Hundreds of community banks in trust-preferred limbo now have an example of the worst-case scenario if they fail to reach an agreement with debtholders.

American Bancorp. in St. Paul, Minn., last week became the first lender to be forced into bankruptcy over trust-preferred securities. American entered liquidation when a group of companies that manage collateralized-debt obligations backed by the bank's trust-preferred securities pressed for involuntary bankruptcy to collect on $48.1 million in debt and unpaid interest.

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