptcy court.

Fiedor's comparison, however, involved their markets, rather than the deal structures.

"Core Denver is very attractive," he said.

Several industry observers said that National Bank could emerge as a bidder for Mile High Banks. The $5.8 billion-asset company, which went public on Sept. 20, has $350 million of excess capital and is aggressively looking for acquisitions. The company did not immediately respond to a request for comment.

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